What’s the difference between a merchant application and a program guide?

You might not know this, but merchant account contracts often come in two parts.

© Depositphotos – Luciano De polo

As part of our regular investigation of merchant complaints, we’ve seen a lot of business owners claiming that credit card processing sales agents “never provided them with the full contract” at the point of sale. “I remember signing a three-page document,” these merchants say, “but now the processor is claiming that I actually agreed to a 60-page document full of complicated legal language written in small print.”

At first glance, this accusation may seem outlandish. After all, isn’t it illegal for a sales rep to falsify the terms of a contract? How could someone get away with this on a widespread basis? Doesn’t it seem more likely that the merchant simply didn’t read or understand all of the paperwork he or she was given?

While the merchant may be at fault in some cases, the surprising truth is that many of the largest merchant account providers intentionally split their contracts into two separate but essential pieces: the merchant application and the program guide. While it’s likely that you will see each of these documents at some point during the account setup process, you may not ever see them together or even understand that they constitute two pieces of a whole. This gives unethical agents the ability to misrepresent the terms of your agreement, as an agent can be honest and upfront about one of these documents while rushing you through the other one.

What is a merchant application?

Also referred to as a “merchant agreement” or a “fee schedule,” a merchant application will usually resemble a doctor’s form or tax return in appearance:

Note: This document is only provided as an example of a merchant application. Its inclusion here does not constitute a claim regarding this specific document’s legality or ethicality.

As you can see, the application includes numerous fields for merchant and agent identification information, various fees, and the merchant’s signature. It’s fairly easy to read, with each cost clearly identified and filled out by the agent. The merchant application is the document that an agent is most likely to share, perhaps even filling it out along with you. But if you read carefully, you can find the following language [emphasis added] in small font just above where the merchant’s signature is requested:

A copy of the Card Services Terms & Conditions, revision number 01/11-NP, has been provided to you. Please sign below to signify that you have received a copy of the Card Services Terms & Conditions and that you agree to all terms and conditions contained therein. If this Merchant Application is accepted for card services, Merchant agrees to comply with the Merchant Application and the Card Services Terms & Conditions as may be modified or amended in the future.

If you do happen to take the time to read this section, you might be forgiven for thinking that the “Card Services Terms & Conditions” is the document you just filled out. You might even sign the application under this assumption. But you’d be wrong. You’re holding the Merchant Application. The Terms & Conditions (which is also sometimes called the “Program Guide”) is a separate document entirely, and it may contain other fees not listed in the merchant application.

This type of two-part contract is very common within the industry, largely because First Data, the largest processor in the country, prefers this contract structure. In most cases, the merchant application portion of the contract will conclude with a fine-print section or a numbered breakdown of terms just above the field for the merchant’s signature. You should be careful not to sign this section if you haven’t seen all of the documents referenced therein.

In the case of this particular contract, it does not appear that any insidious fees or terms are hidden in either the merchant application or the program guide. But what does it look like when fees are buried in the program guide?

A credit card processing program guide is often a very long, very boring document.

As noted above, First Data is known to commonly give merchants both an initial application and a separate program guide. Unlike the merchant application, the company’s program guide more closely resembles a user manual or legal document than a pricing sheet. See for yourself:

Note: This document is only provided as an example of a program guide. Its inclusion here does not constitute a claim regarding this specific document’s legality or ethicality.

The vast majority of the language contained in this document has little to no bearing on your day-to-day use of credit card processing equipment. It’s almost entirely composed of legal terminology and unnecessarily complicated procedural information. But if you scrolled through this particular document, you probably didn’t notice the following language found in section 40.3, all the way down on page 44:

small print
© Depositphotos – Alex Pretelt

If Client terminates the Agreement prior to the end of the then current term of the Agreement, Client shall pay an early termination fee equivalent to one of the following:

(i) If the Client’s total Sales Volume for the preceding 12 months* is less than One Million Dollars ($1,000,000), the early termination fee is Five Hundred Dollars ($500.00) per location; or

(ii) If the Client’s total Sales Volume for the preceding 12 months* is greater than or equal to One Million Dollars ($1,000,000), the early termination fee is Five Hundred Dollars ($500.00) per location plus six (6) times the highest amount of Revenue in any single calendar month during the current or prior term.

Put simply, this is an early termination fee of at least $500 with the potential to be much, much larger. And it’s buried in the depths of a document that is 90% full of unrelated information and may not even be presented alongside the merchant application. When you sign the merchant application, you may also be consenting to the terms found in the program guide. This means that it’s possible for unethical agents to include a clause in the program guide that commits you to this early termination fee without ever showing you its full language.

So how do you avoid signing up for undisclosed terms?

Now that you know that merchant applications and program guides are separate documents, you should always be sure to ask your sales rep to provide both of them up front. Do not simply take the agent’s word about what’s in these documents. Even though we’d all like to believe that we can trust the people we do business with, there are hundreds of stories online about agents who intentionally misrepresent the terms of agreements.

If the agent insists that he or she has provided you with the full contract, be sure to read the agreement carefully. Are there any sections that refer to a different set of terms? Is there any small print above the field that requests your signature? Are you seeing any direct references to monthly fees, annual fees, or termination fees? If not, is there a section that explicitly guarantees against them?

When an agent wishes to rip you off using a two-part contract, he or she will likely approach you with just the merchant application, possibly even assuring you that it’s only an application rather than a binding contract. The program guide will then be shipped to you weeks later, possibly included with your equipment. If you don’t know to watch for it, then you might even discard it under the assumption that it’s just a user manual.

It is sometimes possible to find both the merchant application and the program guide presented together, within the same document:

Although this increases your reading load, it’s the best way to receive your contract terms because you can easily cross-check any passages that you find confusing. If your agent is unwilling to provide both documents together, then you should refuse to sign one without having read the other. Like most aspects of the credit card processing industry, two-part merchant contracts are often designed to trick you into spending more than you need to. By coming to the table with a little patience and an understanding of how these agreements are structured, you can save yourself a lot of future headache. Do you have any experience with two-part merchant agreements? Let us know in the comment section below:

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