Lawsuit

Credit Card Processor Square Faces Lawsuit Over Merchant Payment Holds

Last month we reported that Square notified a small business merchant that it would withhold 30 percent of the transaction amount in a Reserve for up to 120 days.

The small business owner in our story had no chargebacks or other payment problems and when he asked Square for details, they did not provide any actionable information or a method to appeal the decision. This business owner provides B2B advertising and marketing services and had been with Square for some time, so he was not a new account.

After we posted the story in our Facebook Group several members complained they also received these notifications. Most complaints were similar; no warnings; no account issues or current problems; just a notice from Square they would hold a portion of the payments now in Reserve. Most stated the same 30 percent and 120 days policy.

Based on the information in our Facebook group and from emails we received, it seems Square is identifying specific business categories as higher risk categories and punishes those businesses by withholding funds in a Reserve.

Square Now Faces Lawsuit Over Its Reserve Process

We now have learned one company had enough regarding this practice and they filed a Business Tort lawsuit against Square. The case is Mon Ethos Pro Consulting, LLC (Mon Ethos) versus Square Capital, LLC (Square) and it was filed in May in the Superior Court of California (County of San Francisco).

In the complaint, Mon Ethos states:

“Plaintiff Mon Ethos seeks relief in law and equity, and compensatory and punitive damages, against defendants Square Capital, LLC and Square, Inc. d/b/a Square Capital of California, LLC, [Square] as merchant credit card processors, for their breaches of contract, and their fraudulent, grossly negligent, intentional, and unfair and deceptive actions, including, but not limited to, wrongfully withholding merchant payments due, owing, and rightfully belonging to Plaintiff.”

“The actions and misconduct of the defendants, and each of them, are particularly offensive as they are attempting to seize and hold thirty (30%) of all of Plaintiff’s transactions, without Plaintiff’s authorization, during a time when Plaintiff is suffering from the economic devastation caused by the worldwide shutdown due to the coronavirus (“COVID-19”) crisis.”

“On or about April 23, 2020, without justification or Plaintiff’s authorization, Defendants notified Plaintiff that Defendants unilaterally instituted a 120-day hold on thirty percent
(30%) of all transactions processed for Plaintiff.”

“There have been no disputed payments or chargebacks generated through Plaintiff’s transactions processed by Defendants.”

In general, the allegations in the lawsuit are similar to the complaints we have received in our Facebook Group and in emails.

Square Targeting Industry Segments

Based on this information, it appears Square is targeting events businesses, service and repair businesses, and businesses offering custom products that typically would collect deposits.

The primary complaint from merchants is similar, they received this notice without warning and only vague explanations such as being in a business category that is “prone to receiving payment disputes”, “length of time you’ve [merchant] been processing payments with Square”, and “business documents we [Square] may have on file.”

There appears to be no transparency to this process and no direct actionable solution for a merchant to work with Square to lift the Reserve.

In the company’s payment processing terms, Square only addresses the issues of Reserves in a vague paragraph and provides no specific details when a merchant may trigger an action by Square that could result in a Reserve, suspension, or other action:

“If we believe you might incur, or you are incurring, an excessive amount of Chargebacks, we may establish additional conditions governing your Square Account, including (a) establishing new processing fees, (b) creating a Reserve in an amount reasonably determined by us to cover anticipated Chargebacks and related fees, (c) delaying payouts, or (d) terminating or suspending the Payment Services.”

Customer Service vs Blunt Action

While complaints from merchants about payment processors are not uncommon, these reports we have received do not seem to be based on a specific trigger such as after a complaint or chargeback.

Often, when complaints about payment processors surface, they usually involve open disputes, specific issues, or an accumulation of various issues.

In this case, it seems Square is proactively deciding to place restrictions on merchant accounts that have no chargeback issues and are not dealing with open claims.

Assuming Square has legitimate concerns about certain types of businesses, it appears the company is failing at customer service and communication.

For many small business owners, a reduction of 30 percent on sales for 120 days is not a sustainable solution. It’s especially hurtful if the business had no issues that would warrant such a restriction.

