The Payments Experts Podcast
Expert payments attorneys discuss the electronic payments industry from a legal perspective.
The Payments Experts Podcast
Exposing Bank Practices: Merchants vs. JPMorgan Chase Bank's Reserve Ratio Tactics | PEP038
E-commerce merchants are grappling with the financial repercussions of major banks like Chase withholding funds under dubious circumstances. This episode highlights the frustrations faced by merchants, the lack of clarity in banking transactions, and the urgent need for transparency and advocacy in navigating these challenges.
• Discussion of issues with funds being withheld by Chase
• Examination of labeling deposits as fraud without specifics
• Overview of the emotional toll on merchants facing uncertainty
• Importance of transparency and communication in banking relationships
• Call to action for merchants to advocate for themselves
A payments podcast of Global Legal Law Firm
Think about the waste, right. I mean, like, because, look, this is not a great client relationship when something that we believe should be so easy, right, turns into this real adversarial proceeding and we all have no explanation for the client and they're forcing us to spend a lot of money to be able to just get something that already belongs to them. And now it's turned into litigation and it looks. I mean, I can't wait till you edit this, because the first person I want to send it to is the Chase lawyer, so that just to go look, dude, we're out here and we don't understand. Please provide us.
Speaker 2:Look, when you plead fraud as an affirmative claim, there's something called specificity that you provide. You can't just say fraud, you have to say the type of fraud. Is it an intentional misrepresentation, is it an omission, right, is it? You know, like you're trying to induce somebody to do something, like you have to say that and then you have to give specific facts. Yeah, you've got to be very specific the who, what, when, where, why and how. But they want to use fraud as a defense and not provide any of the who, what, why, when, where and how. There's nothing. They provide nothing.
Speaker 3:Welcome to the Payments Experts Podcast, a podcast of Global Legal Law Firm. We hope you enjoy this episode. Today is our love letter to Chase Bank.
Speaker 2:Yeah, or any bank. I mean, we've had a couple of cases come our way which I'll let Bryce kind of run through. Yeah, I think I'm just going to be like the color guy today, but you know banks that are actually the settlement deposit account banks merchants are equally having issues with related to deposits that are going into their bank accounts where the transactions are being settled to, transactions are being settled to. Interestingly enough, on that, this is probably primarily related to e-commerce merchants more than anyone else, because I think that's the only examples that we've seen. I could be wrong about that, but go ahead and take it away, bryce.
Speaker 1:Well, it just, you know, we get merchants all the time who are having problems with banks, that are withholding their funds, but recently, for the past year, but they've really been swinging up by the end of 2024, is that Chase is just grabbing money and not really explaining why. It looks like anything that they don't understand they label as fraud, which I guess gives them the ability to take your money, move it away you don't know where it is and then you have to fight them, but their entire system, I mean. I've worked with Chase a long time and there are some genuinely good people to work with. If you can identify them. Normally you're going to have to go through something called the executive office and I've really, really gained an understanding and a lot of sympathy for merchants because they're really swimming against the tide. Everything that Chase does is designed to obstruct you and that even carries over to us. Carries over to us, like, like one of the one of the ones that I, that I love and I know Jeremy knows this is that they'll. You know we'll. We'll send inquiries, because we always try to resolve stuff without litigation.
Speaker 1:Litigation is time consuming. You know, these people need their money, like right away. If we initiate litigation, it's going to kick it out at least a year and a half and and they may not even get anything because of the right of of offset. But they'll do things like so. When I reach out to them and say, hey, you know, can you explain to me why you know you did this first off, they won't. They will have to send a letter. They'll never respond to the letter. We'll get a phone call that says hey, this is the executive office, we got your case and we're looking at it, but they never identify what the case is. They never identify who they're talking about. And then the true icing on the cake what happened recently was I got a letter about a match client and they said well, you know, they violated 10.3 of our agreement. And here's the agreement. And it was the entire agreement except for the one page.
Speaker 2:Yeah, the agreement itself didn't have a section 10.3.
Speaker 1:It didn't have the page. It didn't have the page and and I I have to like, I have to believe that somebody is actually making that decision, like it's being done intentionally. But you know, back to where we're at the. The first case that really got me upset was this guy had a bunch of money. It was being transferred over into a merchant account, which is the account where all the proceeds of your sales go to, and Chase was the depositor.
Speaker 2:The deposit account yeah, the DDA in industry speak which is the merchant's bank account where the proceeds from the transactions actually get deposited.
Speaker 1:To Correct, it's what the merchants take, right.
