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Pundit’s Mailbag — Produce Industry Not Immune To Credit Card Fraud

We have received this note regarding our piece, Cash Or Credit? Which Is More Expensive?:

Your position that the poor should join the modern financial world might be workable down the road but for now the system takes extra fees out of merchants for corporate cards etc., so the people with the largest budgets are costing the merchants the most.

You didn’t mention the latest cost being passed on to the merchant, which is third-party deductions hidden in merchant settlement statement.

Twice this year Discover has allowed third parties to make deductions from my merchant account. I only found the deduction when the third party used my bank routing numbers to make a direct deduction. The third party claims that an employee authorized the deduction, but the third party does not provide any product or literature or any other way for the merchant to know that he is being billed.

I don’t expect that we can get away from credit card transactions but I do hope for legislation allowing merchants to subscribe to a minimum fee, no perks, system that allows the merchant to have a single non-variable rate.

— John F. King
King Orchards
Central Lake, Michigan

We’ve had the pleasure of speaking before the members of the Michigan Apple Committee, and John runs a pretty nifty operation:

We are a first generation family farm. John and Betsy along with Jim and Rose King and the children make up the family. Our fruit stands and orchards are located at US-31 and Creswell Road in Kewadin (12 miles north of Elk Rapids) and 3 miles east of US-31 on M-88 (near the town of Central Lake, Michigan). We love the farming life and work hard to grow quality fruit. In addition to 130 acres of tart pie cherries, we grow 10 acres of Balaton cherries (a new tart cherry variety from Hungary), 32 acres of sweet black cherries; 95 acres of apples, including 20 acres of staked high-density plantings; 10 acres of peaches; 3 acres of pears; 2 acres of apricots; 12 acres of sweet corn; and 2 acres of garden vegetables (if we can keep Rose reigned in).

The orchard is situated on the highest ground in Antrim County. Looking west we can see Torch Lake, about 3 miles away, and Grand Traverse Bay and the Leelanau peninsula beyond that. The rolling hills and ridges here were formed by the glaciers and are called drumlins. They help to allow good cold air drainage, which is important to prevent frost damage. Our proximity to Lake Michigan’s Grand Traverse Bay keeps the temperatures moderated in the spring and fall. Many people feel that the best fruit in the world is grown here in northwestern Michigan.

We will stay out of the debate on where the “best fruit in the world” grows, but we do find the King family (the Michigan fruit growers, not the singers) an asset to the produce industry. Not originally in the business, they had the guts to buy a farm, improve it with high density planting and make a living with a fruit stand, U-pick operation and a mail order program.

Although small farmers may sell in commercial quantities, the more of their product they can sell direct to consumers, the higher their profits.

Of course, a lot of these direct-to-consumer sales are done with credit cards; thus John’s particular focus on this matter.

The variable rates on credit cards — merchants typically pay a higher percentage for cards that are reward cards or other special types — is frustrating for merchants because it is difficult to plan pricing when one doesn’t know what one’s costs will be.

Still, it is not too difficult a problem. If one can, one simply assumes the highest costs and prices on that assumption — if someone uses a card that costs the merchant less, you make a tad more profit. Alternatively one can use the average cost paid for credit card fees over the course of the year — some sales are more profitable and some less, but they all average out.

We understand the inclination to have the government straighten it out, but there is little reason to believe that a flat rate, mandated by the government, would be lower than the average rate merchants pay now.

As far as the issue of third parties making deductions from a merchant account, there is something odd here. We read John’s own blog where he mentioned this problem in detail:

Yesterday I was balancing the checkbook against the bank statement. I found a withdrawal that I didn’t recognize for $49.95. It is a monthly charge put in place for a service from a telemarketer. They tricked whoever answered the phone into agreeing to something. (I know that no one here knowingly agreed to this). Here is the scary part. This company is working through the Discover Network Merchant Services company so that they made a direct withdrawal from my bank account. The withdrawal says “CHNICAL UMG*MRECHANT TE.” There is no phone number or any other way of knowing who accessed the farm’s bank account.

This had happened once before with Discover last month too. That time I saw a direct deduction from my bank account for $39.95, but there was a phone number with it and I complained and had the charge reversed. It turns out that that time a similar fraudulent deduction was hidden in my Discover Merchant Services monthly statement and I would never have found it except that the third time they were stealing the $39.95 they didn’t do it on my Discover statement but instead went direct to my bank account.

So when Patty came in, she put on her CSI hat and began investigating. Discover Network Merchant Services is allowing these companies to use their processing department to steal from us. These companies did not ever provide us with anything that I saw or know about. They only quietly deducted money monthly. Discover Network Merchant Services made my bank account and routing number available to third-party thieves. It is just lucky for us that they didn’t clean out my account. (Apparently they fly under the radar).

When I called Discover Network Merchant Services to complain, they said that it was in my merchant agreement that they could share my information with third parties. We do quite a bit of business with Discover Network Merchant Services, so I am loath to quit taking Discover card for payments, but I am really mad about this. I encourage anyone who takes Discover Card to examine their statements from Discover Network Merchant Services to see if they are paying for scams.

The two companies that I ran into were called Merchant Discount Health Plan, and Merchant Technical Solutions. Merchant Technical Solutions is apparently “sold” by UMG (United Marketing Group) out of Schaumberg, Illinois. I did not receive any benefit or information from either one of these companies. Now I am spending Saturday blogging and writing the Better Business Bureau and Chambers of Commerce to spread the word. It is a shame that we can’t interest the government in preventing these fraudulent ripoffs.

This seems to be a real problem. The best information on scams like this is typically available at Here a person who claims to be a telemarketer selling UMG products tells how it works.

Here the editor of Ripoff Report gives suggestions on how to get the money back. Mostly demand assistance from your bank in accordance with Federal Regulation E.

Certainly, in this age of electronic banking, careful attention is due to closely reviewing statements. Every withdrawal must be verified each time one receives a statement, with the same procedure a company would have to issue a check.

We don’t think we would call this a cost of accepting credit cards; the Internet is filled with complaints by companies that got charged on their credit card merchant accounts, but also on their telephone bills and via direct withdrawal from bank accounts. So this is a scam, and vigilance is required on all accounts.

You may want to forward this to your Comptroller and ask if your organization is monitoring every phone bill, credit card merchant account and bank account to protect against these unauthorized charges. Many thanks to John F. King and King Orchards for bringing this matter to the attention of the industry.

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