It’s Wrong to Force Businesses to Switch Credit Card Processors in Order to Qualify for a Loan.
The credit card processing industry is in desperate need of an overhaul. There’s a distinct lack of transparency, and credit card processors and banks alike often hide behind complex regulations and legalese to take advantage of customers. These attempts to hide the truth are frequently illegal and always inappropriate. One of the worst offenses we’ve encountered recently is a practice called “tying,” where a bank or other financial institution demands that in order to receive a loan or other product from that institution, you must also purchase some other service. This is wrong! Any bank who engages in this behavior is at best unethical and at worst could be breaking the law. This shouldn’t surprise you if you’ve been following the recent firestorm surrounding the actions of Wells Fargo.
The Lending Industry and Tying – a Vicious Cycle
The most common tying violations we see involve the lending industry. Banks may tell small business owners that in order to qualify for a loan, they must also agree to use the bank’s preferred payment processor to handle credit card transactions. This is a violation of the Anti-Tying Restrictions of Section 106 of the Bank Holding Company Act Amendments of 1970! Unfortunately, many business owners are not familiar with these rules and think they have no choice. This creates an unfair situation where business owners are trapped into an arrangement that isn’t in their best interest.
What to Do if It Happens to You
The greatest weapon in your arsenal is knowledge. Simply knowing that these types of deals are illegal will go a long way to protect you. If you are seeking to obtain a loan from a bank and find their list of qualification requirements looks suspiciously like tying, don’t be afraid to speak up. It can be difficult to turn down a loan, particularly if it’s a large sum of money or if you are in an especially tough financial spot, but stop for a moment to consider the consequences. Are you happy with your current credit card processor? Are your needs being met and are your rates reasonable? Can you guarantee the same kind of service and support from the bank’s processing company? If you did your research the first time around, odds are that agreeing to the switch would be a pretty raw deal for you.
The ability to shop around is one of your greatest assets as a business owner. Every business has different needs, so you owe it to yourself to find the best partners for your business. We’ve written several blogs on why choosing the right credit card processor is so important (read them here and here), but choosing the right lending partner is also crucial. If the bank you’ve chosen for your loan is engaging in tying, they are quite frankly not the best bank for you.
You Have Other Options
Shop around, then shop around again, and don’t forget that 360 Payments offers lending services as well. Like all the products we offer, we’ve worked hard to make the process transparent, honest, and easy to understand. Give us a call at 1-855-360-0360 or drop us a line on our website, and we’ll explain it all to you. We do things differently here – integrity is our number one concern.
PS – Unfortunately, we see a lot of unsavory business practices in Silicon Valley. Read our thoughts here.
PPS – The credit card payment process can be confusing, but it doesn’t have to be! Here’s the simple version.