PEP Episode 037 — Navigating Merchant Processing Agreements: Uncovering Hidden Risks and Negotiation Tactics

Podcast Description:

Bryce Van De Moere (00:00):

Chris, I have to disagree with you that this might not be a grand scheme because it’s so diabolical what they’re doing. So they have in the terms and conditions, not in the four page merchant application, buried in the terms and conditions, they’re going to have a mandatory arbitration provision. Why do they want arbitration? Because arbitration provisions are confidential and they also limit you. They prohibit you from bringing a class arbitration, so it’s one merchant, one arbitration. On top of that, they require you the merchant to front all the initial filing fees on the arbitration. So one arbitration or one merchant, but you have multiple preserve accounts, multiple arbitrations. Secondly, they say that you have to eat, you have to bear your own legal fees in the arbitration. So basically, lemme break that down. You have to spend your own money to go get your own money.

Jeremy Stock (01:00):

Welcome to the Payments Experts podcast, a podcast of global legal law firm. We hope you enjoy this episode.

Chris Dryden (01:14):

I’m Chris. You may or may not know me. Bryce and I work together hand in hand a lot. Bryce raised a really good issue to me last week, one that we see all the time. It really relates to the merchant processing agreement for merchants out there. A lot of times the only thing that you see is a merchant processing application and usually that has data fields for the collection of information that’s required to form a contract with you so that you kind of know what the financial terms of the agreement are and that they satisfy the underwriting requirements that an acquiring bank has to be able to board you as a merchant and then process your payment processing transactions and settle funds to you minus their fees. A lot of times what isn’t seen on the merchant processing application is that somewhere around the confirmation or acceptance where you’re signing, there’s a lot of fine print and that fine print cites and references a different terms and conditions that is supplemental to your application, which is really the true terms and conditions of the merchant processing agreement.

Chris Dryden (02:34):

I mean, it is basically everything that is required that has all of the obligations to the merchant and usually it’s very one-sided. I had a law clerk at one point review a processor slash acquiring bank’s terms and conditions that was incorporated by reference, and I asked them to cite the number of obligations that the processor or bank had to the merchant out of like a 25 page terms and conditions in small print. And there was like six. And the primary one was that they just pay you the money. Other than that, everything in there is the merchant’s obligation back to the processor or the acquiring bank. And the crazy part is that those are all of the reasons that they can use to withhold money from you for whatever reason. Now, I’m not saying that there’s a grand design necessarily to do this, but I think that there is opportunity that comes into play and when that opportunity comes into play, they will use those terms and conditions as a sword to which you have no shield.

Chris Dryden (03:47):

And so it’s really important that when we look at the terms and conditions, we are consistently trying to find some sort of ability for the merchant to fight back. And there are many, many, many clauses in these terms and conditions that are really you have no shield for. But what we’ve done over time is tried to form defenses even without having a shield. And Bryce can explain a little bit more about what those defenses are, but one of the primary defenses has been this idea that the contract is unconscionable, which means that really it’s so there can’t be any meeting of the minds and it’s really like a take it or alert leave it type of agreement. And it’s so one-sided and unfair that it shouldn’t be enforced. But to make a claim of unconscionability in a court of law or even legally, it requires you do certain things, one of which never gets done, and which means that the unconscionability defense will ever be successful. And that is,

Bryce Van De Moere (05:01):

Well, I’d like to actually back up a little bit. So my name is Bryce Van More for those of you who have not watched any of my other podcast, I handle business litigation with Chris, but I also handle all the match claims. And recently, or not so recently, but in the last year we’ve received just a rush of cases from merchants who are telling me that their reserve fund money, their money is being withheld by these processors in these banks and it’s being held way beyond the withholding period and they’re getting no explanation, no movement, and the money’s just sitting there. And so from that experience with these reserve funds, I came up with some observations. So first off, the merchant ity agreement, this is what I think I understand is happening. The merchant processing agreement or the merchant processing application is four pages. And I think merchants really think that those four pages are going to dictate the entirety of the relationship between themselves and the processor and the bank.