Speaker 2:I mean basically, but it's not the merchant account, because when you conflate merchant account in the world that we live in, call it the DDA, it's the direct deposit account that the merchant has outside of the merchant processing relationship, where the proceeds from the electronic transactions get deposited. Yeah, the merchant is part of the merchant processing relationship where the proceeds from the electronic transactions get deposited.
Speaker 1:Yeah, the merchant is part of the deal. So you know various banks were sending in the money, but there are. When you look at your bank statement and a deposit comes in, it will have a descriptor that just describes where it's from, why it's there, why it's being deposited. Well, these banks were choosing as the descriptor. These guys have multiple websites, all making sales, so they would take the website and they would use it as a descriptor. Now, the banks were choosing to do this.
Speaker 2:Well, that just didn't make any sense. Let's clarify, because I think it's important, because a lot of the merchants aren't in this industry. They don't really know this is really merchant facing.
Speaker 2:It's fine. Bryce says bank, he means acquiring bank. Yeah, so when you go in and you're an e-commerce merchant and you apply for a merchant account, if you have a website that sells products or services generally speaking, one website, one merchant account. Now, a business can have multiple web domains that they sell products through. They might all have their own merchant account. There's a reason behind it. They try to prevent load balancing. It's there's a decade ago.
Speaker 2:But what ends up happening is is that whoever is boarding your merchant account, after you have received the application and it's been approved, they're giving this descriptor, really based on trying to align the web domain with the merchant account, so that when a merchant actually gets a sale, when the cardholder gets their statement, it's going to have a descriptor on it that relates to the product or the web domain or something along those lines, and it's really to correlate so that there's no chargebacks from the cardholders to the merchant, the fact that there's this online transaction taking place and the descriptor matches something in line so that the cardholder reads it knows, oh yeah, I bought that online and they don't dispute that transaction.
Speaker 2:The problem that Bryce is speaking of right now is that when the acquiring bank now takes the proceeds from those transactions, assuming no chargebacks, and deposit that to the merchant's bank account. At Chase that we're talking about here, they use the descriptor, and the descriptor is generally not the legal name of the actual account holder. It's usually aligned with the product being sold through the merchant account, and so you've got this disparity between here's the actual merchant account, here's the descriptor name associated with the merchant account, here's my merchant application. All of this stuff is written on it. This is what correlates to the deposit that's being made into my bank account.
Speaker 1:But that has not been accepted by Chase. Well, yeah, and I appreciate that, because I'm dealing with this too much, so I'm probably having a hard time articulating it now. But long story short, the merchant had nothing to do with the deposit whatsoever. This was the two banks who, I guess, could not understand what they were doing, but they decided that it was fraud. They call it. And then they don't understand. They call it fraud and they just took the money. We don't even know where the money is and the biggest deposit was close to $100,000. It was from Maverick Bank. They deposited the money to Chase. The merchant went to Maverick Bank and asked them to contact Chase, and they did, and they legitimized the charge and said if you have a problem with this, just send us the money back and we'll handle it.
Speaker 1:On our side Won't do it. Refuses to accept reality. We have showered them with information about. You know what is really going on here? There is not interested and the only the only person I can talk to about this is the attorney. I get the impression that he's not even getting any feedback from Chase. It's just somebody in the back office of risk. That the shadowy you know.
Speaker 2:Well, it goes back to like yesterday's podcast, where I talked about AT&T.
Speaker 3:Yeah, this we you know well, it goes back to like yesterday's podcast where I talked about at&t.
Speaker 2:Yeah, this is very similar to like the architecture of at&t. It's you know, chase is sitting there pointing it was crazy. So we're we're in this case right now. So this is most of this public record. Yeah, we, we actually propounded discovery. Chase sent us discovery back and in the documents that they produced, there were actually hyperlinks in those documents reflecting other documents that you could link off to which weren't provided to us. And we went back to Chase's attorney and said hey, here's all the stuff that we want. It's obviously related to the documents we're asking for, because you gave us these documents and you have hyperlinks to other documents. So I can't imagine that you put something unrelated on there. We asked for him. He asked for like three more weeks beyond the amount of time that he's supposed to have.
Speaker 2:It's this whole idea of delay, delay, delay, and I don't know. I don't know necessarily what the purpose of the delay is whether it's to keep the money, because ultimately there are laws on the books that if there are unclaimed funds in an account, that those unclaimed funds they have to go back to the state at some point in time. So in California I think it's three years, I don't know if it's different from state to state or this is a federal law I'm out of my depth here but they can't just keep the money. But, as I said on yesterday's podcast, the way that banks operate is there's something called a reserve ratio, so they're allowed to lend out a portion of the money that they have in deposit accounts on hand. So if they're holding $100,000, they can take $90,000 or $90,000 and they hold those funds for two years.
