The Payments Experts Podcast
Expert payments attorneys discuss the electronic payments industry from a legal perspective.
The Payments Experts Podcast
Merchant Processing Gone Wrong: The Legal Risks ISOs Ignore | High-Risk Processing Pitfalls | PEP067
Behind the Shutdown: What Every Payments Professional Should Know About Merchant Terminations, Fraud, and Sustainability
Why do some high-risk merchants process for years while others get shut down overnight—often without warning or explanation? And why are so many payment professionals blindsided when portfolios collapse or lawsuits emerge from deals that looked solid on paper?
In this episode of The Payments Experts Podcast, Global Legal Law Firm Managing Partners Christopher Dryden and James Huber, along with Chief Operating Officer Jeremy Stock, pull back the curtain on the hidden risks, legal traps, and fraud schemes affecting agents, ISOs, processors, and merchants across the payments ecosystem.
From ISO Advocates to Merchant Defenders
The payments landscape has evolved. Where our law firm once primarily represented ISOs and processors, we now find ourselves increasingly defending merchants—many of whom were set up for failure from the start. The most common thread? Merchants signing processor agreements based on price alone, without reviewing key terms, reserve clauses, or termination rights.
Even large-scale B2B operators processing tens of millions annually often don’t realize that processing terms are negotiable—until their funds are frozen and they're locked out of access with no legal recourse.
The Dark Side of the Industry: Identity Fraud & Fake Merchants
We reveal shocking cases from the litigation trenches, including one involving an identity-theft ring run through merchant boarding. Agents were paying hairdressers, personal trainers, and gig workers $500 for their personal info—then opening fake accounts processing millions in transactions.
One courtroom deposition saw a series of “business owners” take the stand, each testifying they had no idea their identities were used to open merchant accounts. The opposing attorney—realizing the case was unraveling—sweated through his shirt and dismissed the lawsuit on the spot.
This isn’t rare. It’s happening more often than most in the industry are willing to admit.
Sustainable Agents vs. Churn-and-Burn Models
There is a better path forward. The most successful agents we work with aren’t chasing volume—they’re building durable portfolios by matching merchants with appropriate risk partners, vetting compliance, and establishing transparent expectations.
One seasoned agent told us, “I only have 15 merchants. That’s all I need.” He’s thriving—not because of quantity, but because his relationships are clean, compliant, and long-term.
What Every Merchant and Payments Partner Must Watch For
- If your processor won’t clearly define the relationship, it’s a red flag.
- If you’re boarding merchants without reviewing agreements, you’re inviting liability.
- If you’re an ISO unaware of who’s underwriting your downstream agents, you’re at risk.
The tools to succeed are available—banking relationships, contract negotiation, legal oversight—but they require intention. We’ve spent 20 years building these networks to help merchants, ISOs, and agents stay out of court and in business.
**Matters discussed are all opinions and do not constitute legal advice. All events or likeness to real people and events is a coincidence.**
Don’t become the next case study in bad processing decisions.
Subscribe now to The Payments Experts Podcast for real-world insight from attorneys who live and breathe the payments space.
🔗 Listen here: https://www.globallegallawfirm.com/podcasts/
A payments podcast of Global Legal Law Firm
I remember one of our first big cases. We're defending a class action against all these merchants. We subpoena all the merchants and they're coming down. We're deposing them one by one. We're going hey, you know, did you sign this? I think so. How did you meet this guy? And she's like oh yeah, I'm his hairdresser. He gave me 500 bucks if he could have my ID. And we're sitting there and there was 10 of those. Oh, I mow his lawn. Oh, he's my kid's coach and the attorney on the other end, chris and I we're deposing these guys back and forth and we're watching him. He's just stripping his jacket off, clothes on covered in sweat.
Speaker 2:Welcome to the Payments Experts Podcast, a podcast of Global Legal Law Firm. We hope you enjoy this episode.
