By Adam Atlas
Attorney at Law
My nature is to trust people. So, when people say they agree to one thing or another, my inclination is to rely on their promises. A thousand ISO agreements later, I have learned that a trusting nature is potentially harmful for an ISO – and not always protected by the law. The purpose of this article is to explore issues related to oral promises and ISO agreements.
Once upon a time in America, a big brand name stood for high ethical standards. The brands for cars, insurance and banking represented, to a large degree, the value of the trust that consumers and businesses placed in those companies. That era is over and done with.
Despite continued efforts to build brands in the payments space, I'm inclined to place no greater trust in a big brand than in a small one. Big brands answer to the tough demands of their venture capital investors. This can place even the best corporate executive in the awkward space that is somewhere outside of his or her moral comfort zone.
If you are an ISO signed directly with a major processor, you might expect that processor to stand behind the promises its relationship managers made over the phone or even by e-mail. Think again. I have seen too many instances of ISO relationship managers at major processors making one promise or another, only to be over-ridden by higher-ups who undo the promises and scour the fine print of ISO agreements so they can hang their hats on a technicality.
Next time you hear, "We are so and so and have been around since the days of the charge card and would never do that to you," take it with a grain of salt. Even if a processor's relationship manager actually keeps promises made, that individual might leave the company, and the processor's new representative may not have the same sensitivities as the old and may want to impress the processor's hierarchy by how harsh he or she can be with you, the ISO.
So what's an ISO to do? Read the ISO agreement and expect the processor to interpret it in the least friendly way. This is like telling newlyweds to spend the better part of their wedding day, before the ceremony, reading over their "prenup."
The legal enforceability of an oral promise varies from state to state. In New York, where I am licensed, the courts place great emphasis on signed agreements. Oral promises become relevant largely where agreements are vague on particular points. When an oral promise contradicts the writing in an agreement, the court must interpret whether that promise amounted to an amendment to the agreement.
So treat oral promises as nice, but unreliable. If a processor relationship manager makes an oral promise that is important for the agreement, ask the person to put it in writing in the form of an amendment to the agreement.
This doesn't mean oral promises are unenforceable. There are just various technical hurdles to enforcing them. For example, one has to prove the promise was actually made – which could be hard if the processor representative lies and says he or she never made that promise. In addition, most ISO agreements contain a "whole agreement" clause, which means the whole of the agreement is what is written into it, implicitly excluding subsequent oral promises.
Oral promises that have the greatest strength, in New York, are those for which consideration was given and on which both parties evidently relied. For example, if an ISO agreement says that a given item is $15, and the parties agree orally to change it to $10, for which the ISO gives some other concession, and the parties move forward acting on these mutual promises, then we can gain a certain confidence there is good evidence of an agreement that courts will uphold.
The ISO business is so complicated that it is impossible to write all of the details of what each party will actually do. As such, the parties are expected to operate within what they are customarily expected to do. Judges are not experts in the customs of the ISO industry, so when custom becomes an issue, lawyers hire someone to come before the court and explain customs in the ISO industry. I have had the privilege of providing expert testimony in a handful of ISO trials, and a lot of that testimony involves explaining what an ISO is and how the acquiring industry works.
To avoid surprises or the considerable expense of a trial over unpaid residuals, place less value on promises made and more on agreements signed.
Now that I've discussed the legal downsides of promises, it's worth discussing the business upside of making and keeping them. Having advised ISOs for over a decade, I've had the privilege of observing the ebb and flow of ethics among the various participants in our industry.
While some big brands have lost their shine, others have come along to replace them. Some super-ISOs in the marketplace have unblemished records, based on my experience. These are often organizations built from the ground up by honest leaders who have had their own share of let-downs and have committed to doing better for others than was done for them.
While a broken promise by a processor achieves a short-term victory, the long-term souring of a company's name exacts a heavier toll. I don't want this to read like a sermon, but my experience of our industry is that thievery does a lot in the short run, but much less in the long run. This might sound naïve, but being honest, like we were told as children, is a winning method for ISOs.
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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