By Ken Musante
Eureka Payments LLC
As a new ISO, I am reviewing, negotiating, signing or declining many agreements - standard processing agreements, as well as those involving gateway services, employment, equipment, referrals and more.
Certainly, we need professional counsel for our most critical and technical questions, but what about secondary and tertiary agreements? When should we employ an attorney?
If we used a lawyer for every reseller and vendor agreement we signed, we would be out tens of thousands of dollars. However, without competent legal advice, we would not remain in business long. To get perspectives on this from others on GS Online's MLS Forum, I posted the following:
"Are MLSs [merchant level salespeople] shortsighted when we do not utilize an attorney for standard ISO/agent contracts? Are there some secondary agreements that do not need to be sent to an attorney? If so, which ones? What are some hard lessons you learned by not using an attorney? Any stories about contract law you would care to share for others' benefit?"
As of this writing, the thread has received 64 responses and 742 views.
EMPIRE started off by stating, "MLSs and ISOs should have advisory council on hand at all times. MLSs and ISOs should have contracts reviewed and changed to their benefit, and for ongoing legal advice, general counsel would be sufficient. An MLS/ISO that had and has no counsel is like a blind man trying to drive."
While I like the idea of an advisory council, it is likely a team of respected but unpaid professionals would not move as rapidly as I would want. Further, discussions with an advisory group regarding matters that are subsequently litigated would not be protected by attorney-client privilege.
FASTTRANSACT pointed out that legal expenses are tax deductible, but "coming up with $250 to $1,000 (if contract requires negotiating could substantially be more) can be a barrier to entry for some folks, and they will rely on gut and a false sense of integrity. Then, of course, is the issue of not knowing if who they are writing for is reputable. ... There is no BBB for ISOs."
SLICK STREETMAN noted that some states provide free assistance in dealing with contractual issues. "There are contracts which I have read and they [the terms] have not been kept," he added. "One day they will call it a mistake; the next day they will explain that you didn't understand the language.
"You will find contracts that have contradictions in them, so the ISO, or whoever it is, will always refer to one part of the contract that benefits them; when you read it you saw the other side, which benefits you. Even an experienced attorney reading some of these ISO cut-and-paste contracts may miss something."
CLEARENT suggested using an attorney whenever you have concerns about a legal document. "I would never advise anyone in business to not consult legal counsel at anytime they are concerned or even just want a second set of eyes," he wrote. "There are hundreds of times I would have hoped the MLS consulted an attorney, but I am sure they didn't, because of the concern over cost.
"However, as long as people in the industry (and you know who you are) write provisions that are clearly to their sole benefit - and those same people hope that no one reads them - we are going to see more need to have attorneys involved."
JDECKARD emphasized the importance of consulting an industry-specific attorney and added that a few hundred dollars "may seem like a lot when you are just starting out, but it's certainly less than several years' worth of hard work that can be lost because you didn't spend it."
STEVEN_PEISNER agreed it is crucial to hire a qualified bankcard attorney. "The reason I mention qualified bankcard attorney is that our industry is very complex, and if you want to keep your initial costs down, work with an attorney that is familiar with the terms and acceptable agreements within our industry," he wrote. "If you don't, you may find yourself training your chosen attorney at whatever he charges per hour."
FASTTRANSACT believes many MLSs do not understand the ramifications of their decisions and get into trouble by inappropriately cutting corners. "Even if you don't make the financial investment into an attorney, read every line of the contract," she wrote. "Understand its impact on your residual stream."
She suggested that if you don't understand something in a contract, call the other party to the contract and ask for clarification. "If they don't want to give it to you, that should be your first red flag," she advised. "Look for an ISO that will go over your contract with you line by line. If there are legal negotiations that need to take place, then hire an attorney. But always completely understand what it is you are signing."
SUNCOAST emphasized that new MLSs must realize they are starting a new business, which will require investment if they want to begin on solid footing. "A lot of the horror stories in this industry come from people who are not financially sound or legally sound when they start," he wrote. "If new agents cannot afford the few dollars that it requires to legally insure their future, they probably do not have a future in this business."
TSTREET argued that MLSs should save their cash and rely on common sense. "The last I checked, contracts are written in English, and unless you cannot read and understand English then in my opinion you do not need an attorney," TSTREET stated. "But you do need to read the dang thing and understand it.