Speaker 1:I'm going to go ahead and bet on the MasterCard, yeah for sure. And if I have a Bitcoin in my pocket, I don't know how to use it, or all this. It's got to be compatible and all of that. But people don't want to spend their Bitcoin because they want to just make it.
Speaker 3:Bitcoin's going to get converted to stablecoin somehow and then the big banks are going to be able to take that and leverage it with stablecoin. That's how they're going to buy into that. That's my that's just an opinion, but I feel like the stablecoin is going to absorb the Bitcoin and then liquidate it and get people on the stablecoin and out of Bitcoin.
Speaker 1:Maybe. I think it'll always be an investment tool.
Speaker 3:Maybe, until Visa and MasterCard, buy all the Bitcoin.
Speaker 1:BlackRock's buying it all right now.
Speaker 2:So, gentlemen, I want to throw something at you. It's interesting the evolution I've seen at this firm, even in the almost six years I've been here. And you guys have said it yourselves you, your clients, primarily 10, 15 years ago were primarily ISOs ish in that space, that level, if you will, in the payments world, and they still are to a large extent, Absolutely. But we're representing more and more and more merchants and I think it's become, I think, kind of a really cool thing. You both, this law firm, global Legal Law Firm, has become kind of a standard bearer for the little guy.
Speaker 3:I wish we could actually represent merchants in less of a reactive capacity and more of a I mean there is so much B2B payment out there that which is legitimate payment processing in my opinion that even that could be considered high risk. And there's no negotiation of agreements where there's actually bargaining power. And I mean maybe not always with the bank, but if you've got an FSP partner they could be looking at it going. Well, I'll talk to the bank and where they won't take liability, I will take the liability between us and you like roll out a side agreement, but until you try to negotiate agreements, you're just kind of stuck with whatever you'll get. And it's really strange to me that you've got larger corporations that negotiate everything, but when it comes to payment processing and I don't mean like big box corps or anything like that, I'm talking about legitimate small to medium-sized businesses that do a lot of B2B payment they don't even think to process or to negotiate the terms of their processing agreement. They do on price, but they don't really do it on anything else, nor do they know anything else. It's crazy.
Speaker 3:James and I have done a couple webinars for the bar associations locally and nobody really picked up on this idea of like I don't want your client, you represent them for whatever you represent Funeral homes, represent that funeral home. I don't give a shit. I want to represent them for the purpose of actually transacting, taking an electronic payment and giving them a tutorial on hey, here's all the important stuff. Here's what's negotiable, here's what's not. And yet the only time merchants contact us is in a reactive state, which is unfortunate. I don't know how to flip that paradigm.
Speaker 1:Well, it's, the agents should really be getting in front of this and going, hey, you're in this type of business, talk to these guys. I mean, when we see these high-risk merchants through and they're you know, they're in trouble, they're having issues with their reserves or whatever, and we're going, oh yeah, well, you're working with that person, go work with this person because they know us and because we're going to stamp your business after we've looked at it and maybe given you some tips. It gives it a layer of legitimacy and that you get to work with these people. And then also, the nice thing is then if everybody wants to sue each other, they all have to get new lawyers. So nobody wants to. You know they're they're less inclined to get in fights with them. And then we also help mediate it because we're going, hey, we've worked with this merchant, we've worked with you for longer, obviously, but hey, let's work this out, as opposed to you know the ballistic option of you know, hey, you ran all these chargebacks and this, that, the other thing, and it's the same with the agents.
Speaker 1:You know these agents that are running around placing high risk wherever you know, if you have us, actually come in and take a look at what types of merchants these are, we can actually help say, yeah, here's where this needs to go. Hey, these merchants need to change X, y, z. Put them with this person. Make sure you guys get along, of course, because you know we'll make an introduction and step out of it. But there's that layer of legitimacy that banks and everybody goes go. Okay, you have payments experts, the guys with the podcast putting the stamp. They've looked at this, they know what they're talking about, they know that this is not as high risk as we think and maybe we'll even give you lower rates.
