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If you are a business owner looking to get started offering debt consolidation services, you will have a journey of ups and downs. On the upside, you will have a lot of potential customers. More and more households are in debt of some kind and are looking for help. While on the other hand, this industry is risky. The infrastructure of your business needs to be solid before you begin and that takes time. In addition to that, your market risk is still elevated because of the space you are doing business in. Stressed out customers, the potential for fraud and chargebacks, and federal regulations are all hurdles that need to be addressed as you continue to grow and scale. For these reasons, debt consolidation businesses are found to be high risk in more ways than one. Find out what makes you high risk, what tactics you can do to help mitigate that risk, and how that will affect your debt consolidation merchant account moving forward.
Debt Consolidation Industry Due Diligence
There are a set of rules that debt consolidation businesses need to abide by which try to make the industry more fair for your customers. But because of this, it is much easier to find yourself functioning outside of these rules and heading for trouble. Know these rules so that you can be sure to stay compliant:
- No fees can be charged before the customer settles or reduces a debt.
- All proposed fees must be disclosed as well as the refund policies. Estimates and potential fees do not count.
- An accurate time frame for services must be provided based on their debts and payments.
- An estimation of how much money will be required to settle their debts.
- Any potential negative credit effects must be disclosed.
Each of these stipulations must be taken care of in order to continue complying with U.S. debt consolidation law. The only way to be sure that this is covered is by putting the systems in place to make sure that it happens. Outline a system of services that you will go through with each new client and cover all of your bases.
Friendly Fraud and Chargebacks
The debt consolidation industry has a distinct issue with fraud and chargebacks. Customers are already in precarious debt positions and may sometimes do things that are untruthful to get ahead. Friendly fraud is another phrase for the term chargeback. A customer receives the services of a company but attempts to get their money back by reaching out to their bank for a refund. Many times this tactic works, but at the expense of the debt consolidation merchant account. When issues like this come up, no matter if the customer is being truthful or not, your merchant account is penalized. This may lead to the amount of the chargeback being reimbursed to the customer or a total account shutdown.
Without procedures in place this can be a real issue for businesses in the debt consolidation industry.
In order to prevent and lessen the impact of friendly fraud and chargebacks, you will need to keep records of all customer interactions. If you have proof that a customer received services, you will have a better chance at settling with the bank about the charge.
Another way to mitigate this risk is to implement chargeback protection software. This way you will be the first to know about potential chargebacks and be able to resolve them before the bank even finds out. In an industry so prone to this risk, an application such as this can be indispensable.
The most grassroots approach to preventing merchant services fraud is to be responsive if/ when a customer reaches out to you. Provide your contact information such as a phone and email address on the site in an easily accessible place. This will nip in the bud many issues that can be much worse if not addressed.
eCommerce Debt Consolidation Businesses
Online businesses, across all industries, have more risk than brick-and-mortar stores. Debit and credit card transactions done through an online payment gateway have little in the way of preventing fraud. There is no ID verification or signature required. Anyone can purchase products and services online with someone else’s card information. For this reason, banks and credit card processing companies hold online businesses at arm’s length until they see that you don’t have issues with fraud. Basically, you’re guilty until proven innocent.
Mitigate the risk of eCommerce
Help mitigate these risk factors by implementing 2-factor verification or any extra step to make sure that the cardholder is the one making the purchase. This is most often done through the high risk payment processors that set up your debt consolidation merchant account.
Debt Consolidation Businesses are High Risk
The best chance that you and your business has to measure and reduce the risks associated with debt consolidation is to find a high risk payment processor that knows what they’re doing. Not just any processor can handle your business type. Only a dedicated and equipped provider can give you the tools you need to survive.
Finding a high risk provider shouldn’t be that hard, but here are a few questions you should ask before signing up.
- Have you dealt with debt consolidation businesses before?
- Do you have a banking relationship that can support by business type?
- What risk mitigation tactics can you implement to keep my account safe?
Feeling comfortable with the entities that process, approve, and disperse your transactions is important. Find someone who is capable of supporting you as you continue to grow and scale your business.