Bombshell
Yesterday at 5 p.m. Eastern time, LuLaRoe released an email to the back offices of all consultants. This email is enclosed here:
In this email, LuLaRoe explains that they will no longer be accepting credit cards to pay for onboarding or wholesale merchandise. They cite that CMS (the card processing company behind Old Bless who is currently suing them for breach of contract) is going to be taking 20% from all transactions run through the system via credit card. They claim that this will cause significant disruption in their operations.
The company's response is to disallow all credit card transactions that are not a part of the LuLaRoe prepaid card that was issued with the new Bless system that operates outside of the CMS platform. The company is also accepting ACH transfers from the consultant's bank accounts. Speculation as to why CMS would withhold 20% suggests that CMS may have this allowed for in their service contract with LuLaRoe- in the event of a breach of contract. Those in the credit industry have suggested that CMS is aware of something else that may be occurring within LuLaRoe including potential bankruptcy or fraud. I am unable to offer speculation on this at this time. Interestingly enough, however- the message in the back office disappeared after a few hours, and a more positive twist is being taken by mentors and uplines. Coincidence? I assume all the consultants were to forget the message accusing CMS of wrongdoing, and just follow this latest direction? The current spin on this announcement has gone from CMS is the bad guy to LuLaRoe has made this mandatory so that the consultants don't go further into debt- yet there are other mentors suggesting using the checks that come with credit cards to do a cash advance on the card. (These cash advances range in interest rate from 0-upward of 30% APR) Other posts suggest taking a refinance on your mortgage, a loan against your 401k, manipulate your tax filings to decrease or increase your withholdings (!!)
How this affects those in the queue remains to be seen. For a company that so heavily relied on consultants opening zero percent interest rate cards to charge their initial investment to now tell those consultant hopefuls that they no longer can use these cards is interesting to say the least. This development is interesting because it appears to directly violate the injunction from the courts in the CMS case forbidding LuLaRoe from telling any consultant what system to use, and takes the accusation that CMS made of incentivization to switch to the new system to a whole new level. Here is an example of incentivization that was just posted today!
And yet, the mentor spin is to the positive and to "assume innocence"- claiming LuLaRoe has no debt. But the documents provided to me outlining LuLaRoe's Dunn Report indicates otherwise. LuLaRoe is in fact not debt free, and is considered a questionable credit risk. The party that provided these documents to us indicates that LLR had applied for yet another credit line increase, but was denied due to untimely payment history with their company.
Here's a mentor commenting yesterday that LLR has no debt. With this kind of misinformation floating about, it doesn't surprise me why some of the consultants feel that LLR is being targeted. "Assume Innocence" is another mantra. At some point, someone should assume fraud.
And this image taken directly from one of the LuLaRoe handbooks sums up the growing mistrust for the company. Are we officially out of the circle of safety yet?
What is most disturbing to me is the new spin claims that they want nothing but zero debt for the consultants, yet the creative minds in the upline are suggesting going into further debt with refinancing, and lying on your taxes. Several women contacted me last night in a total panic that their uplines suggested doing something fishy with Square- somehow charging an amount to yourself, allowing it to be deposited into your bank account as cash, pulling those funds out then doing a return for cash with square. When we contacted square and paypal, we were advised that was a form of fraud and specifically forbidden in their terms of service agreements. Some evidence of this option being discussed is here:
What LuLaConsultants don't realize is: the money that they are paid in the new Bless System is distributed to them FROM LLR'S bank account. Which means their funds (even if they are your funds technically) are assets. Meaning your money is their money until they give it back to you. And guess what? You authorized that in the merchant agreement.
But yet... through all of this, the koolaid runs deep:
But god forbid you ask any questions at all, or express the dangers of ll of this bad advice:
Please also remember that there is minimal protection to a consumer (consultant) to do chargebacks or dispute charges if they don't get their merchandise on a prepaid card or a bank transfer. There are some... but not like using a regular credit card, or even PayPal.
I reached out to CMS and asked for a copy of their Terms of Service: I was provided a document that is given to anyone wanting to apply for merchant processing through them. There is a clause in subsection 14 that outlines a Merchant Cash Reserve Account:
This portion of the agreement very specifically outlines under which circumstances they may ask for a reserve account to be used. It very clearly states that "any negative public occurrence" or "lawsuits" could be used, and how the funds are held.
I spoke with a few contacts I have in merchant processing and they explained to me that a company has the right to enforce a reserve if there is significant risk associated with a company that they are processing for. Essentially, because LLR has been named in multiple lawsuits, it's quite possible that the company is withholding the 20% because they should not have to suffer financially should LLR end up in some form of financial distress. The system was explained to me as follows: The reserve amount would be placed in a bank account that is under the control of the company in question, they would have access to view the funds, but not debit or transfer them in any way. The amount is held, essentially, as insurance to make sure the merchant company is paid- should the company go under. This agreement is extremely common, and does not provide for a merchant processor to remove the funds either. They are simply being held- kind of like a security deposit on an apartment. Should everything blow over, the company would then have access to their funds. Even more interesting to me is there is no guarantee that Zion's bank won't enact the same TOS on LLR's account with them. Since consultant money is being held in LLR's bank account with Zion's, the same issue could present here. Further, LLR's representation that this somehow affects the consultant is false. This is clearly a dispute between CMS and LLR, and from this angle looks like LLR is just upset that CMS is enforcing their contractual right to protect themselves from taking a financial hit on the heels of story after story about LuLaRoe's defective product and lawsuits building by the day. It seems apparent that the damage CMS now suffers by the word of mouth defamation provoked by LLR's inflammatory email will be a nice talking point for their lawyers... and further evidence that they are incentivizing, yet again, a move to the new Bless System.
As much of a bombshell as all this is, I anticipate it will become more eye opening in the coming weeks as undoubtedly, CMS will be forced to respond to this email sent out to 81,000 consultants, as well as the various news outlets that will be jumping at the opportunity to cover yet another LLR scandal. Stick around. :)