It helps to know what’s in your credit card processing contract before you try to break it
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Dear Your Business Credit,
Not sure if you will even know this answer. We have a merchant account with a credit card processor. We are supposed to be under contract until August, but we want to get out early. The terms and conditions state we will have to pay the lesser of the maximum amount permitted by state law. What does that mean? – Ronnie
Wouldn’t it be wonderful if someone passed a law requiring all contracts to be written in plain English? Unfortunately, it hasn’t happened yet, so many merchants are forced to wade through gobbledygook like what you see in your contract.
It doesn’t appear that you have included the exact wording of the contract, but based on what you shared, it seems that you are being told you must pay either the cancellation fee specified or the maximum amount permitted by state law – whichever is less.
Your letter points out the importance of knowing what you sign. Merchant services contracts often have clauses that make it very hard to break them early.
“Most often people don’t know what they’re signing into,” says Martorelli. It doesn’t help that some of the documents are 30 pages long, he adds.
Martorelli has seen cases where merchants are told by a sales representative that there is no cancellation fee, when there actually is one written in the fine print. “You have to be very attentive about looking through the contract,” he says.
It may be too late for you to avoid a cancellation fee on this contract, but that doesn’t mean you have to pay another one in the future. If you shop for another merchant services provider and are told verbally that there is no cancellation fee, ask the salesperson to highlight the clause in the contract that says it is zero, Martorelli recommends. If the salesperson can’t, ask the company to provide a signed written document saying that the cancellation fee is zero, he recommends.
There are many honest merchant services providers, but the industry has also had its share of sleazy operators, as I discussed in a past column (“Beware shady merchant processing contracts“). The Federal Trade Commission has published a list of tips for shopping for merchant processing services that I recommend every small-business owner read. It highlights common fees that are worth inquiring about before you sign on the dotted line. This is one area of business where you can’t be too careful.
See related: Is it time to negotiate a new merchant account?