Common pitfalls and official sources
Merchant processing contracts in Canada: term, auto-renewal and early termination fees
How Canadian card processing contracts handle term, automatic renewal and early termination fees, the limits set by the Code of Conduct, leases, and Quebec language rules.
A card processing agreement may run month to month or for a fixed term (often several years), and leaving early can trigger an early termination fee that is either a flat amount or a formula such as an average monthly fee multiplied by the months remaining. The revised Code of Conduct for the Payment Card Industry in Canada, in effect since 30 October 2024, limits some of this: fixed-term standard-form agreements cannot automatically renew for the full original term (only for extensions of six months or less), you can give notice of non-renewal up to 45 days before renewal, related service agreements cannot outlast the main agreement, and you can leave without penalty within 70 days of a fee increase. A separate equipment lease is the biggest exception to watch.
This guide is part of the pitfalls and official sources section. Amounts are illustrative.
Contract structures you will see
| Structure | How exit works | Watch out for |
|---|---|---|
| No term (month to month) | Cancel with the notice set in the agreement | Equipment return, final fees |
| Fixed term (for example, three years) | Early termination fee if you leave before the end, unless a Code exit right applies | Formula-based fees, renewal dates |
| Fixed term with automatic extensions | Extensions limited to six months or less under the Code | Missing the non-renewal deadline |
| Bundled with a POS or software subscription | Separate terms for software | Prepaid software may not be refundable |
| Separate equipment lease | Lease terms, often non-cancellable | Payments continue after processing ends |
How early termination fees are calculated
| Type | Example (illustrative) | Cost to leave 20 months early |
|---|---|---|
| Flat fee | $295 | $295 |
| Flat fee per location | $250 × 3 locations | $750 |
| Liquidated damages: average monthly processor fees × months left | $90 average × 20 months | $1,800 |
| Liquidated damages capped | Same formula, capped at $500 | $500 |
| Sliding scale | $500 in year 1, $300 in year 2, $150 in year 3 | depends on year |
The liquidated damages type can be the most expensive. Ask for it to be replaced with a flat fee or removed before you sign.
Your exit rights under the Code
- After a fee change: cancel without penalty within 70 days after the effective date of a fee increase, a new fee, or a network fee reduction not passed on in full. If you did not get 30 to 60 days' notice, you can cancel without penalty at any time.
- Not covered: increases built into your agreement (volume tiers, the end of a disclosed promotional rate) and unrelated services.
- Process: the processor sends cancellation documents within 5 business days of your notice; cancellation takes effect on your requested date if obligations such as equipment return are met and at least 30 days have passed since you submitted the documents.
- Renewal: notice of non-renewal can be given up to 45 days before renewal. Fixed-term agreements cannot automatically renew for the full original term.
- Related services: related service agreements (such as equipment rental with your processor) cannot run longer than the main processing agreement; agreements without a term must have related agreements without a term too.
Details: merchant rights under the Code.
Worked example: leaving after a fee increase
Illustrative: a gift shop is 14 months into a 36-month agreement with a termination formula of average monthly fees ($80) × months left (22) = $1,760. On 1 June it receives notice that a new $9.95 monthly "platform fee" starts on 15 July. The shop finds a better fit and gives notice to leave on 1 September, 48 days after the new fee took effect: within 70 days. Under the Code, it can leave without the $1,760 penalty. It must return the rented terminal; cancellation takes effect at least 30 days after it submits the cancellation documents.
Had it waited until 30 September (77 days after), the Code exit right would have expired and the contract terms would apply.
Leases: the exception to watch
Equipment leases arranged through a sales agent with a separate leasing company may be outside the processing agreement and outside the Code's protections. Common features: a term of several years, fixed monthly payments, no cancellation, and payments that continue if you change processor or close your business. Before signing:
- Ask whether any document is a lease and who the lessor is.
- Add up all payments and compare with the purchase price.
- Ask whether the lease can be cancelled or bought out, and for how much.
- Read the personal guarantee clause.
- Get legal advice for any long or large lease.
Compare buying, renting and leasing with the payback calculator and read terminal rental vs purchase.
Personal guarantees
Many small business processing agreements ask the owner to sign a personal guarantee, making them personally liable for amounts the business owes the processor, such as chargebacks, fees and termination fees. Read it carefully, ask whether it can be limited, and get advice if your personal assets are at stake.
Quebec: language of the contract
In Quebec, the Charter of the French language requires adhesion contracts (standard-form contracts) to be provided first in French; since 1 June 2023 the parties can be bound by a version in another language only after the French version has been provided and they expressly choose that language. Quebec merchants can ask for French contract documents. Check the Office québécois de la langue française for current rules.
Keeping a contract calendar
| Date to record | Why |
|---|---|
| Start date and term | To know when early termination fees end |
| Non-renewal deadline | Up to 45 days before renewal under the Code |
| Each fee notice and its 70-day window end | To decide whether to use the penalty-free exit |
| Introductory rate end date | Scheduled increases are excluded from the exit right |
| Lease end date | Often different from the processing term |
| PCI validation date | To avoid non-compliance fees |
FAQ
Can a processor charge an exit fee if I leave after a fee increase?
Not if you leave within the Code's 70-day window after a fee increase or new fee (with the exceptions for scheduled increases). Check that your processor operates under a network that has adopted the Code; all major networks in Canada have.
Is an early termination fee always enforceable?
That is a question of contract law in your province. Excessive amounts may be challengeable in some cases. Get legal advice for large amounts.
What if my business closes?
Processing agreements and leases usually have clauses for closure. Notify the processor in writing, return equipment, and check the lease and any personal guarantee.
Sources
- Financial Consumer Agency of Canada — Code of Conduct: renewal, exit and cancellation
- FCAC: Accepting card payments — merchant rights and complaints
- Office québécois de la langue française — French-language rules for contracts
- Competition Bureau Canada — misleading sales representations
