Citron Exposes the Dirty Illegal Secrets of FleetCor. Also ... · Citron Explains FleetCor April 27, 2017 Page 4 of 14 Why the Quarter Doesn't Matter Citron presents the obvious conclusion

Citron Explains FleetCor April 27, 2017 Page 1 of 14 Why the Quarter Doesn't Matter

April 27, 2017

Citron Exposes the Dirty Illegal Secrets of

FleetCor. Also, Proof the Company is Already in Cover-Up Mode.

Short Term Price Target = $80

In our first report Citron referred to FleetCor (NYSE:FLT) as “FeeCor” and “FleeceCor”. The bulls defended the company, claiming FleetCor's customer fees are legal, not egregious, and most of all are sustainable.

In this report Citron clarifies the illegality of FleetCor's corporate practices, and the lengths the analyst community goes to in defending them.


1) No need for an "Internal Investigative Review"... We Did One, and This is What we Found.

After interviewing over 25 former employees, Citron now knows that FleetCor has developed a deep learning algorithm to intentionally cheat its customers with “junk” fees.

No two customers are billed exactly alike, yet all customers are fitted into a profile / classification based on how many fees can be extracted without complaints. FleetCor classifies “Red”, “Yellow” and “Green” customers based on its internal algorithmic analysis of how vulnerable the customers are to this type of gouging without detecting it or complaining.

Citron believes that federal and state regulators and state attorneys general will be laser-focused on the computer system operating at FleetCor, which pro-actively discriminates against their own customers.

This includes the government and non-profits.

The internal systems at FleetCor are designed to deceive their customers. The company acts as though they believe they are protected by small print in their contracts. That verbiage will eventually hold no weight in the civil and potential criminal lawsuits that we believe will inevitably follow.

Through our extensive interviews we have heard the tales of:

Placing wrong dates on payments

Not checking mail on timely schedule

Stealing rebates from customers

Double-billing for the same service

Intentionally bad customer service

Blaming "computer problems"

A corporate culture underpinned by deceit

No reason for some bullshit internal review. Even your analysts understand the corruption. The question is when will it stop. Morgan Stanley's investment thesis is basically "You can't catch them".


So it's a risk factor that the FTC might interview former employees?

What is this, the Sopranos???

Yes Investors, Laws and Regulations Do Apply

Many of the bullish analyst reports on FleetCor rest on the myth that FleetCor can skirt the particulars of FTC regulation because its main product is not a “credit card”. The argument goes that this product lives outside the scope of regulation. Yet in FleetCor's own words (10-K) we read:

Federal Trade Commission Act:

All persons engaged in commerce, including, but not limited

to, us and our bank sponsors and customers are subject to Section 5 of the Federal Trade Commission Act

prohibiting unfair or deceptive acts or practices… Various federal and state regulatory enforcement agencies including the Federal Trade Commission (“FTC”), Consumer

Financial Protection Bureau (“CFPB”) and the state attorneys general have authority to take action against

businesses, merchants and financial institutions that engage in UDAAP or violate other laws, rules and

regulations. If we violate such laws, rules and regulations, we may be subject to enforcement actions and as a result,

may incur losses and liabilities that may impact our business.

“The FTC is more concerned with consumer protection than B2B (e.g. the Truth in Lending Act doesn't apply)”

“FTC is more interested in broad industry practices rather than an individual company” FTC's decision to "work with" FLT or go straight to a formal CID (or worse, a federal search warrant) depends on the perceived legitimacy of the business,

“A bear case might include FLT terminating employees, which ... might stimulate further interest and prompt the FTC to interview the terminated employees for details on firm practices.”

"


Citron presents the obvious conclusion that FleetCor’s operations -- in particular its fee-generating computer programs, result in clear, systemic violations of the FTC’s Section 5 “Unfair Practices”.

After reading this report, we challenge anyone to reasonably conclude that regulators or customers will allow FleetCor's purposeful, organization-wide, systemic, deceptive fee generation practices to continue.

Up until two weeks ago all of FleetCor's Fuelman Credit Cards were marketed to governmental agencies as:

“Pay No Fees- No Set Up, Transaction, or Annual Fees”

…as shown in the page below. Thank you, Wayback machine!

Deceptive Practices: An act or practice is deceptive where

• a representation, omission, or practice misleads or is likely to mislead the consumer;

• a consumer’s interpretation of the representation, omission, or practice is considered reasonable under the circumstances; and

• the misleading representation, omission, or practice is material.