"And if you get maybe five or six agreements from various ISOs, you should have a pretty good understanding of what is going on after you have finished the second one. Besides, there are plenty of articles in GS and other publications to point out what to look for."
THE CREDIT CARDMAN disagreed. "I am fairly well educated with an undergraduate and master's degree in business. More importantly, I have 15 years' experience in this industry and have looked at many contracts and agreements. ... A simple, single word - such as 'may,' 'not,' 'can,' 'will,' or 'should,' - has the ability to change the entire agreement from what you thought it said to what the judicial system thinks it says.
"By nature I am a risk taker, but I like it when the odds are in my favor. Not spending a few hundred dollars to get an industry professional's opinion is like letting the corner mechanic work on my Mercedes."
Several folks agreed with THE CREDIT CARDMAN, and TSTREET provided further points to consider. "The easiest way to educate yourself on agreements is to call some ISOs and get five or more to review," TSTREET wrote. "When you see things like 'injunctive relief,' 'exclusive agent' and 'minimum commitment' in some agreements and not in others, you know which ones to trash right away.
"What this comes down to is, do you pick a good attorney (and pay him) or do you pick a good ISO and agreement? If you want to be in this business for the long haul, you better learn how to read agreements now. You will save a ton of money, and then you can always pull in an attorney for a few fine points if you are unsure."
Some Forum members reasoned that an attorney's review ensures you are dealing with a reputable partner. While I agree that a poorly written or one-sided contract can reveal a partner we all should likely avoid, in general, the reputation or honor of another party cannot be gleaned from the contract.
It is up to MLSs and ISOs to determine a company's worthiness via interviews with industry professionals, online reviews, discussions with company representatives and reference checks. That type of diligence is needed in addition to any contract review.
Concurring with TSTREET's minority opinion, CREDITCARDMN posted that lawyers charge "a ridiculous amount just to go through the contract, which any MLS can do if they read through something such as Mike Nardy's rules. No minimums, third-party sell rights with first refusal, nonexclusivity, etc. It really is not that hard to negotiate a good contract."
CREDITCARDMN agreed that using a lawyer without payments industry knowledge is a waste of money and said ISOs and MLSs "know the business better than any lawyer without industry experience."
I support using an industry-specific attorney. Our business is complex and unique. Working with a payments industry attorney on contracts pertaining to our industry helps minimize the time the attorney spends on contract review.
It is difficult to get an attorney who doesn't specialize in our industry to understand our terminology. Industry-specific attorneys can comprehend issues quickly and explain the implications of certain language within the proper context.
Also, because our industry is relatively small, it is important to use a payment attorney who has not done work for the other party to a contract under review. Attorneys will advise you beforehand if they have a conflict of interest, but this then limits the qualified attorneys available. (As an aside, I have found the attorneys writing in The Green Sheet to be both knowledgeable and honorable.)
Some folks asserted that if you don't understand portions of a contract, you can ask the other party to interpret them for you. However, if I don't grasp something and ask the person who drafted the contract to explain it, how do I know if the individual is explaining it accurately?
If it's not readily apparent to you, it will likely not be apparent to a judge or an attorney lacking industry knowledge. Additionally, I have found that the intentions of people drafting contracts are irrelevant. The business could be sold, the person negotiating it could move on, etc. What matters is what the contract says. It is critical that it be clear and stand the test of time.
I've worked with parties to contracts who told me not to worry about certain clauses because they were not enforced. Unfortunately, as some MLSs and ISOs have found out, they could be enforced in the future.
Although I believe that all critical contracts should be reviewed by an industry attorney, most of us simply cannot afford to also have lesser contracts like referral agreements professionally reviewed.
Suggestions from Forum members on alternate ways to have those reviewed include using an advisory committee, working with a trusted source and comparing the new contract to other similarly situated agreements. Those are all great ideas, but each has drawbacks, as discussed in this article.
Even more important than a perfect contract is the partner. Always do business with an honorable party. Disagreements come up over the course of a relationship. Having a mutual commitment to the relationship and to working through issues in a transparent manner is essential regardless of a contract's wording.
As for my next post, please check out the MLS Forum. I am continually soliciting ideas to write about and appreciate the input. You would be surprised by some of the posts. For example, I learned grasshoppers do not have ears - no wonder you can't train them!
Until next time, when in doubt, sell something.
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