Unless youâre running a purely eCommerce business, youâre going to need a credit card terminal to accept credit cards. If your business is large enough, or if you operate out of multiple locations, you might need more than one. Credit card terminals come in many shapes and sizes, from simple wired terminals that arenât much bigger than a smartphone up to fancy POS terminals that can do much more than just process credit card transactions.
Procuring terminals for your business can be an expensive proposition for a first-time small business owner. Because of this, many traditional merchant account providers have used leasing arrangements to supply their merchants with the hardware they need. If you get anything out of this article, above all remember this: Donât do it! While that low monthly leasing fee might seem like a bargain compared to the cost of buying a terminal, itâs anything but.
How Leasing Works
Almost all terminal leasing contracts contain the same two provisions: (1) a 48-month (four-year) term, and (2) a clause that makes the lease completely non-cancelable. The standard four-year term deliberately takes advantage of the fact that most merchant accounts start with a three-year term, and automatically renew for one-year periods after that. In other words, even if you successfully close your merchant account after the three-year period is up, youâre still on the hook for your terminal lease for another year. Youâll be paying for equipment that you donât actually own and wonât even be able to use at that point.
The non-cancelable provision in leasing contracts is far and away the most onerous thing about them. Once the leasing company has your bank account information, theyâll keep deducting monthly leasing fees from your account until the contract expires, regardless of the state of your business. Even if youâve closed your business and shipped the terminals back, theyâll keep charging you under the terms of your lease. Deliberately breaking your lease before it expires puts you on the hook for an immediate payment of all remaining months of your contract.
Those monthly lease payments can seem tempting, especially if youâre trying to start a new business on a shoestring budget. What the sales representatives pushing these leases donât tell you, however, is that in addition to a monthly leasing fee, youâll also pay sales tax and a monthly equipment insurance fee. Hereâs a hypothetical example: Letâs say you can lease a terminal for âonlyâ $30.00 per month. Add in $5.00 per month for insurance and 8% sales tax, and youâre actually paying $37.80 per month. Multiply that by 48 months, and the true cost of the contract comes out to $1,814.40. Yikes! Considering that a terminal that leases for that amount can usually be purchased outright for under $300, itâs clear that youâre being ripped off.
Myths About Terminal Leases
If terminal leases are such an obvious rip-off, why do merchants sign up for them? There are several reasons for this. For one thing, the leasing companies have a number of arguments in favor of leasing that can be very persuasive if you donât do your homework. Hereâs what theyâll tell you:
Your upfront costs will be lower. Yes, that first monthâs payment will be lower than buying a terminal outright. If you need multiple terminals, youâll save even more â for a few weeks. After that, the costs just keep adding up until theyâve exceeded the cost of buying a terminal by several hundred percent.
Your leased terminal will be compatible with your merchant account. Again, this is true on its face. What they arenât telling you is that you can buy your own terminal and have it re-programmed by your merchant account provider to work with their system. While some providers will charge you a re-programming fee, many of the better providers will re-program your existing equipment for free. Even if you have to pay a re-programming fee, youâll still save hundreds, if not thousands of dollars over leasing.
Your leased terminal is insured in case it gets damaged or stops working. Itâs true that if you buy your terminal outright, youâll have to find either a way to insure it or go without the insurance. If you buy your terminal directly from your merchant account provider, they might be able to cover this. If you buy your terminal online through a third party, it wonât come with any insurance protection. Hereâs the thing, though: credit card terminals arenât nearly as delicate as many of the other electronic gadgets we rely on every day. Theyâre rugged, and absent deliberate abuse theyâll last for years â possibly even decades â without needing repairs. Obsolescence is a bigger threat to your terminals than physical damage. Given the horrible reputation that terminal leasing companies have for customer service and support, I wouldnât expect much help if you actually had to make a claim. Overall, terminal insurance is both expensive and unnecessary.
Leasing costs are tax-deductible. Like any legitimate business expense, you can deduct the cost of your terminal lease on your taxes. Of course, you can also deduct the cost of buying your terminals outright just as easily. Donât let a sales representative convince you that paying 6-10 times the retail price for a terminal is a good deal because you can write it off on your taxes. Youâll still come out way ahead overall by buying your own terminals.
What Happens at the End of Your Lease?