Unfair Practices

An act or practice is unfair where it

• causes or is likely to cause substantial injury to consumers;

• cannot be reasonably avoided by consumers; and

• is not outweighed by countervailing benefits to consumers or to competition.

https://www.federalreserve.gov/boarddocs/supmanual/cch/ftca.pdf


https://web.archive.org/web/20170404224933/http://www.fuelman.com/government-agencies.aspx

Since the Citron Report published the egregious details of FleetCor’s aggressive fee-charging strategy, FleetCor tried to remove all the “no fee” language from the Fuelman marketing material. FleetCor’s government website no longer claims that the government will “Pay No Fees”.

http://www.fuelman.com/government-agencies.aspx

http://www.fuelman.com/fuelman-advantage-mastercard-details.aspx

For FleetCor to change such a core piece of their marketing pitch on their

https://web.archive.org/web/20170404224933/http:/www.fuelman.com/government-agencies.aspx

http://www.fuelman.com/government-agencies.aspx

http://www.fuelman.com/fuelman-advantage-mastercard-details.aspx


own website could be the sign of either:

Impending Government Probe of their Fees

Attorney General Investigations

FTC Inquiry/Investigation into deceptive marketing

Yet this effort is too little too late, as the internet is still riddled with marketing material saying “no fees” …..like this

http://www.fleetcardsusa.com/faq.aspx?productID=15#faq_126

This of course is total deception! It will be especially fun watching the company remove this one soon ... but it will remain on archive.org!

What is their cockamamie internal review going to say about that?

The question to ask yourself is: If FleetCor is willing to deceive its own government agency customers, imagine what they are willing to do to mom and pop business customers…

From the FAQ on Fuelman Public Sector Fleet Card

Are there any usage fees?

The Fuelman Public Sector fleet card has no set up, card or membership fees. If applicable, there is a 1% tax filing fee that will cover the cost of your tax administration. "

http://www.fleetcardsusa.com/faq.aspx?productID=15%23faq_126


3) What is FleetCor Hiding in the Fine Print?

FleetCorp has built its business on systematically deceiving its own customers for years. It is now so bad it has become IMPOSSIBLE to use its product without being subject to random escalating fees.

Unlike other card companies, FleetCor customers do not receive terms and conditions when they apply for the card; instead they receive this small print brochure. Here is a PDF link to the actual size of these disclosures, which are so small they might as well be written in invisible ink.

Other credit card companies’ terms and conditions are available upon application and are printed to be legible in a reasonable sized font.

https://www.onlinecreditcenter6.com/eapplygen2/load.do?cHash=38521181415&subActionId=1000&langId=en&intcmp=chevrontexacoapplyplcc




What are they hiding?? EVERYTHING! Pour yourself a stiff drink, get out your magnifying glass, and take a hard look at the real “FeeCorp”.

Just To Get Your Card there is a Fee (sounds like a setup or

annual fee to us)

3.8 Administration of Account. Fuelman…… Fuelman reserves the right to charge a fee of up to fifty dollars ($50.00) a month or a minimum of fifteen dollars ($15.00) per Billing Cycle for account administration.

If you want to use your card there could be a fee

3.9 Card Fees. Fuelman reserves the right to charge a service fee of up to ten dollars ($10.00) per Card per month to support the use of the Card.

If you do not use your card there could be a fee

3.11 Inactive Cards. Fuelman reserves the right to charge a fee of up to three dollars and fifty cents ($3.50) per Billing Cycle for Cards that are inactive for seventy-five (75) or more days.

When you make a transaction there could be a fee

9.8 Minimum Program Administration Fee. Under circumstances where the previous month’s average fuel price (defined as the U.S. Regular Gasoline Price by the U.S. Energy Information Administration) is below $3.25 dollar per gallon, we may charge a Minimum Program Administration Fee of up to 10 cents per gallon or $2 per transaction to cover ongoing program operations costs. All the following fees are assessed in the context of paying your bill.


If you want to pay by check there could be a fee

10.5.1 Client Check. ...Fuelman reserves the right to charge an Exception Handling Fee of ten dollars ($10.00) for processing the payment. Fuelman reserves the right to charge a Check Processing Fee of fifteen dollars ($15.00) per check payment.

If you want to pay by phone there could be a fee

10.5.3 Pay by Phone. Fuelman reserves the right to charge a fee up to thirty dollars ($30.00) for processing each Pay by Phone payment using either methods.

If you want to pay by Credit Card there could be a fee

10.5.4 Fuelman reserves the right to charge a credit card convenience fee up to three percent (3%) of the payment amount.

If you want the money to come right from your bank account there could be a fee

10.5.5.1 Debits to Bank Account. Fuelman reserves the right to charge a bank handling fee of up to twenty five dollars ($25.00) per debit of the Client’s Bank Account.

If you pay EFT/ECH there could be a fee

10.5.6 Client Initiated Electronic Funds Transfer/Automated Clearinghouse …. Fuelman reserves the right to charge a fee of up to fifty dollars ($50.00) for processing each Client initiated EFT/ACH.