Bryce Van De Moere (06:05):

It doesn’t because every merchant and processing application probably about, I think it’s like section 13 or section 14 near the bottom will say that A, I’m not relying on anything anybody said to me before I signed this agreement. And so if you end up signing the agreement and things go differently in the document than you were told, you’re kind of out of luck. So I don’t think that’s one thing that people realize. Also, there will be a hyperlink buried in the signature page and that hyperlink will take you to these terms and conditions which are incorporated by reference into the merchant application. It’s usually like a 44 page document that is incredibly difficult to read, incredibly confusing, and merchants want to make money. They have bills to pay, they have overhead, they don’t have time to look at this stuff. And so I think quite honestly, they disregard it

Chris Dryden (07:01):

Or they just don’t know. I think it’s important to understand that there’s this doctrine in the law that says that you can incorporate by reference other terms and conditions, other agreements, and all that has to happen is that the terms and conditions is readily identifiable and available. Well, the fact is you put a hyperlink there, it’s available because you could go to that and you can open it up and you can see that there’s all these other terms and conditions. And I agree with you, all the merchants, they just want to make money. They’re focused on the business terms. Well, the sales

Bryce Van De Moere (07:33):

Agents are focused on their commission. Do you think they’re going, Hey, by the way, go click this hyperlink and read this huge document. They close the deal. Of course they want to close the deal,

Chris Dryden (07:42):

But when you incorporate by reference these conditions, then they all have to be considered in the formation of the contract. And as far as I’m concerned, Bryce brought up a really important point, kind of like a legal thing and don’t want to get too far into legal doctrine, but if you sign a contract and the contract in its terms has plain language that says that, Hey, this is how it’s going to operate, you can’t come back and say, Joe Blow said A, B, C, and D to me because and have those representations directly contradict what you signed. The minute that you sign that you can’t rely on those oral representations any longer and there’s nothing in the law that will save you. Generally there’s this thing called the peril evidence rule parole or peril, whatever, in instances of fraud. I can read it if I say it right, I know, I don’t know.

Chris Dryden (08:40):

But in instances of fraud, you can actually bring in outside documents and outside information to support a claim that you were kind of fraudulently induced into a contract. There’s a caveat to that. If the language of the agreement itself expressly contradicts those oral representations, you can’t come back and claim foul. And what I’m trying to say is, is that when you incorporate by reference 44 pages of additional terms and conditions that are pretty plain language, you can’t come back and say anything that the salesperson may have said to you. And I think that, yeah, it’s probably entirely unfair, but as a merchant, you’re a business and you’re held to a different standard than consumers. You don’t get the protection of consumer law. It just doesn’t exist. So I think that’s important that you actually raise that if it’s there and it’s incorporated, which almost any court of law is going to say that these terms and conditions apply because every state has this doctrine of incorporation by reference. These agreements are drafted and these applications are drafted in a particular way to make sure that all of those terms come in.

Bryce Van De Moere (09:55):

Well, I also think that the merchants need to be made aware they’re not already, that these agreements, these merchant processing applications are what we call MPAs are incredibly predatory toward the merchant are incredibly one-sided toward the bank. They’re going to do as much as they can to limit their risk, to limit the possibility that they may have to come out of their pocket for any money whatsoever. And so the merchant has to be aware of that. These guys are not your friends. They see you as a revenue source and that is it. And they have thousands of merchants that they’re drawing all these processing fees from. They’re think they give a shit about one.

Chris Dryden (10:37):

But the point is that they’re not necessarily looking to churn and burn you either.

Bryce Van De Moere (10:41):

No,

Chris Dryden (10:42):

They do care about the merchant because they want that relationship to last a long time.

Bryce Van De Moere (10:47):

But would you agree that that MPA is incredible? I mean, you just said it.

Chris Dryden (10:49):

It’s six pages out of

Bryce Van De Moere (10:51):

Like a hundred. It’s one sided. It’s very one-sided,

Chris Dryden (10:54):

Right? And I think the point is that, and I want to go back to the unconscionability thing. The problem with Unconscionability defense because a lot of people want to raise it, is that in order for you to raise that defense, there’s two prongs to it. And the first one’s the procedural incons ability and the second one’s substantive. Well, the procedural says that if you don’t try to negotiate the terms of the merchant processing agreement, especially the ones that you’re taking the most issue with, then at that point in time you can’t raise that defense. And nobody, if you don’t know that the terms are there to negotiate or you feel like, oh, well I know that they’re there but I can’t negotiate ’em, your failure to even try means that you’ve limited anything that you can do to defend yourself later on. That’s the problem.

