As sales of Y2K-related products and services reached record levels
1999, banks began seizing credit card funds owed businesses, denying
organizations access to money paid by their customers. Some financial
institutions began calling customers directly, while demanding financial
records from both the Y2K companies and their owners.
“They called me at 8:30 in the morning and said our account had been
seized,” says Greg Caton, president of
a food supplier that has shipped over $3 million
in orders since last August. “They indicated fraud.” Lumen Foods
contends it has maintained a spotless merchant account with its bank
The story is the same across the country: As Y2K-related sales
skyrocket, merchants are being accused of fraud and denied payment from
banks. Even companies that have been in business over a decade — with
no credit card merchant problems on their record — are being hammered.
In most cases, the banks refuse to pay interest on the seized money,
even if that money is later released.
Banks claim to be just following procedure.
“A large increase in sales looks suspicious to us,” says Sal Caruso,
a merchant account representative from U.S. Bank. “We have to hold these
accounts for review to verify the sales are real.”
To conduct such verifications, bank employees call customers and ask
if the sales were legitimate — an action likely to hurt the customer
relationship with the Y2K company.
“When banks call customers and ask, ‘Is this charge for real?’ it
makes the customer wonder what’s going on,” says Mike Adams, creator and
editor of Y2KNEWSWIRE, a free Y2K news
and analysis site. In any other industry, Adams adds, increased sales
are seen as an indicator of strength and profitability. “But Y2K
companies are looked at with suspicion.” Adams’ company had over $38,000
in funds seized and was informed by U.S. Bank merchant officials that no
specific release date could be promised.
When banks seize funds from credit card merchants, they sometimes
take 30 days or more to verify the sales were legitimate. During this
time these potentially interest-bearing funds are held by the bank, but
no interest is offered to the merchant.
Bank officials who asked not to be identified indicated these
investigations and funds seizures have nothing to do with Y2K.
“It’s standard practice,” said one official. “There is no conspiracy
here. Banks do this all the time.”
But at least one food supplier thinks otherwise.
“I believe we’re being targeted,” says Greg Jones, president and
owner of Noah’s Pantry, a popular
supplier of water filters and long-term storable food. “They’re holding
$60,000 in funds, and they’ve been holding it since the 8th of March.”
Jones describes how Card Service International, their merchant card
processing company, requested two years of financial records both from
the corporation and Jones personally.
“It’s like being strip-searched,” says Jones. “They’re asking for a
list of all my personal assets.”
According to Jones, Card Service International even called Noah’s
Pantry customers directly, demanding to know if they had actually placed
the orders in question. One customer was reportedly told by the bank
that all Y2K-related sales were being investigated.
Until now, each Y2K-related business had assumed it was being singled
out due to increased sales, but industry-wide, a pattern is emerging.
“Banks hate the Y2K preparedness industry,” explains Adams. “Because
part of preparing for Y2K is taking out some cash. It’s a direct
Adams thinks banks are retaliating by working to deny Y2K companies
their lifeline — customer cash.
“They’re trying to drive Y2K companies into the Dark Ages,” says
Adams, who adds, “And that’s funny because it’s exactly where the banks
will end up if their own computers stop working on January 1.”
At least one merchant processing company is willing to back the Y2K
industry. Don Anderson, the recently retired president of Electronic
Clearinghouse, says his company will work
with legitimate Y2K merchants to smooth credit card processing.
Anderson is also skeptical of any anti-Y2K bank conspiracy.
“I find it hard to believe that banks in general would distrust Y2K
businesses simply because they’re in the business of Y2K. But I do think
it’s an easy stretch to think that certain banks would think there’s a
high risk here, with almost all the Y2K business conducted over the
Internet, it might result in large charge-backs after the first of the
Whether Y2K-related businesses are simply considered high-risk or
they’re actually being targeted by banks, they’re being financially
harmed by the seizures. Some in the industry fear that merchant bank
seizures may actually put Y2K product suppliers out of business,
worsening the shortages already present in water filters, food packages,
generators and oil lamps. If attention to preparedness rises, the public
could be left with fewer sources for critical items.
But Y2K companies aren’t sitting still. Several sites are now openly
questioning why so many Y2K businesses are having their funds seized,
and at least one company owner is openly soliciting others in the
industry to join a class-action lawsuit.
It would be yet another Y2K-initiated court case — likely to end up
in the fast-growing mountain of year 2000 litigation that threatens to
jam our nation’s courts.