Pivotal Payments’ Cancellation Fee & Auto Renewing Contract
There's a reason why we scrutinize each processor before we invite them to participate in CardFellow's marketplace. We look at reputation, sales tactics, customer complaints, and more. We even make each processor sign a legal agreement forbidding cancellation fees, requiring interchange plus pricing, as well as a host of various other stipulations to safeguard businesses that use our service.
A recent interaction with Pivotal Payments comes as a stern reminder why we're so thorough, and why businesses need a service like CardFellow. Our safeguards exist to keep companies like Pivotal Payments out of our marketplace.
Update: June 23, 2016 - Pivotal Payments has reached out to CardFellow with details of changes to its contract terms and liquidated damages policy. We've noted the changes in the relevant sections below, however, we're leaving the original situation as a historical record. Updated policies are marked with [Updated].
Recently, we helped Tom save quite a bit on his business's credit card processing fees. Unsure of exactly just how much he could save, Tom sent statements from his current processor (Pivotal Payments) for us to take a look at.
After completing our free comparative analysis, we showed Tom that he would save about 31% with the best offer he received through CardFellow. The reason for the great savings was that Pivotal Payments was charging high fees on a tiered pricing model.
Per our recommendation, Tom accepted the best quote for his business and the new processor got him up and running quickly with no problems.
It turns out that Tom wanted to make sure things were going to work out as expected with his new processor before he closed his existing merchant account. So, when he received his first statement from the processor he found through CardFellow, he was happy to see that the actual savings shown were greater than the 31% we had estimated. (We overestimate base costs in order to underestimate savings when doing comparative analyses so that we don't promise more savings than are actually realized.)
Pivotal Payments charged a $3,445 cancellation fee.
Here's where the problems started. When Tom called Pivotal Payments to cancel his old account, he was told that he still had two years left on his merchant account contract, and the cancellation fee would be $3,445.
Pivotal Payments uses three-year auto-renewing contract terms.
Since his merchant account was seven years old, Tom figured that any term had expired. Unfortunately, Pivotal Payments has an auto-renew clause in their agreement. The contract term renews every three years, indefinitely. Tom was only given a thirty-day window every three years to cancel the agreement.
**[Updated] Pivotal Payments explains that its new contract policy is a 3-year original term, renewing automatically for one year at a time thereafter. Additionally, Pivotal states that month to month agreements may be possible for some businesses. **
When Tom called us to explain the situation, I told him that I would contact Pivotal Payments to see if there was anything that could be done. Unfortunately, termination fees are not something that processors let go easily.
I spent over an hour on the phone with Pivotal Payments, but it was clear that they had no interest in waiving their $3,445 cancellation fee.
Even though we weren't able to get Tom's cancellation fee dropped, Pivotal Payments did say that they would lower the fee to $400 if they couldn't match the offer that Tom received through CardFellow. So, the ordeal with Pivotal Payments is still unraveling.
Our goal here at CardFellow is to help businesses find the best credit card processing service, and we'll go the extra mile even if businesses are forced to stay with their current processor. We're not done yet, though, and we're keeping a close eye on Tom's situation with Pivotal Payments to help where we can.
Even if Tom ends up stuck with Pivotal Payments, we've offered him our free monitoring service to ensure Pivotal Payments sticks to their promise to match the rates he received through CardFellow.
The reason Pivotal Payments was able to charge this business such a high cancellation is because it has a liquidated damages clause in its merchant processing agreement. A cancellation fee based on liquidated damages is determined by lost profit instead of a flat charge. For example, if a processor is making $300 a month on a business's processing volume, and the business cancels its processing agreement ten months before the terms expires, the business will owe the processor $3,000 based on liquidated damages.
**[Updated] Pivotal Payments tells CardFellow that it now charges a lower flat cancellation fee of $395 for businesses processing less than $25k and $495 for businesses processing more than $25k. There is no cancellation fee for the month to month agreements. **
Update: September 26, 2012
Despite Pivotal's hefty cancellation fee, Tom decided to switch to a processor that he found through CardFellow. I had a chance to catch up with Tom during his free rate and fee audit (a service that all CardFellow clients benefit from), and his dealings with Pivotal Payments are finally winding down.
Here's what he said:
"We did need to close our bank account to stop Pivotal from using it like it was their bank account. We have received three phone calls from them demanding $3,445.07 that they claim that we owe them. Each time I have been very courteous and have asked them to please send me a copy of the contract that I signed, and if indeed my attorneys agreed that the money is owed, I would send a check. They agreed to send me the contract. It has now been several months and I have not received it."
I'm happy to report that Tom is now paying about 40% less with his new processor than he was paying Pivotal Payments, and per CardFellow's guarantee, he doesn't have to worry about cancellation fees in the future.
For those interested, a complete Pivotal Payments review is also available at CardFellow.