On January 12, a national bank’s merchant services division agreed to pay up to $40 million to settle a class action alleging that the bank overcharged for payment processing services. According to the November 2017 amended complaint filed in the U.S. District Court for the Eastern District of New York, six small businesses alleged that the bank fraudulently induced merchant customers to enter into contracts by failing to properly disclose rates and charges that applied to their accounts. Specifically, the plaintiffs alleged that the bank induced merchants to retain its card payment processing services by promising low card processing fees at the time of enrollment but then charged higher rates and surcharges for the “vast majority of transactions.” Plaintiffs also alleged that the bank used an “upcharge” method, in which customers contract for “fixed” processing fees, but that the vast majority of transactions are ultimately deemed “non-qualified” and charged at higher rates than disclosed. Additionally, the bank allegedly told potential merchant customers that they could “cancel at any time without penalty,” when merchant customers that canceled prior to the expiration of the contract term were charged an “early termination fee  of several hundred dollars.”
Under the proposed settlement, the bank will pay up to $40 million—and no less than $27 million—to class members and cover attorneys’ fees and expenses, service awards, and settlement administration costs. Additionally, the bank, among other things, has agreed to (i) continue to allow customers to switch, penalty-free to a newer standard pricing plan from the fixed pricing plan; and (ii) modify contract terms to allow customers to leave without termination fees within 45 days of being assessed new or increased fees.