Minnesota Attorney General Lori Swanson's office on Wednesday sued Texas-based Apex Merchant Group LLC for using "bait and switch" tactics against small businesses.

The company promised the businesses it could save them money on credit card processing services, before hitting them with higher undisclosed rates and cancellation fees, according to Swanson.

In some cases, Apex fraudulently altered the terms of signed contracts by later inserting new pages with new terms not agreed to by the small business, locking them into long-term contracts.

Apex has contracts to process debit and credit cards for more than 600 small companies in Minnesota.

"Small businesses employ over half of our employees and often operate on thin margins. They cannot afford to be ripped off by credit card servicers," Swanson said.

Minnesota small businesses that signed up with Apex specifically reported that it engaged in the following misrepresentations:

  • Apex represents that it will save small businesses money on their credit card processing costs, but many small businesses indicate they paid more to process credits cards after switching to Apex.
  • Apex promises that it will charge certain rates and fees, but then fraudulently alters the signed contract to change the terms of the agreement and/or increase the fees. In some cases, Apex altered the “transaction fee”—or the fee the business pays each time a customer uses a credit card—to increase it by as much as double.
  • Apex tells small businesses it will buy them out of their current contract or reimburse their cancellation fee if they switch to Apex. In one case, Apex took almost two years to reimburse the cancellation fee of one Minnesota business. In other cases, Apex refused to reimburse the cancellation fees entirely.
  • Apex represents to small businesses that its contracts do not contain an early-cancellation fee and that the business can leave Apex at any time without penalties. In fact, Apex’s credit card processing contract contains a $495 early-cancellation fee buried in the fine print, which Apex uses to lock-in small businesses for three years.

There are more than 26 billion credit card transactions in the U.S. each year, according to the Federal Reserve.
Businesses that accept debit or credit cards use a third-party processing company to process each transaction. Some businesses receive many calls and visits each week from credit card service companies that want them to change vendors.

In 2002, the Federal Trade Commission sued a seller of credit card processing services, Certified Merchant Services, that was co-owned by Craig Frankel, one of Apex’s investors and brother to Apex’s current CEO, Andrew Frankel. That lawsuit alleged that the company made misrepresentations and fraudulently altered its customers’ contracts. Ultimately, in the FTC case, Certified Merchant Services was ordered to shut down.



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