If Square continues to restrict more small business accounts, it will force more small business owners to look for alternative payment solutions and there are plenty of options in the marketplace.

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21 Comments

  1. Mary Olmstead says:

    Please don’t withhold funds from small businesses, especially during a pandemic.

  2. How do I join this class action

  3. Sandie Wadsworth says:

    I has just opened my account with square not even 2 days took a payment for a job. I was waiting for my funds to ne deposited in to my bank account. I checked my balance it was $0 I pull up the dashboard and it said my account was deactivated no warning tried to call can’t get anybody on the phone and no response from the email’s. I don’t know why it was deactivated and they took my $500 dollar’s. How can I get in this class action lawsuit someone help please.

    1. Crystal Deane says:

      Me too did you find out how to get in on it.

  4. Jamie Skillman says:

    Hello
    Jamie Skillman of Jamie Skillman’s Heating and Air Conditioning, I an curently trying to get them to release almost 18,000.00 dollars.

    any help would be good

    1. Kimberly Kay Pack says:

      In 2014 I was charged with a felony 3 (theft) because they held over $15k from my business. I had to file bankruptcy on my business and close the doors. I fought them for years and I hope they get closed down. Square is horrible.

  5. Vickey Renz says:

    They’re holding about 3,400 of my money and can’t seem to get anybody To release it

  6. David Lauten says:

    Happened the same way to me. They waited till I had rec’d. 215.00 in payments, then said I was being reviewed. This isn’t even 2 days in. Then, I finally found a way to talk to a human on the phone, but alas it was a recording that knew me. They don’t want my business and I cannot transfer my money, nothing except issue refunds. I am not issuing refunds, people have all happily received their items. Meanwhile, square has my money, no time given when I can get it. All this with no complaints or chargebacks. I don’t get it.

  7. Barbara Dawes says:

    I have had this happen now on my last two transactions. I am wondering if anyone can verify that after the 120 days that the money being held in “reserve” will indeed be credited to my bank account. Also, when I look on my account, I cannot find the amount they are holding in Reserve listed. All I know is how much my client paid using Square, the amount listed as the “fee” and the amount that was deposited into my bank. I never received an email stating that this “reserve” was being initiated on my account. The only reason I was able to get some kind of answer was through the Square website online chat which mentioned that a portion of my funds was being held for 120 day. When I responded that as a small business owner this is not acceptable. The items my clients had purchased will be installed before the 120 day period. Meanwhile, I’m out that money and cannot touch it. I am definitely considering not offering CC to my clients or finding another company that will not impose these fees without prior consent.

  8. Jennifer Tilden says:

    Been using square for 2 months. All of a sudden they claimed I they could not do instant transfer due to review of my business. They are with holding 375.00. I canceled 2 transactions and notified my clients. I will try to do the same with the other transactions. This seems to be a trend to steal from small businesses. They have no phone number and do not respond to emails.

  9. Felicia M Simpson says:

    I received a letter from Square saying that my account has been deactivated after the company that I work for deposited $2,220 on my Square account because I have a cleaning company and no one will respond no one get back with me not anything I’ve been calling and emailing but I get no response

  10. I haven’t even been able to use my square account for over a year because my business went belly up over covid. I used the business debit card to pay a monthly recurring bill as my regular debit card was being replaced. I transferred the funds from my personal bank account of 420.00 to pay this regular bill and Square accepted the funds, then refused to authorize the business debit card to pay the payment even though the balance was instantly available to square, I called and called, didn’t know they deactivated my account, I never got anything as to why I was deactivated and they still have my funds more than 90 days later. It’s impossible to have charge back when ive never taken charges in over a year…. Further more these funds were not merchant sales, it was my unemployment check just trying to pay bills and unable to reach them in ANY Way. No cust code, no answer, no email, no reply on Instagram or messenger.

    Called my bank disputed the charge … The never responded to the bank by the final response date but yet I have been waiting for my bank to refund and they don’t want to because they can’t recoup from square either. I am filing with CFPB, FDIC, BBB, AND ANY OTHER ACRONYM FEDERAL ENTITY THAT WILL ACT ON THESE THEIVES.

