After Complaints From Vermont Businesses, Lawmakers Weigh New Credit Card Processing Regulations
Vermont lawmakers are considering new regulations on the credit card processing industry after a spate of complaints to the Attorney General’s Office.
For most small businesses in Vermont, being "cash only" is no longer practical. At the same time processing credit card transactions generally requires upfront investments in the necessary equipment.
According to the Attorney General’s Office, some of the companies that lease that equipment aren't treating small business owners fairly, and some lawmakers say it’s time to intervene.
Lee Youngman, who owns and operates a knitting-supply store, is one of the small business owners whose story has prompted legislative action.
Youngman’s cozy shop in downtown Montpelier is a knitter’s paradise, stocked with enough skeins to match just about any color palette. Lee says customers usually pay with a debit or credit card:
“Most people don’t carry cash anymore, myself included,” Youngman says. “I worked in a bank for 22 years and I never carried cash.”
So when she got a cold call last year from the company that does her credit card processing, promising her a better deal on equipment and fees, Youngman decided to give it a try.
“At first I said, ‘No,’ because I’d had lots of customer service problems with them anyway, but they wore me down, I said, ‘Okay,’” Youngman says
It was a decision she quickly came to regret.
"I couldn't get out of that lease, according to them, without paying an over-$8,000 early termination fee." — Lee Youngman, small business owner
Youngman agreed to lease a credit card terminal for $150 a month, in exchange for reduced processing fees. But the first month’s bill totaled more than $300.
“And then they charged me $175 nearly in additional fees, and I never really understood what those additional fees were [for],” Youngman says.
To make matters worse, Youngman says the system didn’t function properly, because it wasn’t compatible with her internet setup.
She figured she’d cancel the lease agreement with company she was working with — called First Data — and just go back to her old setup. That's when she got the bad news.
“I couldn’t get out of that lease, according to them, without paying an over-$8,000 early termination fee,” Youngman says.
Her experience with what’s known as a point-of-sale equipment lease is not unique.
"The worst most egregious example I've seen is a piece of equipment that when I Googled it, it looked like it was in that range, $300-$500, and the consumer would have paid $6,200 over the course of four years." — Charity Clark, Assistant Attorney General
Assistant Attorney General Charity Clark, who specializes in consumer protection cases, says these point-of-sale equipment leases “are the topic of the most common complaints our office receives from business consumers.”
The Attorney General’s Office office has fielded nearly 50 complaints related to credit card processing and equipment leases in recent years. Clark says the lease arrangements for the credit card terminals, which generally run for four years, are in some cases “unconscionable.”
“The worst most egregious example I’ve seen is a piece of equipment that when I Googled it, it looked like it was in that range, $300-$500, and the consumer would have paid $6,200 over the course of four years,” Clark says.
Lawmakers have taken note.
And a consumer protection bill introduced earlier this year would impose new limits on how much merchants could be forced to pay over the term of their lease.
The legislation would also let business owners cancel those agreements within 45 days of signing the contract. Clark says that provision would give business owners a chance to see the first month’s bill, before deciding whether they want to proceed.
"When the government gets involved with setting the terms of a private contract, bad things happen." — Scott Talbott, Electronic Transactions Association
Not everyone is a fan of the legislation.
Scott Talbott is with the Electronic Transactions Association in Washington, D.C., a trade group that represents more than 500 companies involved in the credit card services industry, including First Data, which did not return a media inquiry.
“When the government gets involved with setting the terms of a private contract, bad things happen,” Talbott says.
Rutland County Sen. Dave Soucy, a Republican who co-sponsored the point-of-sale legislation, says he generally that “we don’t need the government to be entering into business transactions.”
Soucy, however, says the stories his committee heard from small business owners convinced him the state needs stricter regulations.
The Electronic Transaction Association says in some cases, merchants are paying high monthly leases for equipment, in exchange for lower processing fees on transactions. Soucy says the evidence does not bear that out.
“We didn’t find … that anyone was saving any money on the processing,” Soucy says.
The legislation has already won approval in the Vermont Senate and is now awaiting action from the House.
This post was edited at 3:15 p.m. on 3/26/18 to correct a misspelling of Scott Talbott's name.