ditor's Note: In our continuing quest to better serve our target audience, the Merchant Level Salesperson (MLS) for the payment processing industry, we are currently expanding our "Education" section of The Green Sheet. With the assistance of several contributing writers we will bring you the most current information available to assist you in creating wealth for yourself and the companies you represent. We encourage your comments and suggestions, as well as questions and topics to be addressed in future issues. Please send your comments to kate@greensheet.com.

Adam Atlas joins The Green Sheet as a contributing writer from Montreal, Canada. A practicing attorney, he is a member of both the New York and Quebec bar associations. His legal work is primarily focused on U.S. agreements, and a majority of his clients are U.S. businesses in the payment- processing field. Adam recently has begun specializing in electronic transaction law.

Many processors and even more ISOs do not know who owns an ISO portfolio. It is in the interest of both parties to an ISO agreement to have a clear definition of title in the portfolio and portfolio portability.

For every merchant signed by an ISO, the ISO and the processor should have a clear expectation of how revenue and liability for that merchant will be allocated between them:

1. During the term of the ISO agreement
2. Upon termination of the ISO agreement without any default
3. Upon termination of the ISO agreement with a default
4. Upon a sale of the interest of the ISO in the portfolio by the ISO
5. Upon the sale of the interest of the processor in the portfolio. The intent of the ISO and the processor should be plainly obvious and understandable on a reading of the ISO agreement.

   The clauses of the ISO agreement that describe title, liability and portability of a portfolio are the most important clauses of the agreement because they ultimately will determine the long-term value of the business of the ISO.

   The following are some important questions to keep in mind when negotiating the clauses of an ISO agreement that describe title, liability and portability of the portfolio:

   1. Is the term "portfolio" clearly defined in the agreement?
   2. Does the agreement clearly describe what rights the ISO and the processor each have during the term of the agreement in all residuals? For example, if the amount of residuals varies according to the number of merchants signed each month, is it clear how much in residuals will be owed to the ISO if that monthly target is met or if it is not met?
   3. How does the agreement address uncollected merchant debt? Is the liability of either the processor or the ISO limited in respect to this debt? If either party's liability is limited during the term of the agreement, does that limitation carry forward following termination of the agreement?
   4. Which of the two parties has a right of action against merchants for uncollected merchant debt? If the ISO agreement says that the ISO has this right of action, does the merchant agreement also reflect that right?
   5. What are the obligations of support and maintenance for merchants of each party following termination of the agreement? Is the merchant agreement consistent with the ISO agreement in this regard?
   6. Does the processor have right of first refusal over the transfer of the portfolio by the ISO?
   7. What is the precise procedure by which the processor can exercise its right of first refusal, if any?
   8. Following termination of the ISO agreement, what kind of security has the processor given the ISO in any remaining revenue stream owing to the ISO?
   9. If the merchant transfers its portfolio to another processor, how are the outgoing processor's rights limited in information concerning the merchant portfolio? In other words, can the outgoing processor solicit business from the portfolio that has been transferred?
   10. Does the agreement include an obligation on the part of the processor to provide real-time access to merchant portfolio data? Real-time access for ISOs to merchant portfolio data is becoming the industry standard.

   If the answers to any of the questions listed above are at all unclear to either party to an ISO agreement, then that party should insist on the agreement being redrafted so that these questions are clearly answered.

   The best time to adjust the wording of an ISO agreement is obviously before it has been signed. The second best time to adjust the wording is after it has been signed but when the relationship between the ISO the processor is a good one. The worst time to negotiate the wording in an ISO agreement is when there is a conflict between the ISO and the processor.

   Careful review by both parties of an ISO agreement before signing is like checking a boat for leaks before it goes to sea. It's a "must do."

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   In publishing The Green Sheet, neither the author nor the publisher is engaged in rendering legal, accounting or other professional services. If legal advice or other expert assistance is required, the services of a competent professional should be sought. For further information on this article, please contact Adam Atlas, Attorney at Law; e-mail atlas@adamatlas.com or phone 514-842-0886.