Speaker 3:I mean, I think part of it is just transparency, right? I mean, if it's what we're talking about, if it's the merchant to the consumer, it's just transparency, like when we do the sweepstakes opinion letters, like the sweepstakes are sweepstakes. It's like a form of transparency, chance, right, and the question is is how much skill versus how much chance? And you know you have to analyze that. But the biggest thing is is what are the disclosures that are happening and I think it's the same thing that James is talking about between agents and merchants and you know, telling them like I can do this. I can't do that. I don't know if I can do this. Let's have a bigger meeting and try to figure that out.
Speaker 3:Those are the agents that last, right? I mean, those are the people that last in this industry when they want to know who their customer is, they want to understand what they do and they want to form a business relationship that works with both parties. It's not just as simple as fog a mirror, fill out this merchant application, right? I mean, it's different. It's different than that. So you need sophistication. You need agents that actually like look, you're looking for the agents that, oh, I only have 15 merchants. That's all I need. Yeah, right, because I find them homes and I educate the people that are going to process for them, and you know that it's just a really different perspective.
Speaker 2:It really is and that's the agent that you know connected to that ISO. Most likely, when something does go sideways, they're going to give you a call, they're going to give that merchant a call, they're going to actually have a communication with them, as opposed to what I hear all the time from the stripes, from the squares, which is they terminated my account and I wasn't even told.
Speaker 3:Well, it's like Matt Steinbrecher. Well, that's easy use, right? I can go online, fill out an application and get processing. Maybe for a little bit, but Matt Steinbrecher said it. He said I do white glove service and that was the first time I'd heard somebody say that in relation to like agents. But he's like that's how he looks at it. He looks at it as I do white glove service, like I'm trying to find you the best relationship that I can for you, if I can.
Speaker 1:Yeah, and we've talked about this before there are agents out there, particularly in the high-risk field, that are in on it with the fraudulent merchants. I mean, sometimes they're the ones signing the agreement, saying this is my business and not the other thing, and they're going out and helping the merchant get a bunch of IBOs. Going out and helping the merchant get a bunch of IBOs. They're independent business owners where you get somebody's driver's license, social security, set up a bank account, you set up an LLC, leave it dormant for two years and then you go oh look, I've been in business for two years, I'm clearly legitimate and, excuse me, they're running these scams all over the place and they're running blowout accounts.
Speaker 1:And it's just one, you know, go to this processor, blow it up onto the next, onto the next, and you love it at first. Processors going wow, look at all this volume, this is great. But it's these, it's these guys and they're it's the same guys. They're doing it. I mean, we're in lawsuits with them and it's one of those things where we're going hey, before you sign up an agent, maybe give us a call, because if we have their name and we're in litigation or we've heard their name or this, that the other thing give us a call and maybe we can give you a little information that'll save you a couple million bucks.
Speaker 3:Yeah, that's the crazy part. Like it's. You know, there's so many things you have to wonder why it exists or why it, like, perpetuates itself. But exactly what James is talking about with the agents, you know some of them are creating their. They're committing identity theft. I don't know how many of the merchants are in on it. Some of them are willing. Some of them are unconsciously willing, maybe, or semi-consciously willing, but literally it's. I check ISP addresses on the electronic signature to see if it matches with the merchant's location and it usually doesn't. It's where the agent is. I mean, got a litigation case right now and she's crazy, you know. But you leave a trail of anything that you do. These days it's really difficult not to leave a trail.
Speaker 1:I remember one of our first big cases. We're defending a class action against all these merchants. We subpoena all the merchants and they're coming down. We're deposing them one by one. We're going hey, you know, is this, did you sign this? And I go I think so. They're like how'd you meet this guy? And she's like oh yeah, I'm his hairdresser. He gave me 500 bucks if he could have my ID. And we're sitting there and there was 10 of those. Oh, I mow his lawn. Oh, he's my kid's coach and the attorney on the other end, chris and I we're deposing these guys back and forth and we're watching him. He's just stripping his jacket off, clothes on covered in sweat, emailed us at the end of the day.