Jeremy Stock (11:48):

And

Chris Dryden (11:48):

Nobody’s going to tell you that except us geeky lawyers over here that actually have encountered this and understand that it exists. We have actually gone to multiple bar associations in California to do a webinar series and told the business attorneys, the ones that actually showed up a little bit about the payment processing industry and how using people like us could actually help your business clients. Because the way I see it is that all of these business attorneys, if their clients are transacting card payment, then they’re in a merchant processing agreement. And I guarantee you that they probably didn’t review or try to negotiate. I mean, we have some clients that deal with some larger groups. We have one client that deals with larger automotive dealership groups. And those dealership groups, they’re large and they do a boatload of volume every year. And because they have council on staff or sophisticated counsel, they go in and review the agreements.

Chris Dryden (12:53):

And actually for certain items like security interest reserve accounts, they are asking questions and trying to negotiate. And if you’re big enough, they’ll move the processing entities or the full service provider, it being like a PayRock or somebody who’s an acquiring arm that is taking all of the risk, they’ll move. I mean, I’ve seen ’em move. I’ve seen them give concessions on other larger businesses when they’re negotiating the terms of these. But usually they only move because they see the volume, they see the lack of potential chargeback that’s going to be significant based on the type of business. And they’re like, yeah, we’ll release some of this stuff. We’re okay with it, but banks usually will not negotiate with you. And if you’re going to raise an unconscionability defense, you have to actually say to the bank, yeah, please revise these seven provisions, and then you have to watch the bank go. We’re not going to revise anything. And at that point in time, that makes it an adhesion contract. It makes it unconscionable.

Bryce Van De Moere (14:05):

Well here and brought me to my first point, this is my first recommendation to merchant out there.

Chris Dryden (14:10):

I’m glad you have a point, Bryce.

Bryce Van De Moere (14:11):

Yeah, occasionally. The first thing a merchant needs to do before they sign the merchant application or the merchant agreement is try to negotiate the terms. Are they going to say yes, absolutely freaking not, but at least you have and have it on paper. Send it as an email, send it as a letter, say. So for instance, like the arbitration clause we’re going to talk about in a minute, I’m not happy with this arbitration clause. I want to be able to bring a lawsuit in open court. Can we negotiate this? Are they going to say no? Absolutely, because every merchant processing agreement that I see now has the same arbitration agreement, but you have to at least try and get it on record that denied it, then it makes our job a hell of a lot easier. But what I have seen and why, Chris, I have to disagree with you that this might not be a grand scheme because it is so diabolical what they’re doing.

Bryce Van De Moere (15:03):

So they have in the terms and conditions, not in the merchant and the fort page merchant application, buried in the terms and conditions, they’re going to have a mandatory arbitration provision. Why do they want arbitration? Because arbitration provisions are confidential and they also limit you. They prohibit you from bringing a class arbitration. So it’s one merchant, one arbitration. On top of that, they require you the merchant to front all the initial filing fees on the arbitration. So one arbitration or one merchant, but you have multiple preserve accounts, multiple arbitrations. Secondly, they say that you have to eat, you have to bear your own legal fees in the arbitration. So basically, lemme break that down. You have to spend your own money to go get your own money and you’re not going to get those legal fees back. So you’re already burning into the reserve that you’re trying to get.

Bryce Van De Moere (15:59):

And quite often you’re going to burn the reserve out in the legal fees that you spent just to get it. And they know that. They have to know that. And that is where I’m going with this. This is what I call an illegal penalty. You have to pay this amount regardless of whether you win or lose to actually get the right to go and fight for your money. And then secondly, you’re dealing with a corporation. You’re an individual. You’re an individual merchant. Any money that you spend is coming directly out of your pocket. You think the bank president is going to pay you your reserve funds? No. You think the CFO is going to pay your reserve funds? No, it’s going to come out of some big fat fund at a bank. So how do you negotiate with a person who has absolutely no skin in the game, does not give a shit about your case, and is not going to lose any sleep, not going to lose any money. They have no incentive to negotiate with you at all. They’d rather bleed you out. And most merchants are not going to have large enough balances in their reserve account to make it worth their while. And they’re just going to throw their hands up and walk and all that money goes to bank.

