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March 4th, 2019

Maryland House Bill 777

Maryland’s HB777 and its senate companion SB694 were designed to bring more transparency to the payment processing industry in the great state of Maryland.

 

The Problem:
Many small businesses get locked into expensive, long-term merchant services agreements as a result of [intentional or unintentional] non-disclosure of the contract terms.  Oftentimes, the sales rep will present a 2- or 3-page contract for review and ratification by the merchant.  In many cases, the agreement the business owner signs makes no mention whatsoever to the length of the contract, the cancellation fee(s), and/or the liquidated damages associated with the agreement. 

Liquidated damages is a fancy way of saying the merchant services provider is suffering a loss by a business leaving, so they’re going to penalize them for future lost revenue.  These clauses attached a monthly fee for the remaining months left on the contract (usually $25-250 per month).  So, if a business has a liquidated damages penalty of $100/mo for all remaining months on the contract, and they cancel with 20 months left, they’d owe a lump sum penalty of $2000 in addition to the cancellation fee, which is normally $495.  In case math isn’t your forte, that’s $2495 in penalties that a business would have to pay to terminate the agreement and fine another provider.

This is problematic, especially when this wasn’t disclosed on the original agreement and the business owner is only finding out as they’re attempting to switch.  The original agreement usually makes reference to a “terms of services” agreement that isn’t present or available at the time the agreement is ratified.  This terms of services agreement is usually 75+ pages and has the termination fee(s) and liquidated damages buried deep insider.

 

The Solution:
HB777 and SB694 are designed to create a truth-in-lending style disclosure that I’ve dubbed the Transparency-In-Transactions disclosure.  It’s a uniform, single-page disclosure that specifically lays out the length of the contract, the cancellation fees, the liquidated damages, any other cancellation/termination related fees, and whether or not the agreement automatically renews.  Each term of the agreement must be initialed by the merchant and the entire disclosure must be signed and ratified.

Instead of trying to regulate or limit the cancellation fees and liquidated damages, these bills simply aim to bring attention to them.  If a merchant services provider wants to impose excessive fees and lock their merchants in, that’s their prerogative.  This, however, would force them to disclose it simply and plainly so that the business owner fully understands what they’re getting themselves in.  The hearing for HB777 was on February 20th.  The senate hearing is on March 12th.

For more information about HB777 and SB694, visit http://www.bit.ly/hb777

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