Avoid ETFs

Can You Get Out Of An Early Termination Fee?

As anyone with experience in merchant services can tell you, the best way to get out of an early termination fee (ETF) is to negotiate it out of the contract. In some cases, this is very easy, since you just have to tell your very hungry salesperson that you won't sign if there are any ETFs in the contract. It does pay to note, however, that ETFs are not the only way you can get stuck with expenses when you part ways with your processor, so it is imperative that you should review any contracts with someone who knows how to read them.

You can often switch processors before the end of your contract term by paying attention to the terms and conditions found in the fine print. For example, many processors will change their markup on interchange and announce it at the bottom of your statement. The terms may state that if you continue processing, you accept the added fees, but this can also mean (and you need to verify t&cs with someone in the know) that you have a window to switch processors with no ETF. Quite often, salespeople will start customers out on "interchange plus" plans that unexpectedly rise in price several months, or even years, later, because they get paid residuals based on your processing contract. In other instances an ISO's portfolio will be bought up and merchants get switched to a new processor, in which case they should exercise due diligence to prevent a change in contracts.

How To Avoid ETFs

Early Termination FeeWhy are early termination fees added into card processing contracts? The answer is not all one-sided. It costs several hundred dollars to set up a traditional merchant account, so acquirers and ISOs would go out of business if they were always offering contracts that let people switch services at a moment's notice. Even in the cancellation process, there are several people involved, equipment has to be returned, and bank connections need to be severed. Therefore, some kind of protection may be warranted. Many merchant service providers use an ETF as a way to preserve the relationship, since the threat of a fee at least gets the customer to call in and try to negotiate. The other advantage of these fees is that they act as a hedge against other fast-talking salespeople who come in and try to steal the account. If you are a small business owner, then you probably interact with several salespeople every week.

A quick caveat once again is to look at the terms of your contract. In some cases you may not have an early termination fee but you might have a liquidated damages clause that is far more dangerous to your business. In this setup, your attempt to cancel could put you in breach of contract, at which point the processor can assess their "lost profits" from the remainder of your contract term. Some merchants have found themselves hit with thousands of dollars in added fees that they can't easily dispute.

Separate Equipment Leases

Many merchants may be unaware that their credit card terminal lease is actually through a different company than their processing. Often processing is dirt cheap because the terminal lease is where the money is made, but sometimes the terminal is free (until you cancel) at which point you have to pay an inflated price for the equipment unless you somehow manage to return it in better condition than you received it. Some processors will send out proprietary terminals so when you break your lease you can't use the machine elsewhere, but in other instances you simply need to keep paying on the terminal lease and you can reprogram it. Your PIN pad, however, is usually a brick at this point, because the TDES encryption key and anti-tampering equipment make it nearly impossible to reprogram.