Bureau warns businesses of credit card laundering

The Better Business Bureau warns businesses to beware of ads like this:

Business Owners:

My company needs Mastercard,

Visa and Am Ex processing.

$1,000 per week guaranteed

commission.

As a merchant, would you extend an unlimited, unsecured line of credit to another business that could not get credit from a bank? According to a recent BBB news release, if you decide to answer one of these advertisements and agree to deposit another company's credit card sales drafts into your merchant account, that is what you have done.

You are taking a financial risk that a bank was unwilling to take a process called credit card laundering.

Credit card laundering works like this: A company that does not have a credit merchant account with a bank or credit card company recruits another company to process its credit card transactions through its own merchant account. When the processing merchant receives payment for the credit card charges, it turns the money over to the company without an account, but keeps a previously agreed-to percentage or other fee.

Banks and credit card companies typically investigate and evaluate businesses before they give them merchant ac-counts. One reason they do this is to avoid merchants considered to be at high risk of causing losses, excessive charge backs, or harm to the reputations of the credit card companies and their members.

Once an account is opened, regulations provide that a member bank may not accept deposits from any person or entity with whom there is no merchant agreement. Therefore, agreements be-tween financial institutions and merchants provide that merchants will deposit only those drafts generated by their own business.

When you agree to process other merchants' credit card charges, you take on the responsibility of paying for any charge backs, which very likely will exceed any commissions you might earn. When the banks charge you for these charge backs (and they will, since you submitted the charges through your account), you will not be able to pass the charge backs on to the business that enlisted you to process the charges.

Oftentimes, these companies know there will be charge backs, and they move away quickly before there are too many.

Many processing merchants and banks have suffered losses, a result of voluminous charge backs from laundering schemes.

If a business approaches you with what seems like a great opportunity, stop and think: "Why couldn't this company get its own merchant account?"

The answer should give you more than enough reason not to get involved with this company.