Maryland’s House Bill 777 was signed into law on April 30, 2019 and took effect October 1, 2019. Jaron Rice, Founder & CEO of Magothy Payments, authored this bill to help protect Maryland small businesses from the predators in the payment processing industry. In times past, big banks and merchant services providers could lock small businesses into expensive, complex, auto-renewing contracts. These contracts would cost the business owners thousands of dollars to terminate, but the terms of the agreement and penalties to cancel were never actually disclosed on the agreement they originally signed. This legislation puts an end to that common practice. Now, a credit card processing company cannot charge a fee, fine, or penalty exceeding $500 for the termination of processing services. Furthermore, once a contract has automatically renewed, they can no longer charge penalties if a business cancels their service. This is the most comprehensive bill of its kind in the nation, and we’re hoping it serves as a blueprint for federal regulations.
Ladies and gentlemen, boys and girls, it’s your boy, Jaron Rice, founder and CEO of Magothy Payments, Maryland’s highest-rated merchant services provider, back for another episode of whatever this is. I haven’t quite figured it out yet. But I’ve got a lot of good information that you, the people, the small business community, need to know and need to understand.
Today I want to talk to you about Maryland’s House Bill 777, which is now signed into law, and what it does to protect you, the small business owner, from the predators in our industry, whether it’s the banks or the merchant services provider.
When I got into this industry a little over six years ago, I noticed a huge, huge problem. I would meet with a business owner who wanted to switch their payment processing over to us. We were saving them a couple hundred dollars a month. Then when they went to go cancel the service with their previous provider, their previous provider attempted to levy fines upwards of thousands of dollars for switching their services.
What happens here is oftentimes a merchant services provider or a bank on their agreement for merchant services on the signature page, there’s a line that says, “By signing this document, you are agreeing to our terms and services, which can be located here.” And on the piece of paper, there is a written-out URL that has a link to an often 75 to 100-page document which is their terms and services. Buried in the middle of that huge document in 6-point font, there is a clause that says, “This agreement is good for three years. If you cancel before three years, we will charge a cancellation fee of $499 and liquidated damages penalties of $100, $200, $300 a month for all the remaining months left on the agreement.” In essence, the merchant services provider is saying, “By you taking your business elsewhere, you are causing us financial harm, and so we are going to bill you for our lost profit.” Of course, they’re causing you financial harm because you suck. If you didn’t suck, they wouldn’t leave.
But that’s a huge problem that we were dealing with. Merchants were getting stuck in these agreements, and the merchant services providers would give them literally a 30-day window where they were allowed to cancel that agreement, or it would automatically renew.
I am a mission driven type of person. It’s in my nature. I cannot see a wrong being done and just be quiet and be silent about it. Providentially, I ran into a gentleman who was a referral. He owned a cigar shop. I was telling him stories of things that I had seen in the industry about big banks and merchant services providers ripping off small businesses. We were trading horror stories and things he had seen, and I jokingly said to him, “I wish I could make that illegal” or “I wish I could write a law to make that illegal,” or something to that effect. He looked at me and said, “Did I mention to you that I’m a state delegate?” And I said, “No, you did not. But that would be useful.” He is delegate Seth Howard here in Anne Arundel County, and he invited me down to Annapolis. I met with his legislative team. We hammered out a bill, and it took us three years, three legislative sessions, to get this bill passed.
Basically what it does is if you are a small business in Maryland, you have fewer than 50 employees and you are processing less that $2 million in credit card volume a year, this is designed to protect you. The majority of our clients are those small businesses. What it does is it caps all of the fees, fines, penalties, liquidated damages that a company can charge you at $500. It levels the playing field and makes it more competitive in our industry so that if you are a small business owner and you’re not happy with the service that your merchant services provider is providing, you can then shop elsewhere without fear of a huge financial retribution being levied on you for taking your business somewhere else. it also makes it so that if your agreements automatically renew, once it automatically renews, there can be no fees, fines or penalties levied once you’re in the renewal period. The information about your cancellation fees, it has to be in 12-point, bold font on the actual agreement that you sign. The renewal date, the penalty for cancellation, the contact information of the merchant services provider, all of those have to be on the actual agreement that you sign in 12-point, bold font. Each individual clause has to be initialed by the merchant. This was huge in bringing transparency to our industry, which is obviously not known for being transparent.
In the first couple of years, we had a lot of opposition. First Data and the Maryland Banker’s Association and all of these big, huge corporations who didn’t want us to go forward with this legislation, even though I work in the industry, my industry hates me because this legislation in Maryland affects how merchant services providers can compensate their sales agents because they know that they can no longer slam a merchant for thousands of dollars. They can’t afford to pay this merchant sales rep several hundred dollars, a thousand dollars in up front bonuses knowing that they can recoup the money if the business takes their business elsewhere.
It really ruffled some feathers and pissed off a lot of people, but, frankly, I don’t care. I believe that this is the right thing to do. I am a free market capitalist. I believe in the less government the better, but the payments processing industry is like the wild west. And these merchant services providers and big banks were running rough shod all over the small business community. I think that merchant services providers, banks, and their clients, the actual small businesses, that we should be on the same side of the table. We have a vested interest in the long-term growth and success of their business. Why are you trying to violate the people who are your customers? I don’t get that. I don’t understand that, so we took steps to change that.
If you are a business owner in Maryland, again, you have fewer than 50 employees and you’re processing less than $2 million a year, this applies to you. This was signed in April of 2019. It went into effect in October of 2019. As of this recording, this is the last day of November 2020, it is in effect, and it is protecting you right now. If you have any other questions about that legislation, you can visit www.mdhb777.com and there’s more information about that and how you can file a claim if you have a merchant services provider who is violating that regulation.
So I hope that information was helpful, and we’re continuing to commit to bringing you some useful content. I hope you guys are having a great day.