Beware shady merchant processing contracts
By Elaine Pofeldt | Published: February 16, 2015
Your Business Credit
Dear Your Business Credit,
Hello. I had signed a lease agreement for a credit card machine to use in my salon. They are from New York, and I live in Texas. They are suing me for the balance and sent me a summons, but I was unable to appear because I don't live in New York. Now they called and said they are going to put a judgment against me. I'm a sole proprietor so what can they take from me? I hope you can answer my question. Thank you. -- Elsa
This situation sounds very stressful, and you're smart to try to get to the bottom of it quickly. There have been a number of complaints by merchants related to the leasing of credit card processing machines -- which I'll get to later -- but first, let's address your situation.
I ran what you asked past Leslie Tayne, an attorney in Melville, New York, who advises many small-business owners on credit-related matters.
"If you have no ties to New York and are sued there and a judgment is received there is nothing that can be done to you," she said in an email. "However, there is a way to take a judgment from one state and enforce it in another by filing that judgment in the other state. Once that happens, then you would need to respond to fight it for avoiding any potential issues of enforcement in your home state."
However, she added, "There would be a lot of questions as to the validity of the original suit in another state if there were no ties to the state you were sued in. If you have any ties to the original state, including doing business or other assets, it is in your best interest to respond to avoid a default judgment."
I would suggest you get advice on your specific case from an attorney in your state. At the State Bar of Texas, the Lawyer Referral Information Service at 800-252-9690 allows Texans to have a 30-minute consultation with an attorney for $20. The Bar's website also lists other helpful resources for anyone who needs a lawyer but is short of funds.
All merchants should be careful about signing agreements related to merchant processing. You need to know what you are signing, but these contracts can be very confusing, so it may be worthwhile to ask a lawyer to read them first. At the very least, check out the Federal Trade Commission's excellent guide to warning signs of shady practices in credit card processing services.
There is good reason to be concerned. Under separate settlements with the FTC and the Washington State Attorney General in October 2014, defendants behind Merchant Services Direct agreed to pay $175,000 and were prohibited from continuing to use allegedly deceptive sales tactics. According to a news release from the FTC, the defendants "duped merchants into leasing new card processing terminals for two to four years, falsely claiming their current 'swipe' terminals were outdated or incompatible with its services."
If you did not pay the remainder of the contract because you thought you had been scammed, I would suggest contacting the FTC. You can make a complaint at ftc.gov/complaint. Good luck!
Meet CreditCards.com's reader Q&A expertsDoes a personal finance problem have you worried? Monday through Saturday, CreditCards.com's Q&A experts answer questions from readers. Ask a question, or click on any expert to see their previous answers.
- Options to collect from customers who can't pay their balance in full – When dealing with customers in financial distress, suggesting a payment plan might be the best way to ensure you get full payment ...
- Q&A: Ex-partner was authorized user; is he liable for card debt? – Your ex-business partner could be equally liable for the company's credit card debt even if he was just an authorized user on the card. Here's how to find out ...
- Q&A: Can I charge cards with a mobile app for my side hustle? – If you're operating a side hustle and wondering about your rights when it comes to charging cards on file and paying taxes, make sure you do your homework before you find yourself in trouble ...