  11. Nick B Castellano says:

    They have $5300 of my money. I have a garage door company. My transfers said suspended yet they let me take a payment of $4400 and now won’t give it to me.

    1. That’s ridiculous and goes against the theory that it was industries that are a little more risque. Sorry you’re having to deal with that Nick

  12. carlos ortiz says:

    Square is holding my funds of $15,000 Because my costumers paid with two different credit cards and the cards got declined a few times because they were from out of state and square asked me to refund the money and to call the authorities, without getting my items back. This is ridiculous! I can’t accused someone to be a criminal before actually doing the crime.

  13. My account was suspended on 10/8 without prior warning because they saw a Facebook post. I am a CBD store and I have been approved for their CBD program. I had been processing for three months without issue and now they are holding $2000 of my money and will not provide me any reason or details on what needs to be addressed. It’s literally the same question they sent me 8 times now responding the same way and have called every day.

    This is exhausting. I don’t know what else to do to have my money released. It’s not even in a reserve or anything

  14. Shannon R. says:

    Square has been holding on to $2000 of my money and deactivated my account with no warning because they felt there was “possible fraudulent activity”. I am a vendor at multiple conventions and had not worked one in almost two years due to Covid-19. I finally worked a show in September but had to run credit cards through Square manually because my new phone did not have a headphone port to use the Square reader with. I was told that someone would reach out to me within two business days. I received no contact from them. I attempted to call them but because my account was deactivated they would not accept my customer code to speak to a real human. I tried contacting them through the website with no response. I tried calling their corporate number with no luck. I tried using the “callback” feature on their website but when submitting my information the page greys out and refuses to submit. I tried that three times. I finally reached out to them on Twitter, but I keep getting the runaround. They said they were investigating my case and to try calling their customer service number again. When I did so, the automated service now says that my customer code is inactive! I spoke to them on Twitter again and they asked for my contact information and email. Then they said that my contact information and email did not match what they had on file even though it’s the same email they have had for nearly 7 years and have emailed me at consistently….EXCEPT when it comes to contact from their customer service. It’s been well over a month and I still cannot transfer my funds from them to my bank account. I will never use Square again after this experience, and I was a long time customer. At this point I just want my money and to be done with them.

  15. Erik Tesluk says:

    Similar story here, I had my account with Square since 2013 and had used it minimally, until this year, when I started using it frequently. I took a $200 payment from my daughter and account wen went onder review, only to have it fully deactivated with an email 30+ days later telling me that Square could no longer fulfill my business needs. Also, it stated that my $200 would be released to
    me 90 days after the deactivation (Release date of 10/18/21). Well, we are now 30+ days past that date, and I’m still pushing to get my money back. In the bright side, they have seemed a bit more responsive regarding this than they were my questioning the account deactivation… Bottom line is their customer service is absolute trash, if you need real-time support or a phone number to call for support, good luck… My advice is use anyone besides Square!

  16. They are holding almost 6k in my account and every mo the they send me an email stating they are going to hold my funds longer with no explanation. I would never refer anyone to them. Nothing about my business is fraudulent. To hell with square. What kind of lawyer do I need to file a lawsuit against them
    It’s almost Christmas and I won’t be able to buy my kids anything

  17. Cyndi Jensen says:

    They started this in 2020 with me stating it was started with COVID and risky businesses. Its been two years and they are still doing it to my business. I am an accountant and get paid after the services are rendered. Ive never had a chargeback. They told me it would be evaluated from time to time. Well, 2 years later the same thing is happening. How much money are they making on all our money they are holding????? Im sure its setting in an interest bearing account and we dont get the interest. I really believe this should be a class action lawsuit

  18. Yeah they deactivated my account too they’re holding over $500 of my money that I charged with my own credit card and they said they’re holding it for 90 days for for any chargebacks I gave them a notarized letter saying that there will be no charge back in that this was my card and and they have no legal justification to hold any of my friends anymore and they have no response to me

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