Page 19 - GS221102

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Let's get real about the bank deem high risk, the reserve account consists
of a percentage of the sales processed by the payment
merchant reserves processor into the merchant account. The reserve monies
are diverted to a separate reserve account, where they sit
ready to be utilized if the merchant incurs a chargeback,
fine or penalty that the merchant cannot cover.
Chargebacks and terminations

A chargeback occurs when a customer asks the bank that
issued its credit or debit card to reverse a charge, either
because it never received the goods ordered, the goods do
not comport with what the customer thought they were
buying or because they never ordered the product in the
first place. In these examples, the reserve account kicks in
and takes care of the debt so that the ISO does not have to
"front" the merchant, pay the debt on its behalf and then
later seek reimbursement from the merchant.

The reserve account becomes even more of a necessity
in those instances when a merchant account has been
terminated. When that happens, fines, penalties and
chargebacks can continue to accrue; however, there are no
By Bryce Van De Moere new monies coming in to pay them. In those instances,
Global Legal Law Firm the reserve account again kicks in and takes care of the
debt. The period in which chargebacks are incurred can
magine you were called on to help a beleaguered stretch far beyond the date that the merchant account was
group of merchants who needed help recovering terminated.
monies from their reserve accounts. The party hold- After account closure
I ing their money was a large, well-known ISO. Per
the merchant processing agreement (MPS) between the To cover themselves in such situations the ISO and its
merchants and the ISO, the date for returning those funds bank will place in the MPA a clause that they can hold the
had long since passed, and despite numerous requests by reserve account for a specified period after the merchant
the merchants, as well as enlisting the help of two prior account closes. This is usually for 120 days, but it can be
attorneys, the merchants were nowhere close to recover- as long as 270 days. Merchants need to be wary of these
ing these reserve funds. clauses, as once the date for holding those monies elapses
the return of whatever reserve monies remain is not
While the ISO would occasionally respond with the stated automatic.
intention of releasing the monies due, the merchants would
be lucky if even one of them received a disbursement. In most instances, the merchant must request in writing
Even then, the check received would more often than not that the funds be returned. Even then merchants are at the
be returned for "insufficient funds." This would result in mercy of the ISO as to when it will decide to return those
yet another round of attempts to get the ISO to respond. funds.

The legal fees and the merchants' frustration would only Delays, delays, delays
increase. This process continued for more than 18 months. For the merchants who are the subject of this article, the
The third attorney they hired had his work cut out for period specified in the MPA for holding the reserve funds
him. The experience also made the attorney think about had lapsed, and, despite repeated requests in different
other merchants in the same situation who have simply forms, and multiple lackluster assertions by the ISO that
given up on getting their money back. it intended to comply with the terms of its own MPA,

The need for reserves the merchants had gotten nowhere. Even the threat of
litigation had not moved the needle.
A reserve account is a tool used by ISOs and their sponsor
banks to protect them from incurring expenses that are Understanding what they were getting into, the merchants
the responsibility of merchants. This is not to be confused and their new attorney immediately went on the offensive.
with the merchant account, which holds the proceeds of Emails inquiring as to the whereabouts of the funds were
the purchase of the merchant's goods or services. repeatedly sent to every person that they thought had any
authority at the ISO. These emails were sent daily.
Most often used with merchants that the ISO and/or

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