By Bryce Van De Moere
Global Legal Law Firm
Imagine you were called on to help a beleaguered group of merchants who needed help recovering monies from their reserve accounts. The party holding their money was a large, well-known ISO. Per the merchant processing agreement (MPS) between the merchants and the ISO, the date for returning those funds had long since passed, and despite numerous requests by the merchants, as well as enlisting the help of two prior attorneys, the merchants were nowhere close to recovering these reserve funds.
While the ISO would occasionally respond with the stated intention of releasing the monies due, the merchants would be lucky if even one of them received a disbursement. Even then, the check received would more often than not be returned for "insufficient funds." This would result in yet another round of attempts to get the ISO to respond.
The legal fees and the merchants' frustration would only increase. This process continued for more than 18 months. The third attorney they hired had his work cut out for him. The experience also made the attorney think about other merchants in the same situation who have simply given up on getting their money back.
Most often used with merchants that the ISO and/or the bank deem high risk, the reserve account consists of a percentage of the sales processed by the payment processor into the merchant account. The reserve monies are diverted to a separate reserve account, where they sit ready to be utilized if the merchant incurs a chargeback, fine or penalty that the merchant cannot cover.
A chargeback occurs when a customer asks the bank that issued its credit or debit card to reverse a charge, either because it never received the goods ordered, the goods do not comport with what the customer thought they were buying or because they never ordered the product in the first place. In these examples, the reserve account kicks in and takes care of the debt so that the ISO does not have to "front" the merchant, pay the debt on its behalf and then later seek reimbursement from the merchant.
The reserve account becomes even more of a necessity in those instances when a merchant account has been terminated. When that happens, fines, penalties and chargebacks can continue to accrue; however, there are no new monies coming in to pay them. In those instances, the reserve account again kicks in and takes care of the debt. The period in which chargebacks are incurred can stretch far beyond the date that the merchant account was terminated.
To cover themselves in such situations the ISO and its bank will place in the MPA a clause that they can hold the reserve account for a specified period after the merchant account closes. This is usually for 120 days, but it can be as long as 270 days. Merchants need to be wary of these clauses, as once the date for holding those monies elapses the return of whatever reserve monies remain is not automatic.
In most instances, the merchant must request in writing that the funds be returned. Even then merchants are at the mercy of the ISO as to when it will decide to return those funds.
For the merchants who are the subject of this article, the period specified in the MPA for holding the reserve funds had lapsed, and, despite repeated requests in different forms, and multiple lackluster assertions by the ISO that it intended to comply with the terms of its own MPA, the merchants had gotten nowhere. Even the threat of litigation had not moved the needle.
Understanding what they were getting into, the merchants and their new attorney immediately went on the offensive. Emails inquiring as to the whereabouts of the funds were repeatedly sent to every person that they thought had any authority at the ISO. These emails were sent daily.
Finally, they began receiving assurances from the ISO that it would cooperate and disburse the checks on behalf of the merchants. The merchants and their attorney would request tracking numbers for disbursements, but then, as had happened before, they would receive only one check for one merchant's reserve funds. And more often than not, the check would bounce. Undeterred, they stepped up their campaign to recover the merchants' money.
After three months, they ultimately forced the ISO to disburse all the merchant funds. The ISO, for its part, was apologetic, stating that the failure to timely disburse the funds was not intentional. A representative just chalked it up to a "lack of urgency." The merchants and their attorney found that admission offensive.
Merchant accounts are closed every day and the monies contained in those reserve accounts will remain with the ISO for as long as it can keep them. Merchants must be diligent and tenacious in getting those funds returned. The unfortunate reality is that an attorney can get merchants farther in getting an ISO's attention and getting them to respond.
Every day merchants give up the fight and relinquish monies that they earned and have a right to. They just don't believe they are going to get anywhere. Do the right thing. Don't be the type of ISO that makes merchants require an attorney's assistance just to receive what is rightfully theirs.
Bryce Van De Moere is an attorney at Global Legal Law Firm, whose attorneys are familiar with the rapidly changing nature of electronic payment processing, as well as the associated, ever-changing regulations involved. GLLF has decades of expertise with ISOs, processors, commercial collections, credit card brands and other forms of electronic payment processing litigation. Let us guide you through this new and volatile environment, rather than attempting to navigate it on your own. Contact Bryce at email@example.com and GLLF at firstname.lastname@example.org.
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