Hereâs the worst part about leasing: At the end of your lease, you still wonât own your terminals. They remain the property of the leasing company. Your options at this point vary depending on which leasing company youâre working with. Here are the more common possibilities.
- You can terminate your lease and return your terminals. Youâll be out from under your lease, but now you wonât have any way to process credit card transactions.
- You can buy the terminals from the leasing company. Some companies will let you buy your terminals at the end of your lease, but theyâll usually charge you much more than theyâre really They wonât give you any credit for all those lease payments, either.
- You can continue leasing your equipment. Leasing companies will usually allow you to continue leasing your terminals after your initial four-year lease expires. While some companies will allow you to continue leasing on a month-to-month basis, others will put you on another four-year contract. In either case, itâs just not worth it.
How Do They Get Away with This?
If youâve gotten this far, youâre probably asking yourself why anyone would agree to a terminal lease. Unfortunately, it usually comes down to merchants falling for misleading, high-pressure sales tactics from the representatives pushing the lease. Unethical sales agents will tell you that itâs more economical to lease than to buy. They might also tell you that your merchant account provider only offers leases and that if you buy your own equipment, it wonât be compatible. None of this is true.
Credit card terminals used to be a lot more expensive than they are today. Back then, it might have made at least some economic sense to lease a terminal. Today, thanks to increased competition and advances in technology, you can buy a modern, EMV-compliant, NFC-capable credit card terminal for as little as $120. Youâll still need to have the software load installed to make it compatible with your merchant account, but some of the better merchant account providers will do this for free. Even if you have to pay a re-programming fee, itâs still far less expensive than leasing a terminal.
Some of the more unethical sales agents will deliberately obscure the fact that your merchant account provider and your terminal leasing company are two different entities. This mostly comes down to the fact that they donât want you to see your leasing contract before you sign it. As weâll see later, thereâs evidence that some of the most unethical leasing companies have gone so far as to deliberately forge merchantâs signatures on their leasing contracts. The best way for you as a merchant to avoid this kind of blatantly illegal conduct is to avoid terminal leases completely.
While there really arenât any ethical, honest terminal leasing companies that we can recommend to you, we have assembled a rogueâs gallery of the worst companies that you should stay away from. Youâre quite likely to run into one or more of these companies in your search for a merchant account, so itâs important that you understand how they operate and how to protect yourself. Here are the companies that you never want to do business with:
First Data Global Leasing (FDGL)
First Data Global Leasing is a subsidiary of mammoth First Data, which is probably the largest merchant account provider in the United States. Although weâve reviewed First Data favorably, we canât say the same thing about First Data Global Leasing. With expensive, non-cancelable leases ranging from 24 to 48 months in length, FDGL has generated a huge number of complaints from merchants for its business practices.
FDGL primarily leases proprietary First Data-branded credit card terminals and POS systems, including the very popular Clover Station POS. While First Dataâs hardware offerings are all solid products, itâs much more affordable in the long run to buy them rather than leasing them. The Clover Station POS, for example, can be bought for around $1,000.00. While this is a big investment for a small startup business, itâs a lot less than what youâd pay overall for a four-year lease. Youâll also own your equipment outright from the beginning, rather than having to either send it back to FDGL or pay a second time to buy it after your lease expires.
FDGLâs website is remarkably basic, and doesnât provide much information about either the terms of their leases or the leasing fees associated with their products. They do, however, include a brief FAQ that should be enough to convince you that leasing through them is a terrible deal. Hey, at least theyâre honest.
You should also check out First Dataâs Merchant Services Terms and Conditions, which includes a copy of the leasing contract. Itâs on pages 31-32, and Iâve highlighted some of the most egregious provisions. Because FDGL is part of First Data, you wonât have two separate contracts for your merchant account and your equipment lease. At the same time, itâs easy for merchants to skip reviewing this section when they sign their contract since itâs buried in the middle of 48 pages of fine print.
FDGL doesnât have a separate profile with the BBB, so youâll have to look under the main First Data profile. Here, youâll find that First Data has an A+ rating â despite being unaccredited by the BBB and having over 1,000 complaints on file. Looking through those complaints, itâs apparent that a significant number of them involve issues with FDGLâs leasing terms. Unfortunately, responses from First Data make it very clear that they will strictly enforce the terms of the lease in almost all cases.
