Recently, a client came to me with a troubling account of being taken advantage of by a merchant services provider. The client, a local small business owner, received a cold-call one day from a sales representative seeking to sell her a new merchant processor service. Like most business owners, my client is always looking for ways to manage costs so she agreed to speak with the sales representative. Within a half hour, the sales rep arrived with promises of cost savings, signing bonuses and new equipment, which he assured my client would be fully compatible with her current POS. Before she knew it, my client had signed two separate contracts, each with a 48-month term—one with the merchant processing provider and the other with a third-party consisting of a non=cancellable lease for equipment she was led to believe would integrate with her POS.
Needless to say, not a single one of the promises made by the sales representative turned out to be true. To the contrary, the new service ended up costing my client significantly more money than she was spending on her previous merchant processing provider; the service provider also grossly overcharged our client, refused to provide her with the guaranteed signing bonus and forbode her to terminate the merchant account contract or the equipment lease despite the fact that the equipment was not compatible with her POS. To make matters worse, when our client diligently attempted to review the contract she signed, the merchant processor refused to provide her with a clear and legible copy of the signed agreement. Oftentimes, as was the case with my client, a firmly worded demand letter with the appropriate legal arguments will convince unscrupulous vendors to cease collection efforts and agree to rescind the contracts.
While the underlying facts of this case are alarming, the good news is that these types of situations are completely avoidable. Indeed, if my client had just abided by the following four principles, she never would have found herself in this situation to begin with.
First and foremost, be an informed consumer. This means, before entering into any agreement with a service provider you must do your research. In fact, in the present example, had my client simply Googled the company’s name before inviting a sales rep to her store, she would have easily found a multitude of websites alerting business owners to the fraudulent practices of this particular merchant services provider.
Second, trust no one (who’s trying to sell you something). Remember, as was the case with my client, many salespeople work solely on commission, which means that they only get paid if you pay them first. While this fact may not necessarily be a motive for the sales rep to lie to you as was the case with my client, it certainly provides a strong incentive for the rep to close the deal as soon as possible, which is never in your best interest.
Third, get everything in writing. Oftentimes, when trying to get you to sign a contract for a particular service, the service provider’s representative makes certain promises regarding the quality of the product being sold, the price, how long the price is good for, warranties and the like. It’s imperative that you first write these promises down and then make sure that the assurances are contained within the contract itself. If not, it can be very hard, and costly, to try to get out of a contract based on promises that were made, but not included, in the signed agreement. In fact, under certain circumstances, courts have found that verbal agreements not contained within a written agreement are not enforceable.
Finally, read the entire contract and then, take some time to think about it and read it again. Even better, have a family member or friend read it too. Remember, contracts are legally binding documents that should never be entered into without careful consideration. Every decision you make as a business owner is an important one and you should never execute a contract or make a financial deci- sion based on a single conversation or interaction with a person you’ve just met. Of course, it's fine to have a discussion and listen to the potential benefits of introducing a new product to your business, but never, and I mean never, sign a contract based on that conversation alone, especially if the salesperson tells you that you must sign the agreement in a very short period of time, or immediately, in order to reap some promised reward—doing so is not much different than playing a game of chance.
Daniel L. Blanchard is an associate in the litigation department of Lauletta Birnbaum. He is licensed to practice law in Pennsylvania and New Jersey.
Published (and copyrighted) in Philly Biz, Volume 1, Issue 12 (December, 2016).
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