Class Certified in Card Processing Fee Challenge

(CN) - Merchants who claim that they were milked by the companies leasing them credit card equipment can pursue contract claims as a class, a federal judge ruled.

Rainbow Business Solutions is the lead plaintiff in the 2010 suit against Merchant Services Inc, National Payment Processing and several other companies and individuals in Oakland, Calif.

The complaint alleges that Merchant Services, a card-payment processing company, conspired with card equipment leasing services to sell fraudulent equipment leases and credit card processing services laden with exorbitant fees and hidden costs.

Rather than paying for the leased equipment, Rainbow says the high costs support commissions and profits.

It also claims that the leasing companies collected purported taxes that were not actually due, and that they never sent those funds on to taxing authorities.

Adding insult to injury, the leasing companies collecting the taxes allegedly charged the merchants unauthorized administrative fees.

Sometimes, the entities collected these taxes and fees by abusing Automated Clearing House (ACH) authorizations to make withdrawals from merchants' bank accounts, according to the complaint.

Though Merchant Services and its partners settled the claims against them earlier this month, claims against the leasing companies are ongoing.

Merchant Services and its settling co-defendants had to pay $923,000 in attorneys' fees and a $7,500 incentive to each of the named plaintiffs.

The lead plaintiffs meanwhile moved for class certification, and U.S. District Judge Claudia Wilken agreed last week to organize two groups of plaintiffs.

A California subclass of the proposed SKS Post-Lease Expiration Class is defined as "all persons and businesses whose lease numbers appeared on Schedule 1." They can pursue a claim under California unfair competition law (UCL). SKS Associates is a named defendant.

The property tax equipment cost basis class, defined as "all persons and businesses who from March 26, 2006, to the present paid any leasing defendants property taxes based on a cost greater than the 'equipment cost'" to pursue a breach of contract claim and its California subclass to pursue a claim for breach of the duty of good faith and fair dealing and a UCL claim."

Wilken nevertheless refused to certify three other subclasses, one of which would have included merchants that allegedly paid more than the standard rate of Northern Leasing, another equipment service.

The others involved those that allegedly paid property tax on the card equipment cost, and those that had their credit reports inspected in an attempt to collect amounts due on a lease.

Wilken pooh-poohed those subclasses because "individual issues of reliance will predominate with respect to individual class members' reliance on the alleged fraud."

Adam Gutride of San Francisco firm Gutride Safier is class counsel, according to the ruling.

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