Ripoff Report has an additional 72 complaints filed against FDGL, including several merchants alleging that FDGLâs sales agents forged their signatures on leasing contract documents. At ConsumerAffairs.com, youâll find another 56 1-star reviews from merchants who have been abused by this company. Thereâs even a Facebook group called First Data Global Leasing Victims, where merchants have posted complaints about FDGL and its leasing contracts.
When shopping around for a merchant account, you need to be aware that First Data has a very extensive network of resellers, some of whom use FDGL to lease their equipment. Merchant account providers such as Elite Pay Global, TransFirst, and many, many others use First Data as their backend processor and offer First Data terminals and Clover POS systems. If youâd like to use First Dataâs equipment or take advantage of the services such a large processor can provide, take a look at Dharma Merchant Services. One of our favorite providers, Dharma utilizes First Data (and other processors) but doesnât partner with FDGL. In fact, they donât lease terminals at all. Theyâll either sell you a terminal at a fair price or re-program your own equipment for a reasonable fee.
Northern Leasing Systems, Inc.
If you think FDGL is a terrible company, I have bad news: there are even worse leasing companies out there that you need to avoid at all costs. Based in New York City, New York, Northern Leasing Systems, Inc. has been in business since 1991. In that time, the company has managed to build such a terrible reputation with merchants that itâs resorted to doing business under numerous DBAs and through various subsidiaries, including Golden Eagle Leasing LLC, Lease Finance Group LLC, MBF Leasing LLC, Lease Source-LSI, LLC, and others.
Like most terminal leasing companies, Northern Leasing uses a standard contract that runs for four years and is utterly non-cancelable. If youâd like, you can review their Lease Agreement right here. Itâs pretty clear from even a brief overview that the contract canât be canceled and you canât break it early without having to pay off the remaining months of the contract. So why do merchants ever agree to this? The truth is they often donât know what theyâre getting themselves into when they sign up for a merchant account. Northern Leasing usually doesnât sell or market their terminal leases directly. Instead, they partner with many different merchant account providers, who package their âservicesâ as part of setting up a new merchant account. Merchants often donât understand that their lease is through a separate company and not their merchant account provider. Northern Leasingâs contract is buried inside the fine print of a merchantâs contract with their merchant account provider, and many merchants donât read everything in their contracts before signing them. Also, sales representatives â particularly independent agents â often do a poor job of explaining the terms of the equipment lease when trying to sell a merchant account.
Northern Leasing is not accredited by the BBB and currently has an F rating. There have been an unbelievable 631 complaints filed against the company within the last three years, with 260 complaints being filed within the last twelve months. Even more complaints can be found on the BBB profiles of several of Northern Leasingâs subsidiaries.
On the companyâs BBB page, youâll also find details about a lawsuit filed against Northern Leasing and several of its subsidiaries in April 2016 by the New York Attorney General. The company is accused of fraudulently forging merchantâs signatures on contracts and illegally obtaining default judgments against merchants who have stopped making payments on their leases. The lawsuit seeks compensation for merchants who have been harmed by Northern Leasingâs predatory and illegal practices, and the complete dissolution of the company. If youâve been victimized by Northern Leasing or one of their subsidiaries, by all means go to the Attorney Generalâs press release about the lawsuit. It contains websites and phone numbers where you can find out more about the suit and get your claim added to it.
Northern Leasing also has 282 complaints on Ripoff Reports, with the same allegations being raised. You can also find many other complaints on the web. In fact, a search for âNorthern Leasingâ mostly leads to consumer protection websites where merchants have complained about the companyâs business practices.
Unfortunately, many merchant account providers continue to use Northern Leasing to provide leased terminals to their merchants. These providers include Central Payments (CPAY), Elite Pay Global, TransFirst, Velocity Merchant Services, and many others. While many of these providers are solid, reputable companies themselves, youâll definitely want to avoid leasing your equipment from Northern Leasing.
Lease Finance Group (LFG)
Based in Chicago, Illinois, Lease Finance Group (LFG) has been happily ripping off unsuspecting merchants since 1992. The company is actually a subsidiary of Northern Leasing Systems, Inc., and pretty much everything weâve said about Northern Leasing applies to LFG as well.
