|
Bank Card Law |
|
Reading
is Fundamental I Surprisingly,
despite the tremendous resources expended to build solid businesses and
maintain strong merchant account portfolios, many operations never bother
to read, review, and understand the terms of their merchant agreements.
Our office, Bank Card Law, has observed with alarming frequency, that many
of the aggravating, loss-causing merchant account problems could have been
prevented by simply reading and discussing the terms of merchant
applications/agreements and ensuring that these important documents
reflect the understanding of the parties. Many parties do not read and
discuss the terms of merchant applications and agreements until after
there is a problem. Often, it is then too late to prevent loss. Consider
that, written agreements often contain what is known in legal terms as an
“integration clause.” Integration clauses often contain wording such
as “Entire Agreement: This agreement, together with the accompanying
merchant application constitute the entire understanding between the
parties with regard to subject matter hereof and supersede all prior and
contemporaneous agreements and understandings, inducements, or conditions
by Bank, ISO, or sales representative whether oral or in writing, express
or implied.” Simply put, when the agreement is signed, it is generally
considered the final understanding of the parties. To wit, state and
federal jurisdictions usually accept integrated written agreements as the
final expression of the intent of the parties and are reluctant to
consider oral and written understandings outside the final agreement. Likely
causes of failure to read and discuss the terms of agreement are the oft
heard, “It takes too much time” or “I am just too busy.”
Ironically, reading and discussing the terms of agreement can save far
more time and money than responding to the problems caused by failing to
read. Moreover, during the reading and discussion process the parties can
identify, among other things: areas which could later pose major account
problems; areas of operation needing modification; and whether or not the
bank and the merchant are compatible. Below
are some common topics or provisions of merchant applications/agreements
which, if not properly specified, understood, and followed, can lead to
account failure and loss : 1.
Merchant
Type and Type
of Business
(i.e., MO/TO, Internet computer sales, Outbound Telemarketing, etc.). This
must be accurate. 2.
Definitions
[of Terms],
especially those which can lead to account termination such as
“Excessive Chargebacks.” 3.
Approved/Disapproved
Methods of Charge Transaction (i.e.,
card swipe, manually keyed, telephone entry, etc.) 4.
Exclusive
or Non-Exclusive merchant agreement.
Can the merchant have other merchant accounts? 5.
Term
or Effective
Date For what
time period is the agreement in effect? 6.
Prohibited
Practices (by merchant). 7.
Monthly
Transaction Volume
Limit, increasing and decreasing limit. 8.
Mandatory
Merchant Practices (i.e. as required by MasterCard, Visa, law, etc.). 9.
Governing
Law Which
laws (state/federal) determine the effect of the agreement? 10.
Termination
How is termination of the agreement made; what events trigger this; how
much notice is required, etc.? 11.
Notice
For what events must notice be given (i.e. change of business name or
type), to whom should it be made, and in what form(s) (i.e., written, fax,
etc.)? What
can be done to improve the treatment of merchant agreements? Banks can
make sure that their ISOs and MSPs understand the terms of their merchant
agreements and properly convey this information to prospective merchants
during the sales process. ISOs/MSPs and sales agents (which often
represent multiple acquiring banks with different agreements) can make
sure they understand and properly represent the applicable terms of
agreement to the merchant. If there is a misunderstanding regarding any
part of the agreement, the parties should discuss the applicable terms and
conditions to ensure that they are accurate. If the terms do not reflect
the understanding of the parties, they should be corrected by making
amendment to the agreement. While agreements can be modified and explained
after they are signed, the best time to address the provisions of a
merchant agreement is before the parties sign. The
conclusion—Reading is Fundamental and
it helps avoid losses to all parties. Indeed, it does no good for a
merchant to painstakingly build that “ideal business” and then have it
fail because they did not read or understand their merchant agreement. It
likewise does not benefit the bank, ISO/MSP, or sales representative to
“make that sale” if it fails because the agreement is not understood
or involves an incompatible merchant. If someone told you that you could
save tremendous amounts of time, money, and increase your return simply by
reading several pages of information and then discussing it, surely you
would do so. Well, someone just told you. Please
Note: The above article is authored for general informational and
educational purposes and is not to be construed as legal advice, nor
relied upon as legal advice from Bank Card Law or its attorneys.
Individual facts, circumstances, and applicable law may vary. Therefore,
you are strongly encouraged to seek the advice of a qualified attorney
regarding your particular matter. Tony Ogden and Tony Osei of Bank Card Law
provide legal and consulting services designed to facilitate merchant
bankcard processing. The best way to obtain more information about Bank
Card Law is to visit www.bankcardlaw.com. You can also call (310)
278-2708.
© Copyright
1995-2000 |
