Our company sells it's specialty clothing directly to customer via it's catalogs and web site. A typical customer order is for 2 to 3 clothing items and is worth $90 to $100. Approximately 98.5% of orders are paid for by credit card.
On September 6 after soliciting a number of proposals to act as our company's credit card processing service, we commenced processing with First Data Merchant Services. (We were introduced to First Data by Card Service International, an independent sales organization representing First Data). As part of the contractual process, our company submitted a business plan, financial statements and other information to First Data for their credit underwriting approval. Our company was approved and commenced processing through First Data with no need for a collateral account.
In October our company was contacted by Michael Aufiero, a Director of the Credit/Risk Management department of First Data Merchant Services, and informed that First Data had now determined that our company needed to fund a collateral account. As this was an extremely short time after being approved for processing without a collateral account, I inquired and was specifically told that First Data Merchant Services applied different underwriting standards after a company became a customer than when First Data was trying to win business, i.E. They did "bait and switch" on the need for funding a collateral account.
As a result of this "bait and switch" our company gave notice of termination to First Data on November 28. At that time, First Data had withheld $24,036 in processed funds as collateral. Our company signed a contract to commence processing with a different processor (with no need for collateral) that same date.
In order to switch to the new processor, our company had to undergo a significant technology change which took a number of additional months. During this transition time, our company continued to process with First Data Merchant Services and First Data sought to increase the collateral withheld from 15% of funds processed to 50% of funds processed. After providing some additional requested information, First Data agreed to grant an "exception" to our company and to continue withholding "just" 15% of funds processed. On January 14 when the collateral balance had grown from $24,036 to $138,197, First Data agreed to cease adding further to the collateral balance.
On March 13, our company's new technology was ready to go "live" and the company was able to cease processing with First Data. One month later, on April 13, our company requested a return of the $138,197 collateral balance but was informed this would be reviewed 60 days after processing had been completed.
A few weeks after the 60 day review period, on May 27, our company was informed by First Data that the collateral would be returned within 3 to 5 business days. Subsequently, on May 29, our company was informed that First Data had changed plans and now decided that only 50% of the collateral balance or $69,098 would be returned, that the return date had been moved back to June 15 and that the status of the remaining $69,098 would be reviewed in another 3 months, i.E.in late September.
On June 17, after not receiving any funds on June 15, our company was now informed that an amount of $50,000 would be returned shortly.
During these discussion, our company was informed by First Data that only 1 charge-back for $500 occurred in the 3 months since our company ceased processing with First Data. This is consistent with our company's prior history of 8 to 10 charge-backs per year out of 100,000 transactions. Our company believes sufficient time has now passed for First Data to be highly confident that there are no other material remaining charge-back issues from the transactions they processed for our company.in other words, there is no good faith reason for First Data to continue holding our collateral balance.
Our company now feels First Data has revealed a consistent pattern of acting in bad faith with us - starting with their bait and switch on the collateral account and continuing through their efforts to punish us for terminating in response to their bait and switch. Our company is a small company in comparison to First Data which has approximately $10 billion annual sales. At this date, more than 3 months since we finished processing with them, our company still has not received a return of any of the $138,197 collateral balance from First Data Merchant Services.
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