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The Green Sheet Online Edition

December 22, 2014 • Issue 14:12:02

Legal ease:
The ISO calendar: Don't set and forget your ISO agreement

By Adam Atlas
Attorney at Law

An ISO agreement is not a "set and forget" deal. You, as ISOs and merchant level salespeople (MLSs), must closely track one-time and recurring dates or risk foregoing key rights under your agreements. This article highlights certain key dates and clauses to track in ISO agreements and ISO businesses, generally:

Effective date of agreement

The effective date of your agreement, or the start date, is not necessarily the date the agreement was signed or the date written in at the beginning of the agreement. Some ISO agreements make the effective date only some time after you have referred your first merchant. It's important to know the effective date of your agreement because all other vital dates and likely the anniversaries of the agreement will flow from that date.

You also want to track the effective date so that a few years from now you can know how long you have actually been doing business with the company for which you are selling. Not everyone values the length of a relationship, but most well meaning people do.


Most legal jurisdictions do not permit perpetual contracts. Consequently, every contract must have a fixed and definite term. Many jurisdictions also forbid contracts from having a term that exceeds 100 years. Parties are, however, allowed to provide for renewal terms, which is why most agreements have an initial term followed by automatic renewal terms. The initial term, together with renewal terms, generally constitute the whole term of the agreement.

Initial term of the agreement

The initial terms of agreements in our industry vary widely from one year all the way up to seven years. The initial term is the stretch of time during the agreement before the agreement is first renewed. Some ISOs and merchant level salespeople (MLSs) want short initial terms, so that they can test the relationship and exit if it's a dud.

Other ISOs and MLSs want a long initial term so they can lock-in favorable pricing or other terms. Processors generally want a long initial term so that they can book the business of the ISO or agent for as long a term as possible without the burden and risk of renegotiation.

Renewal date

The renewal date is the first date of the term that follows the initial term. This is an important date because it signifies the beginning of a renewal term, which may be different in length from the initial term.

It is recommended to keep in close contact with your processor to make sure that you are aware of any changes that may be proposed for your agreement to take effect on the renewal date. If those changes are not ones that you want, you must consider putting an end to the relationship.

Renewal term

Renewal terms are the successive terms of an agreement that usually follow the initial term. Renewal terms are usually one year, and are occasionally two years in length. Again, ISOs and MLSs may prefer shorter renewal terms so that they are able to exit sooner if the relationship sours.

Usually, the lion's share of the overall life of an agreement falls under renewal terms. As an ISO or agent, you should track where you are in the initial or renewal term so that you can prepare for a renewal or an election to terminate.

Deadline for notice of non-renewal

When an ISO or MLS approaches the end of an initial term or renewal term in an agreement, there is often (but not always) an opportunity to send notice to the processor of intent to not renew the agreement. This means that the ISO will terminate the agreement at the end of the then current term.

Make a careful note of the deadline for this notice; it's often between 30 and 180 days prior to the end of the then current initial term or renewal term. If you miss this deadline, you could be bound to an agreement for an additional one or two years, or more, when you might not have wanted to be.

Some processors are shockingly inflexible when it comes to deadlines for non-renewal. One very large processor, that I'll not name to save the company embarrassment, locked an ISO into a new two-year term for missing the non-renewal notice deadline by about twelve hours.

Post-termination rights

Before you terminate any agreement (actually before you sign it, as well), consider what your rights and obligations will be following any termination. In a nutshell, the ISOs and MLSs should be very preoccupied with whether residual compensation on their merchants will continue after they choose to terminate their agreements. If residuals terminate because an ISO or MLS simply chooses to not renew, without being in default, then the ISO or agent has a serious problem of being tethered to the processor so long as he or she wishes to be compensated.

There may also be post termination obligations imposed on the parties. The ISO or MLS may be expected to carry on certain support obligations for merchants in order to continue receiving compensation. Post-termination rights and obligations are perhaps the most important set of rights and obligations that ISOs and agents have, because they determine the long-term value of the portfolio that the ISO or MLS has helped build.

Right of first refusal

If you have the right to sell your residual stream or merchants to a third party, then, chances are, the processor will have a right of first refusal that the processor will be able to exercise for a set period of time, usually between 15 and 45 days. That period of time will be critical for the selling ISO or MLS to monitor, as it involves the ISO or MLS, the processor and the potential buyer that is waiting to purchase the residuals or merchants.

Unique specifics

Of course, the specific vital dates of your agreement will be unique to your agreement and can be found only by a reading of the agreement you have signed. The notes in this column are of a general nature only and do not necessarily apply to your agreement; instead, they reflect the custom in the merchant acquiring industry as I have come to know it. With electronic calendars, keeping track of these dates is made easy. end of article

In publishing The Green Sheet, neither the author nor the publisher is engaged in rendering legal, accounting or other professional services. If you require legal advice or other expert assistance, seek the services of a competent professional. For further information on this article, email Adam Atlas, Attorney at Law, at atlas@adamatlas.com or call him at 514-842-0886.

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