What are the new rules for contracts?
One of the PSR’s new sets of rules is Specific Direction 16, which focuses on limiting the length of initial terms for point of sale (POS) terminal contracts.
The direction requires directed payment service providers (PSPs) to:
“…ensure, in relation to merchants with an annual card turnover up to £10 million, that merchant contracts which include provision of POS terminals and incur scheduled payments, where that merchant is making use of the directed PSP’s card-acquiring services, do not have an initial term in excess of 18 months and thereafter move to a rolling monthly contract.”
This relates specifically to arrangements that:
- include provision of at least one POS terminal/card machine
- specify at least 2 scheduled payments
- are between a merchant with a card turnover of up to £10 million who uses card acquiring services operated/provided by a PSP, and either:
- a directed PSP, or
- a third party like an ISO or leasing company
In order words, the restrictions do not just apply to the rental or lease contract of terminals – they apply to any contract connected with a card machine, for example credit card processing, terminal software, merchant account and service contracts.
So what are the rules exactly? Specific Direction 16 states that any new, relevant card terminal provision must not have a contract longer than 18 months.
And whether or not there is a lock-in period, the PSP must also turn the contract into monthly-rolling by 18 months, requiring a maximum of one month’s cancellation notice.
In addition, any contract termination fees have to be transparent, cost-based and fully explained before the merchant enters into a contract.
From July 2023, payment companies should also communicate to their merchants at the end of the contract term that they could get a better deal if they look around elsewhere.
Existing POS terminal contracts – started before January 6th 2023 – of longer than 18 months can run their course, but must turn into a monthly-rolling plan at the end of its contract period, with a maximum of a month’s notice required.