Business Owners: Here's How to Avoid Paying the Most Disliked Credit Card Processing Fee Out There

By Frank Kehl

If your small business accepts credit cards, you know how expensive merchant accounts can be. One charge that you may not be aware of, and one of the most despised fees associated with merchant accounts is the early termination fee (ETF). Also called an early cancellation fee, this is an expensive fee that your provider will charge you in the event that you close your account before the end of your contract term. Most providers have early termination fees between $300 and $500; some companies charge even more.

In theory, an early termination fee compensates the merchant account provider for the loss of fees and processing charges they would have earned if you hadn’t closed your account early. The problem with this fee—and one reason why ETFs are so disliked—is that there’s no proration of the termination fee based on how many months are remaining in your contract. Regardless of whether you close your account within a few weeks of opening it or with less than a month remaining on your contract, you’ll usually pay the same fixed termination fee.

Another huge problem with early termination fees is that providers go out of their way to avoid disclosing them in advance. It’s almost unheard of for providers to list their ETF on their website, or even acknowledge that they charge one. Sales agents are notorious for “forgetting” to mention them when setting up new accounts. Instead, they’re buried deep in the fine print of the contract documents, and you’ll only find them if you take the time to look for them.

Options for Dealing With ETFs

No business owner ever wants to get stuck paying an early termination fee, but fortunately there are many ways to avoid it. If you don’t want to get stuck paying an ETF, or if you’ve been charged one and want to get your money back, consider the following options:

1. Don’t close your account. This is a simple solution, and it is 100 percent effective. However, if you’re closing your business altogether, keeping your account open won’t be an option for you.

2. Provide adequate notice to your account provider and close the account before it renews for an additional term. Merchant account providers make this very difficult to do, so read your contract carefully and follow the instructions for account closure to the letter.

3. Change your contract. In response to market pressures, many companies will now allow you to drop the early termination clause from your contract if you specifically ask for it when negotiating your contract.

4. File a complaint. If your sales agent never disclosed an early termination clause in your contract and the company tries to charge you when you close your account, filing a complaint with the BBB will often get you a refund.

And finally, the best option—especially for new businesses—is to sign up with one of the growing number of account providers that offer month-to-month contracts and don’t charge an early termination fee.

Recently, traditional account providers have started phasing ETFs out. Why the change of heart? Well, within the last 10 years, new companies have entered the market that fully disclose their fees, offer month-to-month contracts, and don’t charge early termination fees. Account providers such as Dharma, Helcim, and Square have disrupted the credit card processing industry and taken a significant chunk of the market share away from older, traditional providers.

With the surge in new businesses starting up, the early termination fee has been an easy way for merchant account providers to prey on vulnerable first-time entrepreneurs. It's refreshing to see that the ETF is gradually disappearing due to market pressures and increased competition from newer companies that treat their merchants better and encourage their success.