Can You Ditch Your Merchant Account for a Better Deal?

By Elaine PofeldtLifestyle and

Dear Your Business Credit,

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I was with a credit card processing Company A. Card processor B comes in and offers lower price, so I went with B. I called A to cancel, then was told I have automatic renewal for three years in contract.

I never received contract from Company A. Company A faxes over copy with my signature but no initials on bottom of page as required by them. To get out of the contract, it will cost $3,300. Representative A asked to meet or beat B's deal and, if not able, to let me out of contract at no cost.

Well, they were able to meet B's per swipe charges, but added a yearly charge of $179. When I asked about the charge, I was told she would investigate and get back with me.

In the meantime, I put a stop notice with my bank and sent back the card machine. Almost three weeks later they took $3,300 from my account. Four days later I got an invoice from Company A, after they already took the money out. The bank says it is not responsible -- after I requested a stop payment and was charged for it. Do I have any recourse or did I fall victim to shady card processor?  

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- Augie

Dear Augie,

Sounds like you strike a hard bargain.

You need to get legal advice on your specific contract to get the right answer to your question, based on the feedback I got when I asked two attorneys about this. It is hard to tell if Company A is shady based on what you say -- or is just acting within the rights of the contract.

It's not clear why your bank allowed the $3,300 withdrawal three weeks after you stopped payments to Company A. But what's more important is whether you're legally obligated to make that payment.

To get some insight into your case, I spoke with Robert F. Brennan, an attorney in La Crescenta, Calif. He specializes in wrongful credit damage cases, as well as identity theft cases. He said that when you have signed a contract, negotiating a rate reduction does not end your contractual obligation to make payments, even though you may be tempted to stop paying.

Based on your note, it sounds like you signed a deal with Company A. Though you did not receive a signed copy in the mail and the company did not initial every page, the version that was faxed could still be valid. You need a lawyer to look at it.

I'm sorry to be the one to tell you this, but if you did sign a valid contract, stopping payment to Company A while you were working out a deal to modify the contract doesn't leave you on very strong footing. "That's the part that's troubling to me," says Brennan. Not wanting to make a payment doesn't mean you weren't obligated to make it.

You may want to have an attorney review the contract to see what recourse you have, but that will cost you money, Brennan points out. Typically, lawyers will charge you for an initial consultation.

Running a small business can be full of expensive learning experiences, and this may be one of them.

There's nothing wrong with shopping around for a great deal on a merchant account -- and making providers compete for your business -- but you should never sign on the dotted line until you understand what you're signing and are prepared to stick with the contract. As you've discovered, looking for a technicality that will get you out of a deal can be a lot harder than not signing it in the first place.

See related: When does a merchant account make financial sense?, Savvy ways to finance holiday inventory, Options for accepting overseas payments expand for small business