LFG claims on their website to be the â#1 Point of Sale (POS) equipment lessor in the country.â Whether itâs actually true or not, this is a dubious distinction at best. LFG utilizes the same absurd non-cancelable four-year leases to charge merchants as much as ten times the actual retail value of their terminals over the life of the lease. Itâs clear from LFGâs primitive, bare-bones website that theyâre not directly marketing their âservicesâ to merchants. Instead, theyâre looking to partner with merchant account providers so they can sneak their awful lease contracts into the overall contract between the merchant account provider and the merchant. This way, merchants often overlook the onerous terms of the lease contract, and in many cases donât even know that they have a separate contract with LFG at all.
This sort of unethical behavior is compounded by independent sales agents, who often fail to disclose any of the terms of the lease when signing merchants up for an account. Even the most inexperienced merchant would refuse to agree to one of these leasing contracts if they knew and understood what the terms of the lease entailed.
Lease Finance Group is not accredited by the BBB and currently has an F rating. The company currently has 379 complaints, almost all of which involve the absurd terms of their leases and the companyâs tendency to continue charging merchants after their leases have expired. There is also an alert for the lawsuit brought in April 2016 by the New York Attorney General against LFG, Northern Leasing, and several of their other DBAs. While this action is still making its way through the courts, itâs encouraging to see that state governments are finally cracking down on this kind of unethical and illegal behavior.
Like its parent company, the internet is littered with complaints against LFG, including 598 complaints on Ripoff Report alone. Unfortunately, LFG is still being used by TransFirst and many other merchant account providers to supply leased equipment to their customers. If youâre looking into a merchant account provider, be sure to read our reviews and any other reviews you can find online. Merchant account providers rarely disclose the identity of their leasing partners on their company websites, and you certainly canât count on a sales agent to give you an honest answer about this, either.
LADCO Global Leasing Solutions
LADCO Global Leasing Solutions is a subsidiary of Elavon, one of the largest merchant account providers in the United States. The company is located in Knoxville, Tennessee (with a second office in Thousand Oaks, California) and appears to have been in business since 1979. While Elavon provides a decent line of products and services for merchants, the same cannot be said about LADCO. Like all our other worst-rated leasing companies, the company relies on noncancelable, four-year leases to extract far more money from their merchants than what their equipment is worth.
Elavon goes out of its way to avoid disclosing its relationship with LADCO, and for a good reason. The leasing company has a terrible reputation among merchants for high prices and unfair leasing contracts. LADCOâs reputation is so bad that it no longer maintains its own company website. The companyâs former site, www.ladco.com, now re-directs to Elavonâs website. So much for keeping the relationship between the two entities a secretâ¦
While LADCO and other leasing companies go to great lengths to keep merchants from fully reading their contracts, weâve found copies of them on the internet. Even a brief look at LADCOâs Equipment Finance Lease Terms reveals how one-sided these contracts are. The first thing youâll (hopefully) notice is that the word noncancelable is right in the title of the agreement. Merchants often donât understand just how strictly this term is enforced. What this means is that you are liable for the full cost of all 48 monthly payments (and possibly more) from the moment you sign your merchant account provider contract. LADCO will not let you out of your contract under any circumstances. Did you sell your business? Too bad. Did your business fail and you are shutting down altogether? Again, too bad. Iâve even seen complaints where the business owner has died, and the executor is frantically trying to get the lease canceled and the equipment returned â to no avail.
You should also note that LADCO, like most other leasing companies, provides their equipment on an âas isâ basis, with no warranties or guarantees whatsoever. In other words, if your equipment doesnât work, itâs up to you to contact the manufacturer and get it fixed â which you have to pay for. The fact that your monthly lease payments also include charges for âinsuranceâ that wonât do you any good just makes it that much worse.
LADCO does not have a separate profile with the BBB, but you can find plenty of complaints against them under Elavonâs profile for their Knoxville location. While the profile shows 182 complaints over the last three years, some of them refer to problems with leased equipment and many others refer to other aspects of Elavonâs merchant account services. There are also 132 reports on Ripoff Report alleging similar problems with LADCO.
Like Northern Leasing and its numerous subsidiaries, LADCO has frequently found itself in legal trouble over its business practices. In April 2012, the Ventura County District Attorneyâs office settled a case against LADCOâs Thousand Oaks office after uncovering evidence that sales agents were misrepresenting just about everything in their leases, including the length of the lease, the fact that it couldnât be canceled, and the true cost of the lease. LADCO was also apparently leasing used equipment and misrepresenting it as being new, among other practices. There was also evidence that sales agents were forging merchantâs signatures on their leases. To settle the lawsuit, LADCO agreed to pay over $418,000 in fines and restitution, and to be bound by a permanent injunction prohibiting similar violations of the law. Unfortunately, this settlement only seems to have brought relief to merchants located in Ventura County.