Chris Dryden (17:06):

Well, I love the passion. It pisses me off, man. I get it. I love the passion. And to quote the departed talk about banks, these are duty duty people because they are. They are. And I could give you a number of books that talk about the banking industry. Capital One just got sued this week for keeping minute amounts of interest that accumulated to about $2 billion to their bottom line from people they offered this high interest program to should go read about it. Banks are constantly doing these things. Wells Fargo has been somebody who’s a bad actor. The only

Bryce Van De Moere (17:41):

Time I hear about Wells Fargo is that they’ve done, so that’s the only time you hear about. Then you have Bank of America who is honestly the most obstructive ridiculous bank. And then there’s Chase who we’re going to talk about,

Chris Dryden (17:54):

But I’m going to disagree with you in one respect. You don’t need the arbitration provision to limit a representative class, which means that if it’s in there, you can have just a provision in there that says that you can’t bring a representative class. I don’t think it has to be under the arbitration provision. I think you could just have that in there in general. Yeah, it’s in the language.

Chris Dryden (18:17):

No, I get it. It’s in that because that’s the dispute resolution clause, but I think you could have it in a regular dispute resolution clause. What they’re trying to prevent is their bad acts from being aggregated by a bunch of people who are being affected. And then the other thing that they’re trying to prevent is that when you file a lawsuit, I mean, we do this routinely for multiple purposes and legitimate purposes, but sometimes we file in court court because we’re looking to maintain a place for injunctive relief, which you can’t. Which means if I want a temporary restraining order or preliminary injunction related to something activity that’s happening, I can only get that from a court. I can’t get it from an arbitrator, but one of the things that they’re trying to hide are these systematic bad acts and they don’t want ’em on the public record.

Chris Dryden (19:06):

And when you file a lawsuit, it’s publicly available versus in an arbitration, it’s not publicly available. I think the thing that is probably hyping Bryce up is usually if you have a dispute resolution clause, the prevailing party gets their attorney’s fees. But if you start looking at the terms and conditions in these merchant processing agreements, not only does it not the prevailing party and that there’s no recovery for what you have to spend, it’s that you have to spend to begin with. And usually in an arbitration, when you commence it, say they’ve got $400,000 of your money, you have to pay a percentage of what the amount of dispute is, and then it’s, so you’re never going to have the opportunity to even recover. And the out of pocket might be so significant at the arbitration, that percentage, you don’t have the, because you don’t have all this money that’s yours, that they’re withholding from you.

Chris Dryden (19:58):

You don’t have the available funds in your cashflow to even pursue this. Look, and we see it all the time. We do contingency fee at times related to some of these where we’ll do a hybrid and charge a lower hourly fee and take a percentage of any recovery because merchants can’t come out and do this. But some people were just going to fight you tooth and nail, and it doesn’t really matter. Elon’s one, Elvin is one of the most awful companies that you could ever do business with. And if you ever have a dispute with them, they’re never wrong. Ever. And David versus Goliath, they try to drag you through the mud. I mean, look, I’m not going to blame the lawyers doing their job and they’re being directed by a client, but most processors and banks, they’re going to just grind you down and make it to a point that you can’t afford to fight them. And this is one of the things in our legal system that exists. And when it comes to consumers, there’s a reprieve and there’s watchdog entities that are assisting consumers, but as a business, you don’t get any advantage to the consumer protection law. So the only thing that you can do is be more proactive. And this is the thing that we see time and time again where Bryce is coming up with some sort of idea of how to attack.

Chris Dryden (21:20):

A lot of times just get movement from the people that we’re having a dispute with because they just sit on their hands. That’s the biggest thing. Or just don’t respond or don’t provide any of the documentation or proof that they would have to provide in a court in an arbitration to you ahead of those moments to show that they were warranted in making the business decision that they did under the contract. I mean, it’s craziness.

Bryce Van De Moere (21:43):

Well,

Chris Dryden (21:44):

Bank America,

Bryce Van De Moere (21:45):

Go ahead, fish.

Chris Dryden (21:46):

No, man, feel free.

Bryce Van De Moere (21:47):

Well, bank of America is notorious to me for this because we will get match cases, we will get reserved cases, and we will write Bank of America and we’ll say, Hey, this client’s been placed on match. He doesn’t understand why he doesn’t know what he did. Can you just tell us so we can work it out their response, file a subpoena, file a subpoena. So I have to actually spend thousands of dollars to draft and file a complaint and then have you answer it, and then you’ll send me the documents. Maybe if I file a subpoena on top of that, I mean they won’t even respond to you at all.

