New Credit Card Processing Policies Crippling Martial Arts Schools All Across the Nation

Over the last several weeks, we’ve had several high level members of the National Association of Martial Arts Professionals contact our offices about disastrous experiences with MasterCard, Visa and their credit card processing. Basically, these huge companies have refused to accept business from school owners from across the United States. The problems have begun with pre-paid Black-Belt or Leadership student contracts and snowballed from there.”

New security and risk controls have been implemented by the card processing industry due to the difficult economic conditions and higher losses at these companies . This has impacted martial arts schools because of the extended service agreements we have with students. More of the high dollar charges have been flagged by the risk management team within the card processing company . This has resulted in funds being frozen for school owners.

When a school owner signs up for a merchant account, the agent for the card processor asks the amount of the typical transaction, the highest expected transaction and total monthly volume . The application is approved based on those volumes . In the past when the economy was doing much better, the industry didn’t have as many security and risk controls in place . In the current economy, if a school owner exceeds those volumes, a transaction can be held until it is confirmed . Unfortunately, the card processing industry has also red-flagged extended services contracts as a security risk because of the extended risk to the processor . NAPMA has proactively set up a special relationship with National Merchant Bancard to counter these unexpected problems our members are facing . This special relationship for NAPMA members ensures the processing company understands the special requirements of our industry and our members . Asked about this industrywide problem, Chief Operating Officer Toby Milroy answered, “I know a couple of folks who literally have gone belly up because their money was supposed to be there and it is just gone . This is something that I’m embarrassed to say the martial arts industry is not talking about more . They should be.”

In a recent interview with Jeff Cole of National Merchant Bancard and NAPMA’s resident expert in the financial services industry, he explained that the consumer has legally mandated protections that have caused this tightening in security. Mr. Cole said, “Basically with credit card processing, the card holder has  traditionally held most of the rights. They are the ones who are innocent until proven guilty.” As an example, if a student purchases a three-year paid-infull membership and after two years decides he is tired of karate for whatever reason, he may ask the studio owner for a refund of the third year.

"A student could consume three years of lessons, then
issue a chargeback, automatically removing three
years of tuition from your bank account!"

This double-edged sword of risk management has been disastrous for school owners. According to Mr. Cole, every merchant processing company has a right to hold your funds if you run a high ticket and you are not approved
at that level . The risk management team will hold your funds and analyze your transactions. Typically, they will either force a refund or if that doesn’t happen they will just hold your funds. Holds of six- to nine-months are not uncommon while an evaluation of your transaction history is made. The processor can also just terminate your account and your school goes on a TMF list, which means Terminated Merchant File. If your company is ever put on the TMF list you will not be able to get a new merchant account . “The bank card association will not allow the processors to signup anybody for a new merchant account if he has ever been put on that TMF list. It happens to large companies and to small companies. It doesn’t matter, “ according to Mr.  Cole.

NAPMA’s Toby Milroy reported that a funds hold was placed on NAPMA a few years ago because of the tightened security restrictions . This prompted him to establish a relationship with a processor that understood the martial art professional school industry. Working with Mr . Cole, Milroy has been able to provide the type of exclusive account support members need to ensure their card charges are safely processed without fear of holds or extended reviews . Further, the wording for the student services contracts is available to protect the card processor through this special relationship. Mr. Cole reports, “The NAPMA portfolio has been up and running very smoothly for a little over two years without any problems.”

Most schools have 25-30% of their revenue on credit cards, if not more . If this money is frozen because of a risk management evaluation over a high-dollar charge, the disruption in cash flow could be devastating to most school owners . To prevent this from happening to our members, National Merchant Bancard has a special program for NAPMA members. This program has resulting in cost savings of 10-15% for our members.

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Because the lessons were significantly discounted per the contract with the student, the school owner says no and tries to work out the problem . What that student could do is contact his credit card provider and request a charge-back because he’s only taken two years but paid for three.

The card-holder has all the rights and could demand a refund until the documents are verified with the school owner . Many times, there is insufficient language in the contract to protect the school owner or the card processor.

Without this protection, the card processor can be left with a loss.

Not only have school owners had the charge reversed for the pre-paid multi-year contract, they have also had additional reserves placed on their accounts, had their fees increased and in some cases, even had their accounts cancelled because the processors refused the risk of the extended services contract.

is NAPMA exclusive offer, go to www.napmavaluebundle.com. Jeff Cole was a featured speaker at the NAPMA 2010 Quantum Leap Boot Camp held in Orlando in May.