Last year I blogged about Frontier Airlines blaming their processor for causing their bankruptcy by withholding their reserves. Frontier Blames Credit Card Processor for Bankruptcy Filing and "Airlines Can Have 100% of their Credit Card Transactions Withheld!" Now it appears (the processors blame it on the recession and possible bankruptcy filings) that credit card processors such as Elavon are using the small print in their processing agreements to withhold huge sums of earnings from companies. BusinessWeek has an excellent article on the subject. Here's an excerpt regarding Angies List and Elavon withholding $2.5 million dollars. It's bad enough eCommerce companies have to pay "card not present" fees, but when the "money is not present" because companies like Elavon hold them back under the guise of "reserves" it can have severe repercussions on the business...
"The ramifications on even a well-established company can be dramatic.
"In two weeks we would have been in bankruptcy," says Angie's List CEO Bill Oesterle, whose processor, Elavon, tried to withhold a reserve of $2.5 million from his $35 million company.
Oesterle was instead able to change processors quickly, and with help from his lawyers, got his money back in about three weeks.
"The Indianapolis-based company and was growing at more than 50% per quarter as of July 2008, when Oesterle got a call notifying him that Elavon was holding on to $2.5 million in his credit-card transactions and intended to use that money for a reserve. Elavon also wanted to examine the 356-person company's financials, and cited Angie's List's surge in credit-card transactions as the reason for its concern." Editor's Note: It's called growth Elavon. You want to see their financials but you can't spend an hour on google to figure out that they've been seeing tremendous growth? If you did you'd see that they raised $35 million dollars last April...and you wanted about 7% of that cause you're worried about "refunds?"When a processor agrees to clear a company's credit-card transactions, the processor then becomes responsible for providing customer refunds. When an unhappy consumer asks their credit-card company for a refund, the credit-card issuer gets that money from the processor.
Editor's Note: Does anyone else find it ironic that a company who reports on "unhappy customers" has their credit card transaction earnings withheld because Elavon would have to refund "unhappy customers?" I wonder if they did a review of Elavon on their site....or if they put them in their "penatlty box"? $2.5 million dollars for reserves? That's waxing 'em. Elavon...Elavoff!
Read the Entire Story at Business Week
