The short answer

An early termination fee is a fixed charge set in your agreement. A liquidated damages clause instead calculates the provider's projected lost profit for the remaining term, which can reach thousands of dollars. Both appear in the termination section of your merchant agreement. The FTC has taken action over exit fees merchants were not told about: in 2022 it alleged that First American Payment Systems' sales agents promised merchants they could cancel at any time without a fee, while its standard agreement carried a three-year term and a $495 cancellation fee. In Canada, the Code of Conduct for the Payment Card Industry gives merchants a right to cancel without penalty in specific circumstances.

What the FTC alleged about exit fees

In a July 2022 press release, the Federal Trade Commission said it had taken action against payment processor First American Payment Systems and two sales affiliates. The FTC alleged that sales representatives told businesses they could cancel at any time, or within a trial period, without a fee, while the standard agreement required a three-year commitment with a $495 cancellation fee. It also alleged that the company kept withdrawing money from businesses' bank accounts after they had withdrawn consent. Under the proposed court order the defendants were to return $4.9 million, stop misrepresenting contract terms and pricing, make cancellation easier, and not collect early termination fees from merchants who signed electronic agreements before April 6, 2020. In February 2025 the FTC said it had sent more than $2.6 million in refunds to 5,588 small businesses. These are the FTC's allegations and the terms of that order; they describe one company, not the industry.

How to read the clause

Find the termination section and read it before you need it. Language about a single stated amount is a flat fee, and you can price it. Language about "remaining months", "average monthly fees", "projected revenue" or "liquidated damages" is a formula, and you have to calculate it. Multiply your own average monthly fees by the months left and you will usually have the number, or close to it. Check three more things while you are there: the initial term, the renewal wording, and whether any equipment lease is a separate agreement with its own term. A lease very often is, and cancelling the processing account does not end it.

Canada: the Code of Conduct gives you a cancellation right

The Code of Conduct for the Payment Card Industry in Canada, effective October 30, 2024, is administered through the Financial Consumer Agency of Canada and sets out cancellation rights that do not depend on negotiating them. Acquirers and downstream participants must notify merchants between 30 and 60 calendar days before the effective date of a new or increased fee, or a fee reduction that is not fully passed through. When that happens, a merchant may cancel agreements related to card processing without any form of penalty within 70 calendar days after that effective date. The provider must send the required documentation within five business days, and the cancellation takes effect at least 30 calendar days after the merchant submits it. The Code also limits how contracts renew: a fixed-term agreement cannot automatically renew for the full initial term, though it may convert to automatically renewable extensions of six months or less, and a merchant may give notice of non-renewal at any point during the agreement period up to 45 calendar days before renewal. Related service agreements must not run longer than the processing agreement itself. If your provider does not respond, the Code sets complaint timelines: acknowledgement within a maximum of five business days and a response within a maximum of 20 business days.

Check the sales promise against the contract

The practical lesson from the FTC case is to compare what you were told with what you signed. Before signing, find the term length, the renewal wording, the termination section and any separate equipment lease, and ask for any promise about cancelling without a fee to be written into the agreement itself. If you are already signed, read the same sections before you give notice, send your cancellation in exactly the way the agreement requires, keep a dated copy, and watch your bank account for debits after the closing date. Keep the account open and funded until you are sure nothing further will be drawn, because a returned debit can generate its own fees.

Reimbursement offers and what they usually miss

An incoming provider will sometimes offer to reimburse a documented exit fee. Two conditions decide whether that is worth anything. Get it in writing in the new agreement rather than in a sales email, and check what it covers. Reimbursement offers commonly exclude equipment leases, which are separate contracts with a separate counterparty, and they frequently cap the amount. If your exit cost is mostly a lease, a termination-fee reimbursement will not touch it.

Key takeaways

  • Distinguish a flat exit fee from a damages formula, and calculate the formula
  • Equipment leases are usually separate agreements that survive cancelling the account
  • Get any no-fee cancellation promise written into the agreement, not an email
  • In Canada the Code of Conduct allows penalty-free cancellation within 70 calendar days of a fee increase taking effect
  • Canadian fixed-term agreements cannot auto-renew for the full initial term
  • Reimbursement offers rarely cover leases — check the wording and any cap

Related guides

Sources

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