The surest way for a sales agent to lose his residuals is to move a
merchant that it placed with one ISO to another ISO. Below I will
discuss the contractual prohibitions in an Agent Agreement against
moving merchants and the impact to agents on the payment of residuals.
Non-Solicitation Provisions
Agent Agreements contain non-solicitation provisions. These non-
solicitation provisions prohibit an agent from soliciting merchants
that it has placed with a particular ISO and moving those merchants
to another ISO. Such provisions are effective for the term of the
Agent Agreement plus at least three to five years after any
termination of the agreement. A non-solicitation provision gives the
ISO a fair degree of confidence that its merchants will remain with
it for the life of the merchants.
A non-solicitation clause can also contain additional safeguards that
broaden its impact. For instance, many non-solicitation provisions
cover not only the sales agent, but also its affiliates, principals,
employees, officers and directors. By naming these additional
parties that are bound by the non-solicitation provision, the ISO
effectively causes any person associated with the sales agent to
refrain from soliciting the merchants that the sales agent places
with the ISO.
The ISO may also expand the non-solicitation to encompass any
merchant for which the ISO provides credit card processing services.
Consequently, the non-solicitation provision covers not just
merchants that the sales agent has placed with the ISO, but any
merchant that the ISO provides credit card processing services for,
even if said merchant was placed with the ISO by a different sales
agent. This type of provision effectively blocks the sales agent
from soliciting merchants that are processing with its ISO under any
circumstances.
For the sales agent, non-solicitation provisions are important
because they are the most critical provisions from the perspective of
the ISO. Any violation of these provisions generally results in a
material breach of the agreement which allows the ISO to terminate
the residual payments to the sales agent.
Many Agent Agreements state explicitly that any breach of the non-
solicitation provisions, however slight, causes the residual payments
to the sales agent to terminate. This is the case even if the sales
agent solicits one merchant generating a very small residual payment
to the sales agent. As a result, the sales agent can lose its entire
residual payment worth thousands of dollars by moving one merchant
that may generate only $25.00 worth of residuals to the sales agent.
Consequently, the sales agent’s compliance with a non-solicitation
provision becomes critical to its continuing residual payments.
Common Breaches
In my experience, when faced with these non-solicitation provisions,
sales agents become quite creative in their efforts to circumvent the
provisions. Sales agents are very concerned about continuing to
derive income from their merchants regardless of which ISO provides
the credit card processing services. Consequently, when a merchant
decides it wants to leave the ISO where a sales agent has placed the
merchant, the sales agent often tries to place these merchants with
different credit card processors. This invariably leads to
situations where the sales agent is placing its future residual
payments at risk.
One way to circumvent the non-solicitation provisions that is often
attempted, is to have the sales agent’s brother, best friend, wife,
or other trusted person enter into an Agent Agreement to solicit
merchants for an ISO. The sales agent then, ostensibly under this
new Agent Agreement, will seek to solicit merchants that it has
placed with a particular ISO and place them with a different ISO
under this new Agent Agreement. The distinction that sales agents
often make in their discussions with me is that because this is a new
relationship that has nothing to do with them, they should be allowed
to move merchants that they have placed with a particular ISO to a
new ISO through the efforts of their spouse or other person that has
a new relationship with this ISO.
The problem with this way of trying to circumvent the non-
solicitation provision is that it invariably results in the sales
agent losing its residual payments. No matter how hard the sales
agent tries to hide it, people in the industry will learn that the
sales agent is moving merchants from one ISO to another. It may take
time, but if a sales agent is utilizing this method in order to try
to move merchants from one ISO to another, the ISO that is losing
merchants will begin to question why it is losing merchants. Once it
begins some kind of investigation, the ISO can usually determine that
the merchants that are leaving it are all going to the same new
processor. Through a process of investigation and questioning, the
prior ISO can discover that the sales agent is violating the non-
solicitation provisions, and can therefore, terminate residuals to
the sales agent.
Another argument I hear quite often is that the merchant requested
the sales agent to move to another ISO and that the sales agent did
not actively solicit the merchant. The first problem with this, as
far as the sales agent is concerned, is that most non-solicitation
provisions cover any activity that would serve to make the merchant
move to a new ISO, even if the merchant is not actively solicited by
the sales agent. For instance, many non-solicitation provisions
preclude the sales agent from doing anything to interfere with the
contractual relationship between the merchant and the ISO. If the
sales agent moves the merchant to a new ISO, the sales agent has
helped the merchant
to break its contract with its existing ISO, thus, violating the non-
solicitation provision.
There are some things you can do in order to allow you to move some
merchants and reduce the potential for losing your residuals. I
always try to insert a provision in the Agent Agreement which states
that if a merchant initiates communication with a sales agent to move
the merchant to another processor, the sales agent must immediately
notify the ISO in question. The ISO then has ten days to try to save
the merchant and keep it with its current ISO. If the ISO is unable
to retain the merchant, then the sales agent is free to move the
merchant to another ISO. If this provision is in place, it provides
an easy and verifiable method in order to keep the sales agent from
losing its residual if it moves a merchant.
The other way to move a merchant safely is to simply ask the ISO if
the merchant can be moved to a new processor. If you do get
permission from the ISO to move a merchant, make sure that you and
the ISO enter into a written agreement that memorializes your
agreement to move the merchant.
The lesson I have learned over the years is that under no
circumstances should you move a merchant unless you are in compliance
with your Agent Agreement or receive a signed written consent from
your ISO. The risk is too great to your residuals to move a merchant
under any other circumstances. 
** The information contained herein is for informational purposes
only and should not be relied upon in reaching a conclusion in a
particular area. The legal principles discussed herein were accurate
at the time this article was authored but are subject to change.
Please consult an attorney before making a decision using only the
information provided in this article.
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