Is it possible to pay your bill without a fee??? Bitcoin? Gold Bullion? Maybe a bag of cash dropped at their offices?


But at least for all these fees I get fleet management reports! Yes you do …..for a fee.

11.4 Fuelman reserves the right to charge Client a fee of up to fifteen dollars ($15.00) for delivering each of these optional reports or up to one hundred dollars ($100.00) per quarter.

If you want to complain or dispute these fees…don’t call or email! All complaints must be submitted within 15 days by mail…yes, snail mail.

15.1 Disputed Transactions. To dispute any Transaction on Client’s Statement, Client must notify Fuelman in writing as set forth below within fifteen (15) days of the date of Client’s Statement. Fuelman will promptly investigate the matter and respond to Client within sixty (60) days after receiving written notice. Notice should be sent to: FUELMAN, P.O. Box 924138, Norcross, GA 30010, Attention: Customer Service. The above is just an example of some of the fees that FleetCor imposes on its customers. There are many more. Notice the words in the disclosure “reserves the right to charge” vs. a simple "will be charged."

4) You Want Your Rebate? Fuggedaboudit!

Of all the disclosures, the one that is most disturbing is REBATES!

The only persuasive economic incentive for customers to acquire fuel cards is the promise that aggregating fuel purchases can avail them of volume fuel rebates. This is the raison d’etre of fuel cards. But needless to say, rebates under FleetCor also have their fees and fine print. After the expected rebate fees and out-clauses, we read one disclaimer that demonstrates FleetCor’s ability to screw its customers in black and white.

Rebate/Volume Discount


Rebate? Or Bait and Switch?

For this we read in the small print

"……. Under circumstances where the previous month’s average fuel price (defined as the U.S. Regular Gasoline Price by the U.S. Energy Information Administration) is below $3.25 dollars per gallon, we may change, suspend, or terminate this rebate program without notice."

$3.25 a gallon??? That means that FleetCor has reserved for itself the ability to opt out of paying rebates since October of 2014. Do they disclose this anywhere to any of their customers? By the way, no other player in the fuel card industry does this! A FleetCor exclusive! https://www.eia.gov/dnav/pet/pet_pri_gnd_a_epmr_pte_dpgal_m.htm

Another of FleetCor devious schemes is to switch customers into "Level 2" pricing without their knowledge. This has devastating effects on customer costs, and demands customers waste enormous amounts of time verifying individual gas receipts to even notice. Refer to excellent reporting by The Capitol Forum for full details.

https://www.eia.gov/dnav/pet/pet_pri_gnd_a_epmr_pte_dpgal_m.htm

https://thecapitolforum.com/

https://thecapitolforum.com/


The Sell Side Really Wants to Invoke BBB to Defend FleetCor?

FleetCor’s actions are best explained in a Better Business Bureau post from THIS MONTH:

* Note that despite the sell side touting that FleetCor has an "A" rating with the BBB, this has nothing to do with the business, but merely the attention the company gives to published complaints. (Last year the

company had an F). It is amateurish how the sell side references FleetCor's

BBB “grade letter” to defend the company, while ignoring the content from volumes of clearly written customer complaints, which all support the facts in this report.

What is FleetCor Worth? A fair and reasonable analysis

In FY 2016, FleetCor generated $1 billion of net revenues from customer fees -- not including merchant fees or interchange fees. This is the revenue generated by all of the "junk fees" mentioned above.

In our model below, we assume a 75% margin from fees (which is generous, it’s probably more like 90%.) If customer (junk fees) get reduced by a mere 25% and FLT trades at a EV/EBITDA multiple of 14x like Wex, its nearest competitor, FLT stock trades at $76.

And this is without any regulatory or criminal action taken against the Company or its management. This calculation doesn't even account for customer rebates that are being confiscated due to predatory late payment

“Watch your invoices. They are always adding fees and charges for items not requested or signed up for. Yes, they will remove them if you notice and call them up. Of course they say, pay the full invoice so you won't have any fees or late charges and they will credit you back the next month. I have received interest charges for late payments despite paying on time….“


terms, such as $3.25 per gallon minimum restriction imposed by FuelMan cards, in lieu of actual rebates customers could be receiving.


Conclusion

The only question Citron has regarding FleetCor is When the shit hits the fan, will the case stay civil or will it go criminal?

Are we simply looking at unfair deceptive trade practices or is this theft by fraud?

We can tell you …….for a fee.

Cautious Investing to All! ( <--- Some no-fee advice! )

Documents

Citron Exposes the Dirty Illegal Secrets of FleetCor. Also ... · Citron Explains FleetCor April 27, 2017 Page 4 of 14 Why the Quarter Doesn't Matter Citron presents the obvious conclusion