Here at the NFIB Small Business Legal Center we receive calls every year from small business owners who are upset with their credit card processing companies. The story is the same in most of these cases. A slick salesman promises that they will save money by switching credit card services; but once they are locked into the contract they learn about hidden fees that were not disclosed, or that they were told would not apply. But the trouble is that once a contract has been signed it’s very difficult—if not impossible—to get out. So we thought it would be helpful to keep in mind some best practices when choosing a credit card processor.
First, it’s important to be as informed as possible so that you understand what is and is not negotiable. The Federal Trade Commission has put together a very informative advisory for small business owners to review before entering negotiations. They explain that the interchange fees paid to the credit card companies (e.g., Visa and MasterCard) are generally non-negotiable, but that the various fees that the credit card processing companies (i.e. the middlemen) charge are negotiable. So we would advise NFIB members to take a look at the 7 tips that FTC offers here. Also, if you want to understand more of the ins-and-outs of the credit-card processing world, Paul Downs wrote an insightful exposé for the New York Times entitled “What You Need to Know About Credit Card Processing.”
Second, it’s absolutely vital to actually read and understand the terms of the contract. Do not sign anything until you have read everything. If the contract refers to unspecified “terms and conditions,” it’s necessary to read those as well. As FTC notes, unscrupulous processing companies will often incorporate “terms and conditions” listed on their company’s website (or elsewhere), which may include hidden fees etc. And insist on having a copy of anything that you do sign.
Third, don’t be duped by promises that fees will be waived unless you get it in writing. For that matter, FTC recommends insisting on a separate document disclosing all fees (sometimes referred to as a Schedule of Fees). Be sure that the contract references the attached schedule of fees so that you can dispute any unauthorized fees if and when the time comes.
Fourth, do your homework when deciding whether to buy or lease a processing terminal. Often it will be more costly in the long-run to lease. In fact, we strongly recommend buying, as opposed to leasing for the same reasons spelled out in FTC’s advisory.
Fifth, whether you buy or lease, be sure that your processing terminal is EMV chip enabled. As of October 1, 2015 merchants are responsible for any fraudulent conduct that occurs on a card if it run a terminal that cannot read EMV chips. For more information, check out our recent NFIB webinar on the EMV chip requirements.
Finally, if you believe that you were fraudulently induced to enter a contract, you may be wise to consult an attorney licensed in your state for legal advice. Another option is to report concerns over fraud or deceptive business practices to the Federal Trade Commission and or your state’s Attorney General. And again, we would recommend checking out FTC’s advisory here.