Chris Dryden (22:21):

I could put it into an even easier context for people. Forget about merchants. I mean, I used to use at t and I will refuse to use at t now, not that Verizon’s much better, but at TI think routinely makes customer service so difficult that you’re losing money. Everybody says this principal is expensive. If I get overcharged $10 on my at and t belt and it takes me an hour to get that addressed, I’m losing money. Right? And they’re banking on that. And then they’re keeping, and the interesting thing with banks and reserve funds that I don’t think that people understand is that when that reserve fund is established and there’s a balance in that, it’s a balance at the bank and it’s a bank account which does a couple of things. The bank is getting interest associated with that money being on hand, and B, they get to use that money to create other obligations from third parties.

Chris Dryden (23:18):

They get to use your money to lend to other people and then make interest off that money. And so just the float of how much money they make by sitting on these funds for more time than they’re really able to. I mean, it’s craziness, but I don’t really know how to address any of this stuff. So let’s get back down to the merchant processing agreement. Yeah, what we talking, I think we got pretty back around here for the I Justice of the world. Yeah, totally. But I think what we’re trying to say is more often than not, we really want to employ all the tools in our tool bag to help defend merchants against some things that are inherent in the contracts and the contract formation that goes on. And the problem is that we don’t know how to educate the merchants to get ’em to a place where they understand, Hey, maybe use us on the front end. You won’t be successful, but if there’s ever a dispute later on, we can at least assist you in bringing about a defense that you won’t have otherwise.

Bryce Van De Moere (24:19):

Well, and if anything else comes out of this podcast, I just want to make it clear to the merchants that they need to understand that they’re putting themselves in a lot of danger when they just walk into these and sign these MBAs without actually really, really taking a look at them. I mean, not even, we’re not, well, I guess we can discuss the early termination fee, 36 month term, you’re processing for six months, they terminate you. They can hit you for all the money that they would have received from you over the remaining 30 months. Because their argument is, well, we’re taking the risk, and even though we didn’t incur any risk, we’re still entitled to the remaining monies that we would’ve earned during that term. So we’re going to take your three most profitable months, and that’s what we’re going to put in aggregate, and that’s what we’re going to take from you.

Bryce Van De Moere (25:09):

So you have, and I’ve seen it, you have 23, 24 year olds getting sued for half a million dollars because they really did not understand what they were getting themselves into. And these ETFs, I don’t even know if the merchants are aware what they are. They’re called liquidated damages. They’re called ETFs, and they’re probably like, oh, that’s just legal ease. Or maybe they do understand it, but the liability that you can incur on these merchant NPAs is really substantial. And I really get the impression that people really don’t know that it can happen until it does happen.

Chris Dryden (25:48):

I agree. Well, it’s the whole point of what we’ve been talking about. They don’t even know what’s in there because they didn’t click on the hyperlink.

Bryce Van De Moere (25:55):

Yeah, exactly.

Chris Dryden (25:57):

That’s really the purpose of what we’re talking about is there are more terms and conditions out there that you need to be aware of. The one that was really the harbinger to this was the arbitration provision, because the arbitration provision creates a barrier for you to even begin to have a dispute that can be resolved potentially in your favor to get what’s yours back. And a lot of times these companies, they just hold the money and they wait for you to go away, and then they figure out another term under the agreement, maybe like the ETF, to justify just holding all of it. And whether or not there’s been any sort of actual fact gathering, presentation analysis, it never happens. We don’t even know if somebody was right or wrong just by the process of what is taking place. There’s a lot of money that is being absorbed by banks that don’t necessarily, they may not really deserve or have a right to.

Jeremy Stock (27:03):

So if I can throw a question at you gentlemen, I use that term very loosely. If I heard you correctly, these arbitration clauses are typically buried in those terms and conditions that’s at that hyperlink, right? That’s referenced.

Chris Dryden (27:16):

Well, they’re not buried. I mean, well, they’re in there and they’re prominently displayed in those terms and conditions, but try being a non-lawyer and reading those terms and conditions and not glazing over.

Jeremy Stock (27:26):

Right. Well,

Bryce Van De Moere (27:27):

You also see that the car brand rules require the bank to educate the merchant as to their rules and how to abide by them somehow. I guess the banks have figured out that just providing a hyperlink meets that burden.

Jeremy Stock (27:42):

So here’s my question. It’s a hyperlink. It’s a website basically, what’s to stop them from making changes and do

Bryce Van De Moere (27:50):

Changes all time? They change all the time.

