Charlotte ran a business, which had an agreement with the provider of a secure online payment processing system. Charlotte’s business used their account with the payment processor to accept credit card payments from customers.
In October 2023, the payment processor told Charlotte they were placing a rolling reserve on the business account; 35% of their transactions would be held for 90 days. After the 90 days, the reserved funds would be released to the business account. The payment processor advised they had reviewed the account and given the risk associated with it, had decided to put the reserve in place.
Charlotte protested this action, pointing out there had never been any difficulties with their account. She said it would significantly affect their business to have 35% of their cashflow being held for 90 days.
The payment processor carried out a review, and requested additional information about how the business operated. After the review, the payment processor reduced the reserve to 10%.
Charlotte remained unhappy with the payment processor’s decision to place a reserve on the business account, and complained to FSCL.
Dispute
Charlotte said the payment processer had no right to place a rolling reserve on the business account. Further, the payment processor had failed to explain why the business was assessed as high risk.
The payment processer said their contract contained a term allowing them to place a reserve on an account. They had assessed a risk associated with the business’s account, however their risk assessment criteria was commercially sensitive and they could not disclose it.
Review
The payment processer’s agreement contained a broad contractual discretion to place a reserve on an account. The agreement provided they may impose a reserve for any reason if they determine there is a risk of loss to them or to others, including their account holders. While the payment processer could not disclose commercially sensitive information, they indicated the risk was associated with the sector in which Charlotte’s business operated, rather than on the business’s own practices.
We explained to Charlotte that the agreement she had entered into with the payment processor allowed them to place the rolling reserve on the account. FSCL could not review the payment processor’s risk assessment or their policy of applying reserves to customer’s accounts. These are commercial decisions for the payment processor.
Charlotte explained the difficulties the business had in reconciling payments when a portion of payments was withheld. The payment processer supplied the business with a list of charges on their account and a list of the scheduled release of reserves.
Charlotte decided not to take the matter further, and we closed our file.
Insights for businesses
It is standard practice for payment processers to provide for reserves in their agreements with businesses/merchants for the purpose of mitigating risk.
