Law 4 Small Business is pleased to feature our guest blog writer, Gingergaye Hollowell.

The Most Costly of Termination Fees Period!

When you choose a credit card processor, you will be asked to sign a merchant services agreement that includes a commitment of between three and five years. In some cases, breaking a merchant services agreement early will simply result in a termination fee. But beware of credit card processing providers who will additionally charge ‘Liquidated Damages’ fees, which means the processor will continue to charge you for the cost involved in the loss of your contract, i.e., all of their surcharge fees they would normally be collecting from you, every month for the duration of the contract term! This can result in an unbelievable amount of money!

Contracts are tricky. And pages and pages of fine print and bewildering verbiage sometimes make it difficult to understand the terms we are accepting. When it comes to early termination fees inside a merchant services agreement, they are often buried in a 46-page “Terms and Conditions” written entirely in 8-point font. If you don’t thoroughly read and understand what these fees are, and you sign the contract anyway, you may find yourself in a world of financial hurt if you decide to terminate your agreement before the term ends. Remember, fine-print scams are some of the oldest cons in the book, and only becoming more prevalent in the merchant services world, so be careful!

[Read this: Liquidated Damages]

Also, be leary of a sales rep who handwrites ‘No termination Fee’ on the application, as many times in the fine print, there is verbiage stating that the salesperson is not allowed to waive the Termination Fee. Some contracts do indeed allow for the termination to be waived, but the salesperson neglects to point out the Liquidated Damages fee, because it is not labeled a termination fee as such!

The Liquidated Damages fees are not listed on the credit card processing salesman’s comparison, nor on the application, however they are listed in the 46 or so pages of the terms and conditions. So ask to review the terms and conditions, and be sure to examine every fee listed on the application!

How Are Liquidated Damages Fees Calculated?

These fees are usually calculated based on the amount of time remaining on your contract, and the monthly profit value of your merchant account to the processor. So the bottom line is that this particular credit card processor is going to get its money no matter what, regardless if you continue to use its services or not.  To make things worse, some providers will include Liquidated Damages clauses into auto-renewing contracts that only allow merchants to cancel service during a small window of time.

The bottom line remains: It is not advisable to sign a merchant account agreement with a Liquidated Damages clause as part of the termination penalty!

At Electronic Money Company, we NEVER charge liquidated damages or a termination fee. Frankly, we don’t have to because our merchants never leave us. Here’s why:

  • We set our merchants up with a fair, low rate and honestly make sure they understand every detail of their merchant statement.
  • Our clients love our own in-house technical support team that knows all of our clients by name.
  • We ease the confusion and pain of merchant services from the beginning through the life of your business.

Ready to speak to an Attorney? Contact us or give us a call at 505.715.5700
Want to speak to the Electronic Money Company? Contact them or call 505.296.2847

Law 4 Small Business, P.C. (L4SB). A little law now can save a lot later. A Slingshot company.

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