May 03, 2012

Question for Steve

Again,  I am just getting very confused with this credit card reimbursement law.   Let me give you a hypothetical:

  1. You and I start a company
  2. We buy a credit card machine.
  3. We get 50 people to buy 10,000 worth of supplies that they never get
  4. We collect 500,000 from the credit card processor less fees
  5. We file bankruptcy the next week
  6. All 50 people file claims based on the law you told me about since they never received the product and they all get their 10,000 credited back to their card
  7. You and I leave the country with 500,000


Steve Foley said...

The credit card companies (the processor and the issuers) end up holding the bag.

Now, it's unfortunate Jetpay opened themselves up to so much exposure without properly insuring against the potential loss, but that's what they're in business for. The same goes for BOA, Citi, Chase, and the rest of the issuers.

The customers get the refunds from the issuer (BOA,Citi,Chase) and the issuer chases the processor for the refund. The processor chases the merchant for the refund.

The laws are written with the consumer (customer) in mind - hence the term consumer protection laws.

The credit card companies are the ones making all the money on these transactions, and are the ones holding the bag when someone (merchant or consumer) goes under. That's one reason they charge the merchants 3.5 to 6% of the sale as a processing fee, and the consumers 29% (I've heard of up to 54%) interest.

That is the business they are in, and risk is part of that business.

Bill Randell said...

So you are saying that we could do this??

Steve Foley said...

You'll need to find someone else. I'm not interested in committing fraud.

Bill Randell said...


My point is that if what you are saying is true this would be getting done all the time.


Brendan Melican said...

It is done all the time, Bill. But when you get caught you'll catch a federal fraud charge as you just outlined your hypothetical scheme on the internet.

In the case of a legitimate business its written off as a loss and the world goes on. We're not all paying these insane transaction fees because its a cost of doing business, but as a form of private insurance as Steve outlined.

Not an identical scenario but here's a credit card fraud charge just this week from Ortiz's office.

Credit card fraud remain one of the easiest types of grifts imaginable.

Steve Foley said...

When I opened a merchant account with W.C.I.S, I had to fill out an application. Mechanics bank would not give me one because I didn't have three years of financial history for the business.

W.C.I.S. gave me one because I owned a home and was unlikely to abscond with their money.

If a new business were to suddenly deposit 500 $1000 transactions, I suspect the bank would put a hold on the deposits.

If there were ten $1000 transactions processed in your store, it would certainly raise a red flag.

The DA scheme would be more like you keeping emptying the contents of your cash register every night for a month then fleeing. You could probably manage that.

Bill Randell said...

great input

Anonymous said...

Just went online today 5/4/12 T&G online @ 12:55pm and in a story publised 8 minutes ago story about Direct Air owing millions but only having roughly $232,000 in assets.

Good concise story. May answer some questions here.


Steve Foley said...

The new filing contains a list of consumer creditors. The list is over 3200 pages!!!

Jahn said...

This is news? Ya, OK I guess it is news that rises to the level of being Saturday front page material.

Once again I reiterate, the City Of Worc's finances and inablity to meet pension, health ins, and other prospective claims pales in comparison to this penny ante, chump change pre-paid travel agency scam.

Where's the parity in teh news coverage? Half a Billion $$$$ plus unfunded liabities for teh city and a mere....what??? $50M for DA. I mean god thats at best 10% of how much the city is upside down.

OT, how much in add'l borrowing cost PER DAY is the inability (incompetence?) of the city's dept of administration and finance to get their tasks completely timely costing us? I mean this is like a city hall branch of the post office.