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3 Steps To Leaving A U.S Merchant Account Contract

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Ryleigh Stangness | March 2, 2022

“How to get out of your merchant account with a payment processor + 3 sanity-saving tips”
6 min read

    You might be looking for a way out of your merchant account contract, whether due to outrageous, hidden, or extra fees, or lagging tech. Maybe it was the customer service (or lack thereof) and slow hardware. Or, perhaps, you are cutting your losses and closing your doors while trying to find some cost-saving where you can.

    Whatever reason for leaving your merchant processing account, we know it can be a tricky if not exhausting process.

    We've compiled an easy-to-follow step-by-step guide and sanity-saving tips to help you get out of your merchant contract, curb those early termination fees (ETFs) and avoid getting sued.

    Here is what to expect in this blog

    • What you need to know about your contract
    • How to cover your back
    • How to give your notice the right way

    We will cover these in more detail, with a few handy tidbits along the way (we've even made a handy template for you!)

    What is an ETF?

    Your account manager may have never mentioned it during the setup process. Still, now that you've started looking into canceling your merchant account, it seems like something of a hot topic- and everyone wants to know how to avoid it.

    Payment processors sometimes charge an early termination fee to merchants in the U.S. who leave their merchant processing agreement early to

    1. Discourage them from going, and
    2. Recoup lost revenue or equipment costs that the merchant would otherwise pay through the remainder of the contract term.

    The latter usually refers to liquidated damages and can spike to thousands of dollars in fees, while the former is usually a flat fee set out at a fixed cost in your contract.

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    Worse than the ETF is the fear of getting sued.

    If your contract has an ETF, there is a way out with a predetermined consequence.

    When you breach a contract without clearly defined breach of contract terms, you may be opening yourself up to a lawsuit.

    For discretion, it is always a good idea to seek legal advice if you think you have grounds to leave.

    Like most things in a contract, it is usually legally binding. However, there are some ways around it and loopholes in your contract. We'll tell you a few tips and tricks to getting out.

    Brush up on your paperwork

    The most straightforward starting point is your contract when leaving or breaking a contract.

    Pencil in a few hours on a Saturday morning to go over those terms and conditions you might have skimmed over, looking for things such as:

    Your effective date (to calculate the ending period of your contract) Any specifics on ETFs, such as what kind and amount Any required details for providing notice, including merchant information, whether you can send your message via phone or letter, and the required notice period (usually 30-90 days.)

    If you still have time on your contract, the notice period is out of reach, and the ETF is clearly stated (and looming), don't throw in the towel yet. U.S. merchants have a few other loopholes to get out of their contracts worth looking into.

    Automatic "Get-out-of-jail free" cards

    1. Look out for new fees.

    In many states, merchants can leave their contract penalty-free if they select not to accept new fees or increases.

    Note: Processors will automatically assume you accept the new fees if you don't notify them otherwise within a designated period (usually 90 days.)

    2. Are you closing your business? You might be exempt from your contract.

    Are you closing your business? You might be exempt from ETFs through a clause in your contract. Clarify with your merchant processing account rep to see if there is any leeway in the case of closing your business due to unforeseen circumstances, financial hardship, or other reasons that make it impossible for you to fulfill your contractual obligations- if you're worried about being sued see Chron's blog on breaking contracts and the term "Impossibility of performance."

    Start with checking out your contract. There may be (and often is) a clause or exception written in that tedious document somewhere.

    You can sometimes avoid getting sued if you cannot perform your contractual obligations. I.e., in the event of death or injury, natural disasters, or unforeseen circumstances that have led to the "Impossibility of performance."

    3. Breach of contract by the other party

    One way to avoid getting sued for leaving a contract is to pin it on the other party.

    The name might be a dead give-away, but you guessed it, if the payment processor has failed to live up to their end of the deal, you may have viable grounds to leave.

    Common breaches payment processors make:

    • Services not as described
    • Terms are not being honored
    • If there is a mistake or non-factual information in the contract
    • If facts or information is fraudulent or misrepresented

    Start a diary- just kidding. But DO get everything in writing

    When you're entering into a new contract, clarify terms or assurances, all those crucial questions and conversations ask for written agreements that stipulate the same terms you discussed.

    Ask for Employee I.D.s, numbers, record dates and times of conversations, and ask them to forward copies of paperwork or send emails detailing everything they are promising or referencing over the phone.

    Most payment processors aren't out to get you, but you'll be glad you covered your back if you are ever stuck in a contract that had never mentioned ETFs during the setup process.

    They're human too.

    You might have several conversations with multiple customer service reps who may tell you a different thing. Having things in writing can help you keep your information straight, back you up, and help clarify things when you hear something new.

    How to give your "official" notice

    This is where reading your contract will come in handy. You'll probably find details about what specific information to include in your notice and how you will need to provide it to the payment processor. This may be as simple as a phone call or email, or you may need to send it in via mail. Here is what you need to sort out:

    How to provide notice The notice period (how much time in advance must you send it before renewal, for example) Specific information- see our Template below with the most common must-haves

    Sanity-saving tips to closing your merchant processing account

    The catch behind equipment rentals

    There are many reasons why you shouldn't rent equipment but if you do, make sure to cancel your lease and return the equipment to avoid further charges or renewals. If you don't, you could end up blindsided with hefty bills.

    P.S. This is often a cost associated with liquidated damages, so consider whether it is possible to return equipment or what the buyout fee could look like for leaving early.

    Don't assume all is well.

    Keep an eye on your statements and follow up on any further charges, especially if you've closed your merchant account and associated checking account.

    Even if it turns out that you shouldn't have received any further charges, if you don't notice and deal with them, they could wreak havoc for you later.

    Unpaid charges can go to collections, hurting your credit score and creating challenges to opening another merchant account in the future.

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    Can I avoid paying my ETF by closing my business?

    Short answer: No. While there may be a clause or no-fault agreement pre-written in your contract to release you from your contract, it is not an industry standard. If by no fault of your own or due to unforeseen circumstances, you have to close your business, you may be able to break your contract.

    What is a personal guarantee clause?

    In contracts (like the one you probably signed), a personal guarantee clause makes you, the merchant, liable for damages and incurred fees, even if you've closed your business or chequing account. These damages and costs may be pursuable via court or collections and hurt your credit score.

    What are the required elements for a contract to be valid?

    An offer does not have to be written in less than 12 months in most states, but there does need to be a record of such a conversation. It must clearly state the acceptance of terms and conditions (exchange of goods, services, terms, etc.)

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