Jeremy Stock (27:51):

And how do you know then?

Bryce Van De Moere (27:52):

They don’t have to give you

Jeremy Stock (27:53):

Notice which chosen conditions you’re even under.

Bryce Van De Moere (27:55):

They don’t even have

Jeremy Stock (27:55):

If they’re constantly changing, if the goalpost is moving. Can you guys address that?

Chris Dryden (28:00):

Well, I think that in the agreement itself, if there’s a modification to the relationship, just the publication look for the merchant processing agreement itself. It’s a great question. I’d have to go look right, but there are forms of terms and conditions and they will change them. And they denote which form it’s on the merchant application, so if it changes. But usually once you’re in the terms and conditions, I don’t think that they can just bootstrap new terms and conditions unless they notify you in another way. The way that I normally see is through a statement message. But the other thing is now we have so much interactive user face that if you have a backend portal that you log into to look at your payment processing every time you go on, you’re subject to the terms and conditions that are published on that time that you go on. So if they’ve changed, there’s a lot of a click to accept. And so many times, just through normal use, you could be giving an employee the ability to go on a backend just to check to see if the POS system spoke to the processing and if they hit the button, they’ve now potentially

Jeremy Stock (29:13):

Agreed to these new terms and you never even saw them

Chris Dryden (29:16):

As the owner. Right? So there’s a lot of things. And how do you combat against that? I think that that’s maybe a whole different podcast. I think the thing that is most important is allowing merchants the opportunity to understand what they’re engaging with, what they’re agreeing to, and how to maybe preserve some defenses if there is ever a dispute. And look, I don’t want to be, it’s upside down, but look, not all merchants are good actors either. And so some of these things need to be there and they need to be available. What we get hung up on are the things that are really upside down. And if processors or banks or anybody upstream from the merchant really valued the relationship and didn’t look solely at risk, it’s them looking at a particular situation and seeing it on a one-off basis. And that’s just not what happens. I mean, there is just, I go back to the at and t model. I get a $10 charge that shouldn’t be there. I get sucked into a phone tree. And even when I do get somebody, they’re going to tell me, I can’t help you. Let me transfer you to this person. Free transfers later, the call drops. And I’m never resolving my $10 or your

Jeremy Stock (30:41):

Internet down for four

Chris Dryden (30:42):

Days apply to what we’ve been saying. Right?

Jeremy Stock (30:44):

Or your internet’s down for four days.

Chris Dryden (30:45):

Yeah, totally. Yeah, totally. Exactly. And look, what’s lacking in our society as a whole is accountability. Nobody wants to be accountable.

Jeremy Stock (30:56):

That’s another podcast too. That’s another

Chris Dryden (30:57):

Podcast too. That may go way beyond payments for

Jeremy Stock (31:00):

Sure.

Chris Dryden (31:00):

But I feel like there’s a system that everybody has to get under, and when they are under it, there’s not a lot of flexibility for freedom of choice. And that seems really anti-American to me personally. But I believe that there are things that merchants can do. And unfortunately there’s zero education out there. Hopefully this podcast, if you’re not bored at this point and you haven’t already turned us off,

Jeremy Stock (31:31):

Hopefully this helps

Chris Dryden (31:32):

That education process. Maybe this will resonate

Jeremy Stock (31:33):

Somewhere. Yeah, absolutely. Well,

Bryce Van De Moere (31:35):

Here’s another thing that pisses me off since we’re doing this. Here’s what grinds my gears. Well, and I think this will grind your gears too. So we go after these reserve funds, go to these banks. We say, why? Because normally it’s about 180 days they can hold the money for 180 days to guard against penalties or chargebacks, which are clients trying to get refunds because they didn’t get their product. They will say, well, they’ll hold them way beyond these periods where they have any legal right to the money at all. And I’ll say, well, why is that? And they’ll say, well, we have to do an investigation to make sure that this isn’t like a straw merchant or they’re funding terrorism. And my response to that always is, so that wasn’t an issue for you when you were underwriting them and bringing them in and making all this money off of them, but now that they’re done and they want their money back, oh, terrorism or straw merchant, that’s some new concept. Don’t you think that should have been covered at the beginning? Well,

Chris Dryden (32:37):

It allegedly was.