The Elavon BBB profile also discloses a similar legal action by the Tennessee Attorney General in 2015. Under the terms of this settlement, LADCO is providing refunds to affected merchants. Again, this settlement seems only to apply to merchants in Tennessee. Despite these legal settlements, the complaints keep coming in from angry merchants, and itâs clear that LADCO hasnât reformed its business practices in any significant way in response to these legal setbacks.
Needless to say, if youâre considering signing up with Elavon for a merchant account, youâll want to avoid being stuck with a terminal lease through LADCO. Be aware that many of Elavonâs re-sellers, including Costco Merchant Services, also use the company to furnish leased equipment. Helcim, one of our favorite providers, uses Elavon as a processor but sells terminals directly rather than offering leases through LADCO.
Exceptions to the Rule
While in almost all cases we recommend that you buy your terminals or POS systems outright, there are two notable exceptions to this general rule. One exception is if youâre working with CDGcommerce, one of our favorite providers. If you need a credit card terminal, CDG will provide one at no upfront cost to you. The only thing youâll have to pay is an annual $79.00 fee for insurance and equipment upgrades. This works out to $6.58 per month â a fraction of what the leasing companies will charge you. Unlike the terminal leasing companies, your contract with CDG is month-to-month, so youâre free to close your account and return your terminal without having to pay anything extra.
The other exception applies only to Canadian merchants. In Canada, EMV-compliant terminals are not designed to be re-sold, so youâll have to rent them instead of buying your own. Helcim, our favorite Canadian merchant account provider (and one of the best choices for US-based merchants as well), will rent you a terminal for a reasonable fee. Helcimâs contracts are also month-to-month, so you can return the terminal at any time with no penalty.
Itâs not hard to see how the leasing companies make their money. With credit card terminals being more affordable than ever, itâs easy for a company to buy a huge number of terminals at wholesale prices and then lease them out to unsuspecting merchants. The initial cost of buying the terminals is recouped within the first few months of the lease, and from there itâs pure profit. By providing the equipment on an âas isâ basis, the company avoids the additional cost of servicing terminals once theyâve been leased. In fact, itâs apparent that none of these companies have an actual customer service department to speak of. The incredibly one-sided nature of the leasing contracts makes them a literal âlicense to steal.â
How can you protect yourself? First and foremost â buy your own equipment. If you donât have the money to pay for your terminals, put it on your business credit card or consider a merchant cash advance. Even with the additional interest, youâll save a lot of money over getting stuck in a lease. Donât ever let a sales agent tell you that you have to use their leased terminals. As long as you use a terminal that your provider supports, you can have it re-programmed to work with their service. While some providers will re-program your equipment for free, others will charge a fee for this. Re-programming fees can run as high as $150, but theyâre usually much less. In any event, youâll still save money over leasing.
Also, beware of âfreeâ terminal offers. While some of these offers are legitimate, many are not. Yes, there are a few providers out there that will let you use a terminal for free as long as you maintain your merchant account with them. Other providers will include the fee for the terminal in your monthly account fee, so the terminal isnât really free. In the worst cases, a sales agent will deliberately lie to you and tell you youâre getting a free terminal, when theyâve actually signed you up for one of these leases without your knowledge or consent. Donât accept a âfreeâ terminal offer without checking it out first.
The unscrupulous business practices of the leasing companies weâve profiled here represent sociopathic capitalism at its worst. While many of the more reputable merchant account providers have abandoned terminal leases altogether in favor of selling the terminals directly (or allowing you to bring your existing equipment), there are still plenty of other providers who are still pushing terminal leases. Itâs reassuring that a few state and local government agencies are finally beginning to crack down on these shady companies, but their actions so far donât seem to have put much of a dent in their business activities. Until a more comprehensive legal remedy becomes available that puts these companies out of business, the best way to protect yourself is simply to avoid doing business with them completely. If youâve had any experience with any of the companies weâve profiled in this article, please feel free to tell us about it in the comment section below.
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