How can a credit card processing agreement be unfair?

We should start by stating that “unfair” is a subjective term. In this discussion, we are going to concentrate on the two most frequent and damaging complaints that people have: high rates (being charged more than you expected), and being locked into a contract term that you didn’t expect.

The situation I dread seeing the most is when a good honest credit card payment gateway business owner is taken advantage of by an unscrupulous credit card processor. What I am talking about is bait and switch pricing. Bait and switch pricing occurs when a offers tremendously appealing rate… that the merchant never ends up actually paying. Instead, they are charged a much higher discount rate than they were expecting. This all stems from a pricing model in the credit card industry called qualified and non-qualified pricing. There is nothing inherently wrong with that pricing model, but it is extremely confusing and can be abused by some processors to advertise a misleadingly low rate and actually apply a higher one to the merchant. I have an entire article dedicated solely to the topic of interchange and credit card pricing which is strongly recommended reading if you are not already knowledgeable on the topic.

Rates aside, the other most common complaint in relation to cancelling a credit card processing agreement is when a merchant is locked into a contract term without having known (or been notified) that there was a contract term attached to the agreement. In these cases it’s usually occurred because the credit card processor business owner didn’t read the agreement at all. I do not say that in defense of the credit card processor, because the merchant should have been made aware. However, it’s also a sign that the merchant didn’t read the agreement before proceeding, which is something I critically implore all business owners to do before working with a new credit card processor. At Merchant we give our clients a choice. The agreement is monthly by default, and for larger / more established businesses that want to enter into a longer term we offer a lower rate. There are other situations as well in which a longer term is desirable. Although it’s beyond the scope of this discussion to get into it in detail, we can generalize that banks like long term clients and often reward with better rates and terms of approval as a result. In general, we leave it to the client to decide what they want. There is absolutely nothing wrong with having a 2, 3 or even a 5 year processing agreement so long as the contract was entered into it knowingly it was fair to both parties. For example, if you are processing millions of dollars per month and your processor offered to reduce your rate by 0.10% because you committed long term, then this is a win-win for everyone. However, if you operate a young payment gateway business that got unexpectedly wrapped up in a long contract term with big monthly fees then it is definitely a problem.

While these are just two of the most popular complaints, the reality is that no matter what your problem is your options are limited if you have signed the merchant agreement. If that is the situation you find yourself in, we can now explore what your options are…

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