Hundreds of small-business owners across Washington state and the country say they were tricked into fraudulent sales schemes that locked them into expensive leases for credit-card and debit-processing machines, which they could have bought for hundreds — even thousands — less.
Calvin Rooks took a break from painting a customer’s house to consider the salesman’s pitch: For just $20 a month, you can rent one of those credit-card scanners that will let your customers swipe and charge their home repairs. If it doesn’t help your business, the salesman said, return the device in six months and find someone to take over the lease.
Rooks, who owns a small remodeling company in Seattle, signed up with Northern Leasing Systems. But when he got the bill a month later, the cost was more than double what he’d agreed to, he said, and the four-year lease he’d signed was “noncancelable.”
Rooks says his options seemed slim: Either pay Northern Leasing about $1,500 to get out of the contract, or stop paying and tangle with the company’s notoriously aggressive collections department, risking a lawsuit that could trash his credit.
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Instead, he closed his bank account and filed a complaint against Northern Leasing and a local company that processes credit-card charges with Washington state’s attorney general.
“This was all such a needless waste of time and money,” says Rooks, whose complaint is pending.
Rooks is one of hundreds of small-business owners across Washington state and the country who report falling victim to sales schemes that lock them into expensive leases for credit- and debit-card processing machines, which they could have bought for hundreds — even thousands — less.
Rooks’ complaint is among at least 84 logged by the state against three credit-card-machine leasing companies since 2005. The Better Business Bureau has logged more than 680 complaints nationwide against Northern Leasing and its affiliated companies, and hundreds of complaints against the company have been posted on consumer Web sites such as ripoffreport.com.
Most of the complaints in this state allege salespeople trap merchants into costly leases with hidden fees and small-print clauses the merchants say were disclosed only after they tried to cancel the lease.
Other complaints allege forgery, failure to provide the promised services and aggressive collection practices that tied up their phone lines with dozens of harassing calls a day.
A Seattle Times review of complaints filed in Washington showed the companies tended to release merchants from their leases if they complained to the attorney general’s office.
Northern Leasing spokesman Philip Hauserman said the 17-year-old company has little control over the independent salespeople who supply the equipment the company finances, but that it has cut ties to salespeople who generate complaints.
Hauserman also said the complaints represent a small fraction of the company’s 450,000 active leases, and are to be expected from a company its size.
While the Federal Trade Commission and some states, including Washington, have successfully sued leasing companies accused of misrepresenting their services, law-enforcement officers and plaintiff attorneys say the practice is still widespread.
“It’s one big outfit with 5 million hydra heads,” said Krishnan Chittur, an attorney who is seeking class-action status in a suit he filed against Northern Leasing in New York, where the company is based. “There’s a whole lot of them all over the country. But the modus operandi is the same.”
First, a sales call
Here’s how it works, according to merchants who have complained: A salesperson calls or drops in, and typically promises the merchant he can get them a better deal on debit- or credit-card machines that most small businesses consider key to their survival.
After the papers are signed, the salesperson becomes hard to pin down, and accountability evaporates. Calls to the leasing company typically generate the same reply: The salesman is not our employee, and you signed a contract that we intend to enforce.
The salesman is, in fact, an independent operator who is paid commissions by the leasing company and who earns monthly residuals by another company that process the credit- and debit-card charges.
When the merchant does get a copy of the contract, he or she learns it’s four pages instead of one, and the terms sometimes don’t match those offered by the salesman.
Frustrated and angry, the merchant stops paying the lease and even shuts down bank accounts to prevent the leasing company from automatically deducting money. That’s when the collections calls start.
If the phone calls don’t work, the leasing company files suit in New York, making it more expensive for businesses located elsewhere to fight the lease than to just pay it off.
Northern Leasing, for example, the company that Rooks signed with, has sued more than 17,300 merchants in a New York supreme court since 2000, court records show. Spokesman Hauserman said the company has sued about 2 percent of its leaseholders over the past nine years for defaulting on their contracts.
Mel Foster, of Seattle, the salesman who signed Rooks to the leasing contract, insisted he spelled out every detail and was not responsible if Rooks didn’t read what he was signing.
“The bad guys are the ones who don’t give full disclosure,” he said, noting he’s signed up 800 accounts during his 20-year sales career.
Foster said he typically earns about $200 for each leasing contract but makes 90 percent of his income from residuals, paid as a percentage of the credit-card sales from the merchants he signs up in a separate processing agreement.
Buyers miss the catch
Chittur, the New York attorney, said a surprising number of merchants rely on the representations of the salesperson and don’t realize they can’t cancel or transfer without paying off the lease in full.
That’s the position Lowell Parr found himself in after signing a five-year contract to lease an ATM from Lease Finance Group — an affiliate of Northern Leasing — for $199 a month.
A businessman for 20 years, Parr said he had hoped the machine would draw more people to his used-car lot in downtown Kelso. He spent about an hour with the salesman before signing the lease.
Parr, 56, said he did nothing to verify the salesman’s claims, check out the leasing company or even think through whether a cash machine would bring more thieves than customers. The machine now sits unplugged in a corner, costing about as much in a year as one of the two dozen cars Parr is selling on his lot.
“You’d think I’d know better,” he said. “It took a couple of months before I figured out this wasn’t a smart move.”
By then, he also learned he’d signed a “noncancelable” contract with Lease Finance Group and owed the entire amount covered by the lease.
“By the end of the contract, this thing is going to cost me $15,000,” he said. “The machine alone will cost $12,000. I went online. I could buy a brand-new one for $3,500. And at the end of my lease, I won’t even own the thing.”
Parr said he intends to keep paying, knowing that if he stops, he could end up in collections or in court with ruined credit.
“Twelve thousand dollars,” he said. “It would cost me more than that to have a bad credit rating.”
Susan Kelleher, consumer-affairs reporter: 206-464-2508 or email@example.com.