Speaker 2:They just made an added $18,000. That's in the account or wherever it is. Is that, at least from our perspective? If it goes back to the state, they get a free three years of use of this money. So just think about this. Not that $90,000 is a small amount of money, but when you look at deposits, they can make an additional $27,000 over a three-year period. Assuming that example and it is I don't know if this is entirely by design, but based on the fact that we've had multiple people come out of the woodwork with this exact same problem we just got another one.
Speaker 1:They're holding 450 000 and they will not budge, and the merchant has been trying to resolve this for at least a year before we got a vote yeah, totally, and we she couldn't get an explanation, we can't get an explanation, so we're we're gonna file, because it seems like the only way that you're gonna get any kind of feedback is, if you like, institute court mandated deadlines for a response where they're absolutely forced to respond, and even that is pulling teeth and but again, it's just a a total waste of money for the merchant who has to file just to get a question answered.
Speaker 2:I mean this is even more egregious than something like a match placement, because to me, look, if you can't transact electronic payment or card payment at this point, I think it would be tough to be in business For e-commerce. It would be tough to be in business, okay, for e-commerce. It would be impossible to be in business, right. But if you can't even trust a bank to handle the money being deposited on your behalf into the bank based on a legitimate business purpose, they open the bank account. Whoever opens bank account, there's a person behind it. All that bank account, when you open it, has to meet finson regulations and any patriot act regulations, and so they know who the account holder is. The only thing that they're questioning is what's the source of the funds and for what purpose. But when, when you have somebody like the ISO who's working with a sponsor bank, who's settling transactions, just settling that same money that the acquiring bank is already approved on an electronic transaction which hasn't been charged back at all, and then chase is coming down. And what makes it more egregious about chase is this isn't just some bank right, this is a national bank. They're in the payment processing realm. Payment tech still exists. I don't know how many people use it. But payment tech is still a payment processor and that's the payment processing arm for Chase. So it's not like Chase doesn't know how all of this works. So it's not like chase doesn't know how all of this works.
Speaker 2:So yesterday's podcast I was a little bit more on. Uh, hey, not everybody's a good actor and yada, yada, yada. But to me this right here yeah, you know in my vernacular that I speak with on a daily basis. This is fucking bullshit. That's the only way that I can like describe it right, I mean and and and you want to talk about merchants being.
Speaker 2:You know, imagine you're a merchant right and in your bank not your payment processor, not money that you haven't gotten your bank is holding four hundred and fifty thousand dollars. How are you supposed to operate? Yeah, you can't like it, just does I mean, unless you've got gobs and gobs of money, I and and where would you have the confidence? I mean, think about cash flow concerns, think about the ripple effect. That goes on. And the crazy part is is that, again, banks, the dirty, dirty people they don't care, they just don't care. The Chase attorney it's a joke. Talking to the Chase attorney Like, really, this is the best that you can offer.
Speaker 3:And how many thousands of merchants, Chris, do you think fall into this category?
Speaker 1:I don't know. I mean, look, I think it's an epidemic. To be honest with you, Merchants just don't know that they have an out and they figure, if I wait long enough and I play nice, they're going to see the error of their ways and they're going to release the money. And from where I sit, that day's just never going to come.
Speaker 2:I mean we're in a litigation case where we have go to people that we know that charge a hefty hourly fee right To have an expert who is an expert in underwriting and risk management associated with the operation of an acquiring bank and an acquiring program explain how e-commerce works to a bank that does this. This is the joke about it, and you know like I hate to put it out there. I mean Chase's attorney. He seems like a nice fella, but we told him look, dude, this is going to be the subject of a podcast at some point and it would probably help Chase if this was going to be resolved, because this is one that we're going to blast everywhere, right, and it is happening, and there is no justifiable response that has been provided as to why this money is being held, despite tons of cooperation and evidence by the merchant to alleviate this issue. The merchant's bending over backwards right now. I mean, I guess the next calls to your senator or your congressman.
