The Maryland legislature has passed legislation that, if signed by the Governor, will require merchant acquirers to revise their merchant applications and agreements. Under the proposed law, merchant services providers, financial institutions, independent sales organization (ISO’s), or any subsidiary or affiliate of those entities (“Credit Card Processors”) will be required to provide merchants with specific disclosures and notices clearly and conspicuously within the merchant agreement. We interpret this to include payment facilitators. There is also a cap on the fees or penalties that a Credit Card Processor can levy against a merchant for its cancellation of the merchant agreement.
Notably, the proposed law is aimed to protect smaller merchants and will not apply to those contracts: (a) that may be terminated without assessment of fees, penalties, or liquidated damages; or (b) if, at the time the merchant agreement is entered into, the merchant has 50 or more employees or reasonably estimates that it will generate more than $2 million in credit card or electronic transactions each year.
For all other merchant processing agreements, the requirements include:
- Caps on Early Termination Fees: The law would prohibit the imposition of a fee, fine, or penalty that exceeds $500 if a merchant terminates the merchant agreement before the expiration of the initial term. If the merchant terminates after the initial term, the Credit Card Processor would be prohibited from charging any fee, penalty or fine unless the parties entered into a separate renewal merchant processing agreement (as opposed to an automatic renewal of the initial agreement).
- Disclosures: A Credit Card Processor would be required to include several disclosures within the merchant agreement (with specific font requirements), including:
- the amount of any early termination fee, penalty, fine or liquidated damages that may be assessed by the Credit Card Processor for early termination;
- the expiration of the merchant processing agreement;
- the renewal date of the merchant processing agreement; and
- the customer service contact information of the Credit Card Processor including phone, mailing, and email address.
This information must be clearly and conspicuously disclosed and included on the signature page of the merchant agreement. Each item must be separately initialed by the merchant.
- Copy of Agreement: The Credit Card Processor would be required to provide an electronic or paper copy of the agreement to the merchant at the time it is signed by the merchant.
Accordingly, companies providing card processing services to merchants in Maryland should assess their current form merchant (and sub-merchant) application and agreement to determine whether it conforms to the new requirements and if not, to begin the process of amending the contract to comply. If enacted, this law will apply prospectively, meaning that merchant processing agreements entered into or renewed on or before the effective date (currently October 1, 2019) would not be subject to these new heightened requirements.