If your business is involved in actual or threatened legal disputes with a payment processor, call us here at Revision Legal. Our number is 231-714-0100. We are internet and business attorneys with proven experience with internet law, contract law, and complex litigation. We can also help with the legal aspects of your payment processing services long before disputes arise. This involves a deep analysis of payment processing contracts. Businesses have options, and some payment processing contracts — often just a processor’s Terms & Conditions — are much better than others. Further, some of these contracts are subject to negotiation and re-negotiation. There are many problematic contractual provisions included in many of these contracts, including:

• Automatic renewal provisions and onerous termination procedures
• Penalties or fees for terminating the contract
• Excessive “hold” times for payments made before monies are released to the merchant
• Clauses allowing the processor to hold funds — often called “reserves” — that do nothing more than punish the business
• Default clauses allowing a process to seize funds without legal process or a court order, particularly where the seized — or frozen — funds far exceed any amounts in dispute
• Clauses that allow a processor to access financial accounts not used or linked to the payment processing service
• Acceleration and rate-hike clauses without recourse (and sometimes without notice)
• Personal guarantee requirements — and the various provisions contained therein
• Excessive non-monetary collateral requirements
• Hold harmless, indemnity and limitation provisions that essentially make the merchant liable for all adverse events and contingencies
• Onerous and inconvenient forum and venue selections clauses and choice of law clauses

To the extent possible, a business should avoid entering into any payment processing agreement that features any of these types of one-sided provisions. Success or failure of any litigation with a payment processor will largely turn on what the service contract states. While it is possible to argue that certain contractual provisions should be unenforceable as a matter of public policy or that clauses should not be enforced for equitable reasons, such are difficult legal arguments to win. It is best to enter into a payment processing contract that is fair to both parties.

Another major legal concern is that many payment processors are, in effect, intermediaries between merchant businesses and payment companies, like Visa or Mastercard. Thus, it is essential to have a legal understanding of the contractual policies and procedures of particular card payment companies and associations. Likewise, there are laws, rules, and regulations with respect to payment processing involving direct fund withdrawals from consumer financial accounts. Further, federal and State-level financial laws and regulations are implicated with respect to payment processing arrangements. Your business needs to understand this complex interplay before entering into a payment processing contract.

Doing Your Due Diligence

Aside from legal advice and help with negotiating the processing contract – or at least understanding the processor’s Terms & Conditions – a merchant must engage in some additional due diligence when considering a payment processing company. A few questions to ask include:

• What is the level of confidentiality and data security for your business’s confidential information?
• Is the processor compliant with consumer privacy laws?
• Does the processor have state-of-the-art cybersecurity to prevent hacking, unauthorized access, and other loss of data?
• Does the processor have a department to assist merchants with disputes?
• Is there a phone number to call, and can you get a live person on the phone?

Contact Revision Legal If you need help with a payment processing dispute, contact the internet and business lawyers at Revision Legal. You can contact us through the form on this page or call 231-714-0100.

Common Payment Processing Disputes and How They Arise

Disputes with payment processors typically arise in several recurring patterns. Chargeback abuse is one of the most common: a customer disputes a legitimate transaction with their bank, the bank initiates a chargeback against the merchant, and the processor either debits the merchant’s account immediately or holds funds pending resolution. Merchants who experience chargeback rates exceeding the processor’s threshold — typically 1% of monthly transactions — can have their accounts suspended or terminated, and may be reported to the Mastercard MATCH list, making it extremely difficult to open a new processing account.

Reserve holds are another frequent source of disputes. Processors may impose “rolling reserves” — where a percentage of each transaction (often 5-10%) is held for a period of time (often 180 days) as security against chargebacks and fraud. While rolling reserves are a recognized industry practice, processors sometimes impose reserves that are disproportionate to the actual risk profile of the merchant, effectively using the reserve as a punitive measure or as a competitive tactic to make switching processors financially impossible during the reserve period. A payment processing attorney can evaluate whether a reserve is contractually authorized and proportionate, and if not, pursue legal action to compel release of improperly held funds.

Frozen Funds: Emergency Legal Remedies

When a processor freezes a merchant’s funds — refusing to process transactions or releasing funds that are already in the pipeline — the financial impact can be immediate and severe. For businesses that depend on daily cash flow to pay suppliers, make payroll, or service debt, a fund freeze can create an existential crisis within days. In urgent situations, a payment processing attorney can seek emergency injunctive relief in court, arguing that the freeze is a breach of contract and that the irreparable harm from the freeze justifies a temporary restraining order compelling the processor to release funds or continue processing while the dispute is resolved.

The viability of emergency relief depends heavily on what the contract says. Most processor agreements include provisions authorizing the processor to freeze funds under broad circumstances, which is why contract review before signing is so important. However, even broadly worded freeze provisions have limits — they cannot be used to seize funds far in excess of any amount in dispute, and they cannot be invoked in bad faith as a means of leveraging the merchant in an unrelated commercial dispute. Courts in some jurisdictions have issued injunctive relief against processors who exercised fund freeze rights disproportionately or in bad faith.

PCI DSS Compliance and Legal Exposure

Businesses that accept credit and debit card payments are contractually required to comply with the Payment Card Industry Data Security Standard (PCI DSS) — a set of security requirements established by the major card networks. PCI DSS compliance involves maintaining secure network infrastructure, protecting cardholder data, maintaining a vulnerability management program, implementing strong access controls, regularly monitoring and testing networks, and maintaining an information security policy. Non-compliance creates contractual liability to the processor and card networks and can also create significant legal exposure if cardholder data is compromised in a breach.

If a merchant experiences a data breach and an investigation reveals PCI DSS non-compliance, the card networks can impose substantial assessments — often referred to as “fines” — against the merchant’s acquiring bank, which then passes those costs through to the merchant. These assessments can reach millions of dollars in large breaches. A payment processing attorney who understands PCI DSS obligations can help businesses understand their compliance requirements, respond to breach incidents, and challenge assessments that are improperly calculated or that exceed the contractual authorization. Proactive legal review of your payment processing arrangements — before a dispute or breach occurs — is always far less expensive than resolving a crisis after the fact.