Speaker 2:I don't really know what it does to move people. I mean, is it the CFPB? Is it the FTC, which even then I'm not really sure you're going to get a lot of movement unless there's, like you said, an epidemic. I don't know, but this one, I thought, was really unfair, patently unfair, egregious, especially when we had the partner to the acquiring bank, maverick bank card, operating in good faith, wanting to help the merchant going. Just send us the money back. We're a legitimate business Like. There's no way that you can say that we're not Right. Just send us the money back so that we can work with the merchant to get this handled Right. Wouldn't even do that, not interested, with no, no reason whatsoever other than this nebulous word called fraud, this nebulous word called fraud, even though the person sending the deposit, who's tied to a bank is, is saying no, this was legitimate. I don't get it.
Speaker 1:I mean, I got to figure it's at this point. It's ego. I mean, that's the only thing that makes sense. But you know and like, and again they just obstruct you, like in the case. In the first case we discussed he was. He was told that if he was able to verify that you know his identity, he would be able to get the money. He went to like three different banks and verified his identity with them, gave him driver's license, birth certificate, whatever, and went back and just basically sat there in the dark and waited for something to happen. That was never going to happen. It still wasn't good enough. So your point is actually what is the point of just making this merchant run around? I mean, is this how you get your jollies? Well, I mean think about the waste, right?
Speaker 2:I mean, like, like cause. Look, this is not a great client relationship when something that we believe should be so easy right Turns into this real adversarial proceeding and we all have no explanation for the client and they're forcing us to spend a lot of money for the client and they're forcing us to spend a lot of money to be able to just get something that already belongs to them. And now it's turned into litigation and it looks. I mean I can't wait till you do edit this, because the first person I want to send it to is the chase lawyer, so that just to go look, dude, we're out here and we don't understand. Please provide us, and we don't understand, please provide us.
Speaker 2:Look, when you plead fraud as an affirmative claim, there's something called specificity that you provide. You can't just say fraud. You have to say the type of fraud. Is it an intentional misrepresentation? Is it an omission? Right, is it? You know, like you're trying to induce somebody to do something Like you have to say that and then you have to give specific facts. You got to know who, what, when, where, why and how.
Speaker 2:But they want to use fraud as a defense and not provide any of the who, what, why, when, where and how. There's nothing, they provide nothing, and it is absolutely ridiculous that we're at the point that we're at and we can't get any movement at all, at least to even respond. What do you want us to do? Just tell us what do you want us to do. What can we do? Right, they won't even give us instruction to get the money back. Look, I mean I don't care, it's I. Look I, I mean I, and look, I don't care. I will say, from our perspective, the only people that have brought this issue to us are chase customers. Yep, now I don't know if other banks are doing this. I don't want to, just, you know, hammer on banks that that may be acting in good faith, but this seems to be a repeated issue with Chase that they don't necessarily want to resolve and that should raise some questions, absolutely.
Speaker 1:So if your bank took your money and won't tell you why, call Jerry.
Speaker 3:Exactly Well you know, if I can just add something here, just anecdotally, because I do I talk to a lot of these, you know before. They're even clients of our firm. They're calling with these issues. I talk to them almost every day, not, you know, always. They're even clients of our firm. They're calling with these issues. I talk to them almost every day. Not, you know always this particular thing, but they have a belief and a trust in the system. Chris, you touched on this. They think hey, well, I was told by some customer service agent two days ago my money's going to come in 60 days, so I'm just going to wait it out.
Speaker 2:That's called the that. So in every contract, right, there is this doctrine of just good faith, that there is an assumption that people are operating in good faith. Right, because there's, there's and commerce that you can trust are doing downright dirty shit with no explanation associated with it. It really makes you wonder, right, and the thing about it is is that there are a ton of just regular people out there, right, like we had an election that just took place where I think what swung the election was the regular people in our country voicing what they wanted. And the fact is is that these are regular people that are being harmed by these huge institutions with no rhyme or reason. Look, if some of these merchants are bad actors and you can show that they're bad actors, or they can't provide the proof that they're a good actor, and that request for proof is reasonable, fine, the chips fall where they fall. But when you get obstruction, the way that we're seeing in this particular instance, you've got to think bad faith, we just don't. What's the other plausible explanation? I don't know.
Speaker 1:Well, you know it's funny. The saying is like, what? Like? 98% of businesses fail in their first year, and I used to, you know I'd hear that I'd be like, wow, being a merchant must be really hard, and I think that it is. I mean, everybody's got their hooks into you. But now I'm starting to think 98% of businesses fail in their first year because so many people like dig their hooks into you that you can't survive. The system is designed where everybody gets their cut but the merchant and the merchant is forced to just like take the scraps and hopefully they can generate enough revenue to stay afloat, but it is not guaranteed and the deck is just holy crap.