Bryce Van De Moere (32:39):

It’s so freaking transparent in

Chris Dryden (32:42):

What they’re doing. It allegedly was, no, I get it. Look, if you’re a merchant out there and you have a shitload of money, contact us because these are things that we could raise. And I agree with you. That to me seems

Bryce Van De Moere (32:56):

Very systematic, but

Chris Dryden (32:57):

I watch everybody do it.

Bryce Van De Moere (32:58):

It’s freaking

Chris Dryden (32:59):

Ridiculous. It’s kind of this idea, it’s like street

Bryce Van De Moere (33:01):

Face. You’re saying this to me.

Chris Dryden (33:03):

I’ve had this, especially with businesses that are kind of outside the box a little bit. We had a client that had a kind of an alternative payments where you would buy gold, like physical gold, and then you would convert that physical gold. No, no, no, no. But it would actually be bought case. I remember that case. Yeah, you remember it, right? So it was kind of like a real, this was a few years ago, my brain explored. It was really forward thinking and what they were trying to do to take something of value that could be purchased, add an exchange, and then convert it to actually pay where people were having certain industries were having a hard time. Today we have crypto, and this was a early form of crypto pre, and it was very interesting because they would get processing established, and there’s this competition, and it was with PayPal, so I can only speak to PayPal on this one, but it was really easy to get an account at PayPal and process your transactions.

Chris Dryden (34:03):

And then four weeks later, they underwrote. You told ’em what you were doing, you gave them all of the information that they asked for that was required. And yet, four weeks later, somebody else in a back room said, what are these people doing? And I don’t think we can give them their money back. And it was a fight to get their money back for something that they were doing that was legitimate. Literally, I wrote an opinion letter about can you purchase and sell metals, precious metals, and then use that as some sort of currency to accept in the form of a payment online? And the crazy part was is that MasterCard had a particular card that allowed for the purchase and sell of Gold with the card. So I could use a card to buy the commodity, but then I couldn’t take the commodity and use that to actually pay for it on the back end of the transaction.

Chris Dryden (35:00):

So look, this stuff’s been going on for a long time. It still comes down to read the contract. We’re here to help you read your contract so that you at least know what you’re getting into. And I will tell you some of this stuff you won’t be able to get away with or away from, but you’ll at least have, you’ve tried. You’ll have clear eyes going in, and you’ll have the defense of Unconscionability on the backend. Because the fact is, is that these are one size fits all contracts, and it is take it or leave it. And there is no other game in town for you to get into. And that’s the truth.

Jeremy Stock (35:38):

Chris, what about the idea that if someone did reach out to us and was working with us to help them maneuver and navigate their merchant processing agreement, we have a lot of relationships in this industry. Maybe we could even help get them a different relationship, potentially one that’s better.

Chris Dryden (35:53):

I mean, look, at the end of the day, it all still goes back to the bank. And I’ve seen some really large ISOs and FSPs in the space that have great relationships with their bank, with risk tolerant banks. And yet, if the bank doesn’t want to do it, there’s really no leverage. And really it’s the bank that drives I’ll, I’ll give you a great, for instance, alright, I go to a lot of shows. Bryce goes to a lot of shows. Lot of shows, trade

Bryce Van De Moere (36:21):

Shows, not

Chris Dryden (36:22):

No shows. Oh, you

Bryce Van De Moere (36:23):

Mean like concerts? Concerts,

Chris Dryden (36:25):

Okay. And when you go to buy your tickets, live Nation is one of the primary providers for Ticket Exchange Live. One of our clients got into a contract negotiation with Live Nation, live Nation’s Council tore through the merchant processing agreement, our client, who’s an FSP and a party to the Merchant Processing Agreement was willing to make accommodations and even do an addendum to its agreement with the bank saying, Hey, we’ll go ahead and eat it on this particular merchant, and we want to change up the merchant processing agreement. The bank who they have a great relationship with and who is risk tolerant said no. The only thing that we could do was go to Live Nation and say, look, you’re going to have to agree to the bank’s terms and they’re not going to change. We’re talking about a lot of volume here, right? This is Live Nation.