Speaker 1:Hey, we're dismissing without—we're dismissing Wow, end of the day. Hey, we're dismissing with how we're dismissing, Because there's just fake merchant accounts.
Speaker 3:So and it still runs rampant. There is a way we did let them actually verify written discovery first. Yeah, yeah, like they did verify written discovery responses first.
Speaker 1:But there are. I mean, look, there are ways out there, not with the you know IBO model of where the person does this, but there are ways to scale your business and run high-risk processing in a compliant way that the banks are okay with. That, the regulators seem to be okay with that, you know everybody's good with. But it's. I won't say you're trying to thread through a you know very narrow hole. But there's general business practices. There's no written rules of conduct. Well, there are. There's a bunch of stuff you can't do, but there's things that you can do that have proven successful, where these high-risk merchants can process for years and years and years. As opposed to the average high risk is one to three months.
Speaker 3:Yeah, the other thing is that if you are a high-risk merchant and you are engaging in some sort of due diligence and your bank or doesn't want to be concrete and remains ambiguous about your working relationship, fucking run. You're getting screwed later on for sure, you know.
Speaker 2:So that kind of leads us to, you know, makes the point for us. What's the biggest takeaway? You know, james, this podcast, you know you brought this to us. It's a great topic. What do you want the takeaway to be?
Speaker 1:The biggest takeaway is you know, know your customer and know your partners. And, of course, you know I'm going to talk to a law firm beforehand when anyone's getting in any kind of agreement or relationship is check out, check it out. You know, am I going to get in bed with a processor that's going to take a big reserve and then take the reserve? And same thing with the processes. Am I getting you know a sales agent who's bringing me all this high risk and is this a good account? Excellent.
Speaker 3:Chris, anything you want to Just relationships, right? I mean, we built this law from off. Relationships, like anytime a relationship turns sour for whatever reason, it's like it's never a win, right? I mean, it's just cutting losses at that point, and that includes us. I think what James is saying is just relationships. You really have to pay attention to your relationships, yeah.
Speaker 2:Yeah, and maybe the best place to start is a place where, day in, day out, this firm has from paralegals to the attorneys, to the administrative staff. We are in this space every single day and we've been doing it for almost 20 years now. We have a lot of relationships I say this every day on the phone with our potential clients. We have a lot of relationships and we're happy to make the introductions where it makes sense and where it's in the best interest of that particular client.
Speaker 1:That's one of the values we add to our clients is introductions. We've had, you know, we've done that for years of hey, meet, so-and-so, and they end up hitting it off and they, you know, generate a whole bunch of business together.
Speaker 3:Yeah, that's the other thing. The sales agent right, they're not going to be able to like call the guy that owns the place. The sales agent right, they're not going to be able to like call the guy that owns the place. We can. Actually we had a merchant recently that definitely a high risk merchant. But I talked to the guy. He was super legitimate, wanted to figure out how to do processing, gave me like kind of the criteria.
Speaker 3:I went to three people. Two of them said I cannot do that. But the two that said I cannot do it, it was the CEO saying I cannot do that. But the two that said I cannot do it, it was the CEO saying I cannot do that. Right, not small organizations. Third one said yeah, like I think we might be able to. The difference was is I wasn't really for me, it was an objective referral. An objective referral, I don't. I'm just looking to try to find a home and be transparent with the information and make it work for everybody involved. You know, like it was just one of those things where I'm able to actually get an answer from an agent. Maybe not, and they're self-motivated because of the profit margin associated with it, right exactly All right.
Speaker 2:Well, if there's nothing else, gentlemen, this is a great podcast. Thank you for the conversation today. Thank you for listening to this episode of the Payments Experts Podcast, a podcast of Global Legal Law Firm. Visit us online today at globallegallawfirmcom. Matters discussed are all opinions that do not constitute legal advice. All events or likeness to real people and events is a coincidence.