Speaker 2:I mean think about it Taxing agencies, vendors, processing fees. I mean fines, penalties With no explanation.
Speaker 1:I mean it's just like. When does it end? I mean, is this the only way you guys can make money? Is this really what you want to do? I mean, isn't it better?
Speaker 2:Or like what you want to do. I mean, isn't it better or does it take senate oversight or some sort of congressional action to make you act properly? And even then you really don't, because there's numerous investigations and civil enforcement actions that happen. I mean, look, I I don't want to paint a brush that, like all banks are bad okay, I don't, but my experience is that banks are unforgiving and unyielding when it comes to what their desire is, which is to just make money. So I don't, you know, I don't really understand. I like fraud. Fraud is having a smile on your face when I come into your account and you open it for me and then then you won't give me my money when or tell me how to get my money back, when I legitimately can show you. And the lengths to which we're having to go in these litigation cases is absurd. It just really is.
Speaker 1:Well, and they also. You know, I understand that banks are risk averse and ultimately it's all about, you know like, protecting their, their relationship with the card brands, because you know, if a bank loses.
Speaker 1:This isn't about the card, yeah, but the point I'm trying to make is that it's just. It's just creates an environment where it's considered OK to just shoot first and then not even ask any questions, because they're like this is just one merchant, we're this huge bank, you know, we'll worry about him when the lawsuit hits, hits our, our desk, and and and the. You know other than that, we, we, they, I, we. I know I say this to my clients all the time because they're like well, why? Why is this case not moving? Is because because they have absolutely no incentive to talk to us.
Speaker 2:Interestingly enough, this same business activity in the healthcare world just got some dude popped on the street.
Speaker 1:Yeah.
Speaker 2:So people could get angry. Who knows? I mean I'm not advocating or fomenting it, but you will see, to the lengths that people are in, that guy might have just been crazy, but the despair that it could put people in. Where there's just this automatic denial of anything and everything, even when it's done legitimately and in good faith, people may get angry. I just look. I mean there are real world consequences to some of the things that we're talking about. Like you know, like you know, the mortgage crisis Banks got bailed out left and right, absurdly Right, but yet when they're putting people potentially on the street and making them wards of the state because they can't pay their bills, because the money's being held for no legitimate reason, free market.
Speaker 1:Whatever it's, free market when it's the merchant or the individual, but when it's the bank who made awful decisions, predatory decisions yeah they're too big to fail. We have to bail them out. We have to bail them out.
Speaker 2:Yeah, well, we'll see.
Speaker 1:Anyway, we're there, we're there, we're finally there and we're doing something about it.
Speaker 2:So, if you're in e-commerce, I guess the message besides this just being a venting session, and maybe this will spur some movement in Chase, who knows is be careful of your banking partner. You know, I mean, we're a law firm and we don't do business with a big bank, we do business with a small you know, really regional bank that is great at customer service. You know, really regional bank that is great at customer service that they have all of the bells and whistles related to anything that we do. As far as I mean, look, if I want an ACH to go out, they require a call to me and that kind of layer of security in this day and age. Fine, take 15 seconds of my time and everything's actually been determined to be safe. Right, but you know, I specifically won't do business with a big bank, even personally, because of things like this, absolutely.
Speaker 1:Absolutely Well. I think we beat this to that. Yeah, well, you know, I think it's a conversation, you know if anybody has any questions you know or any wants to vent, give us a call.
Speaker 2:My hope is that Bryce will stop coming to my office about these cases because we did this.
Speaker 1:I want to share, I just want to share. I hold it all inside. You know what it makes me think of.
Speaker 3:It makes me think of those commercials. I wish we could run a commercial where it's like have you been? You know the?
Speaker 2:victim of chase bank regarding xyz and start getting phone calls.
Speaker 1:Yeah because I wonder how many have you been the victim of visa? Yeah, I know. Or or for the, for the old school california merchants like bryce vandiver got $2.1 million yeah, yeah, yeah. I'll be the Larry Parker of banks. It's not Larry Parker anymore. He died the sweet guy. He died James Sweet.
Speaker 3:James, sweet James, sweet James, that's it, that's it. He just billboarded everywhere. Yeah, exactly, total free advertising.
Speaker 1:We love you, sweet James. Anyway, I think we'd be this dead, but I think we've made our point.
Speaker 3:All right man. Thank you for listening to this episode of the Payments Experts Podcast, a podcast of Global Legal Law Firm. Visit us online today at globallegallawfirmcom.