Chris Dryden (37:27):

We will go ahead and say, as it relates to you and us under the Merchant processing agreement, we’ll eat and kill these provisions that you don’t like and we’ll change the relationship between us, but we got to do it on the side because the bank won’t agree to these things. Do you think Live Nation agreed to that? No, they didn’t have to. No. And Live Nation wants to bargain equally. And even for an entity like Live Nation, the bank was like, no, we need these things because banks don’t want to take any risk at all ever in any situation. So with that regard, it was very interesting that you have Live Nation trying to push the ball. Our client willing to accommodate what Live Nation wanted, just in an ancillary agreement, qualifying the merger processing agreement just as between Live Nation and our client. And it was still a no-go and Live Nation couldn’t get their head around the fact that the bank wasn’t going to move. And I asked Live Nation’s Council, look, if you can show me another bank moving, it would be helpful for us to go to our client sponsor bank to be able to maybe have a conversation with ’em about it. Now, I don’t know what ended up happening, but our client didn’t close them

Bryce Van De Moere (38:54):

Just for the podcast, in case anybody know, can you use the acronym FSP? Can you tell them what that

Chris Dryden (39:01):

Is? That’s a full service provider. So just so you know, there’s a lot of people that have the ability to be a party to a processing agreement or have a white label that brands as though it looks like they’re a party to the processing agreement.

Bryce Van De Moere (39:17):

Shopify is a white label for Stripe,

Chris Dryden (39:18):

But they’re not really a party to the processing agreement. And when you get to the terms and conditions, that’s where you’ll see who the true parties to the processing agreement are. And so those will usually be a sponsor bank and a payment processor. However, there are some FSPs full service providers that really carry all of the risk associated with the transactions. They will be a party to the processing agreement and then just subcontract to a processor like Fiserv, tsys, global Worldpay, who will then actually do the actual processing of the transactions, but they won’t necessarily carry any risk and they just get paid for their utility. Right? But an FSP is a sophisticated ISO and there’s lots of them, and there’s people that you would think, I mean, shift four payments. Jared Isman was in the news because he went into Space Shift four was one of the first really big wholesale to full service provider. It, it’s essentially everything that you want, but they don’t have the digital infrastructure that we call Rails to process the transaction.

Jeremy Stock (40:34):

You guys, this has been a great conversation. I think our audience at this stage, if we go any further there might start trailing off, but this has been already 40 minutes. This is great. Well,

Bryce Van De Moere (40:44):

Look, I

Chris Dryden (40:45):

Like Bryce’s anger.

Bryce Van De Moere (40:48):

I’ll just close this. That’s going to be some short space. I am passionate about it because I’ve just been hit over the head with it way too many times. And I’ve looked at the inequity, I’ve looked at the injustice, and it’s absolutely infuriating. And I’ve reached a point where I just can’t really contain my displeasure

Chris Dryden (41:08):

Anymore. If you ever question whether or not we want to be successful in what we do or our effort to try to make these things change or represent people better, please remember this podcast because what we’re talking about are things that are avoidable, but we’re continually stymied by these just infrastructure architectural barricades that are put in front of all of you before you ever get to us. And so for us, it’s just an opportunity to try to tell you, look, contact us may be on the front end. We could be more valuable there.

Bryce Van De Moere (41:47):

Well, yeah, it might be unavoidable, but there are some real easy steps you can take to at least leave yourself an avenue if things go wrong and they’re going to go wrong.

Chris Dryden (42:02):

Yeah. Alright.

Bryce Van De Moere (42:03):

Well, not necessarily, but, well, not every time, but at least you’re leaving yourself an out and you’re, we’re not having to come up with some grand theory that we’re going to try to use, which we’re going to do anyway. I

Chris Dryden (42:18):

Get it. But I mean, we should have called this doom and gloom and sunshine.

Bryce Van De Moere (42:21):

No, but it doesn’t have to be that way. It doesn’t have to be that way. We need to get the merchants and the banks on equal footing in regards to what the terms of their relationship are going to be. And I just think a lot of merchants, especially the younger ones, they want to make their millions and they don’t have time for anything that’s going to slow that down. And that is the time when you need to pay the most attention to the agreement that you’re entering. That’s it.

Jeremy Stock (42:46):

Awesome. Alright. Thank you for listening this long to the Payments Experts podcast. It’s been a podcast of global legal law firm today. We’ve had in studio senior associate attorney Bryce Vander Moore, as well as our founding and managing partner, Chris Dryden. Gentlemen, thank you so much. Have a great afternoon.

Chris Dryden (43:02):

See you. Thanks.

Jeremy Stock (43:02):

Thank you for listening to this episode of The Payments Experts Podcast, a podcast of globallegallawfirm.