In late March, Rebecca Faulk, a wedding and portrait photographer in Raleigh, North Carolina, discovered a big problem for her small business. Without warning, her credit card processor, PayJunction, a competitor of Square and Stripe popular among small businesses as one of the fastest credit card processors on the market, had begun withholding payments.
Hard times had already arrived for event planners, photographers, catering companies, and others in the events industry, with most upcoming social gatherings either cancelled or postponed indefinitely. In Faulk’s case, PayJunction was holding $1,500 in payments that her clients had made to her for weddings that had to be postponed due to the Covid-19 pandemic. The fact that PayJunction had effectively blocked Faulk’s only remaining stream of income—bookings on future events—made things even worse.
“They’ve decided to do this now when small businesses are in a crunch and when I haven’t had normal income in a month,” Faulk told Motherboard. “It’s just absolutely the worst time for a company to do anything like this. They are in it for themselves and the protection of only their company when for over seven years I have given them business.”
Faulk’s boutique photography company, Red Bridge Photography, isn’t the only small business hurting from PayJunction’s decision to keep large security deposits without warning.
Motherboard spoke to the owner of a truck rental company in Atlanta who recently discovered that PayJunction was withholding $2,200, the monthly rate for renting one of his 20 trucks. An events planner in Scottsdale, Arizona told Motherboard that after nine years of working with PayJunction without a problem, the card processor began withholding $7,000 in ticket sales for an event that had to be postponed from May to October because of the pandemic. A hotel owner in Texas said PayJunction is holding roughly $2,000 from his wife’s hotel business. In a PayJunction review online, a tile company employee wrote that he learned at the end of March that a $56,500 reserve deposit had been placed on his account and that he could not receive the funds back any sooner than 180 days.
PayJunction, which functions as a middleman between businesses and their customers, is unilaterally deciding to hold onto businesses' money at a time they need it the most.
To be clear, Faulk's customers hadn't asked for a refund, and they are still booked to use her as their photographer in the future. PayJunction just decided to not give the money to Faulk, and to retain it as a "security deposit" in case Faulk's business went under or customers eventually asked for a refund.
PayJunction seems to be doing this to hold cash in reserve because the credit card processing company seems to fear a future in which businesses it works with fail, or customers ask for refunds en masse and the businesses are unable to provide them. It says that customers could file disputes with PayJunction itself if this happens. Of course, by unilaterally deciding to hold money from the businesses it works with, PayJunction is making it more likely that these companies will be unable to weather the economic storm caused by the pandemic. And other credit card processors like Square and Stripe are not currently holding funds from businesses.
By unilaterally deciding to hold money from the businesses it works with, PayJunction is making it more likely that these companies will be unable to weather the economic storm caused by the pandemic.
"Our company is required to ensure that customers purchasing goods from a business will receive what they have paid for, or receive a refund from the business if warranted," PayJunction told Motherboard. "While the business is responsible for all refunds and disputes associated with their customer transactions, if the business is unable to deliver their products as described or refund their customers in accordance with the credit card association rules, our company is required to ensure the customer receives their funds."
Coronavirus’s pinch on small businesses, particularly in the events industry, could force many to shutter, and arrives at a time when the federal government is spending billions to bail out airline and auto industry giants, while a $350 billion fund for small businesses was quickly exhausted.
Businesses Motherboard spoke to said they weren't directly notified by PayJunction about their specific situations; essentially, PayJunction made a blanket change to its services, and businesses only figured out how it would affect them specifically after they realized money was missing.
"On March 18, 2020, PayJunction businesses were provided with our Guidance For Businesses Impacted By COVID-19, which covers 'Holds on Future Delivery' and 'Guidance for Industries on Hold,'" PayJunction said in a statement. "Businesses that are holding their customer funds upfront prior to delivering their products and services may be required to establish a security deposit. Other businesses impacted may be experiencing an increase in customer disputes. For example, ticketing for events that have been moved or canceled due to COVID-19, or other goods that have not been delivered. The amount of the security deposit is proportional to the amount of funds the business is holding from their customers."
“Things are tight right now. I really need that money,” Heath Sagon, the owner of Sagon Trucks, told Motherboard. Sagon said that he has never had to issue a refund to a customer, and that if he did have to refund a customer, it should be between him and the customer—not the customer and PayJunction. “If you have any clients denying charges, you take that up with me. But you’re using our money to fund your business. This is wrong. I would never do this to one of my customers.”
When Faulk, the photographer from North Carolina, got on the phone with a representative from PayJunction, he explained that a security deposit had been put on her account to mitigate the possibility that her event would be cancelled down the road, and that her customers would ask for refunds. Faulk says she’s never had to issue a refund in eight years of working with PayJunction.
“I’m having to pull money from savings to pay for things to fulfill client orders, but I have no end point for getting my money from PayJunction,” Faulk said.
Faulk said PayJunction returned her security deposit on April 10, but it was only after spending an entire day trying to recuperate her funds, and filing a complaint with the state of California. She says she will not do business with the company in the future.
“If you have any clients denying charges, you take that up with me. But you’re using our money to fund your business. This is wrong. I would never do this to one of my customers.”
PayJunction transacts more than $5 billion each year for tens of thousands of users. It told Motherboard that its terms of service gives it the right to withhold security deposits from businesses that use its service, and that it is doing so because it is responsible for ensuring customers receive products and services or refunds should the business not be able to deliver.
“These are unprecedented times and we are working hard to balance protections for businesses and their customers,” a spokesperson for PayJunction told Motherboard. “The quickest ways for security deposits to be released are delivering the products, or issuing refunds.”
But in the midst of the pandemic, businesses may not be able to deliver or provide their services for months. Others, strapped for cash, cannot afford to have income withheld indefinitely at a time when national spending plunges.
For businesses who work with PayJunction, the decision to require security deposits, while other credit card processors which also retain the right to withhold funds do not, raises questions about whether PayJunction is in financial trouble. Stripe and Square aren’t currently withholding funds from businesses.
“PayJunction, for whatever reason and I can’t know what it is, might be in bad financial shape or not be receiving other forms of revenue. Right now revenue is down across the board. This is how PayJunction is responding to that,” Beverly Harzog, who has written several books about credit cards, told Motherboard. “They’re dealing with customers who might not be able to collect on these services and it’s very risky particularly with events. None of us know what’s going to happen until we’re almost at the end of [pandemic].”
PayJunction did not respond to a question about its current financial situation.
“PayJunction is prohibiting us from making a living,” Liz Dawn, the owner of Celebrate Your Life Events in Arizona, which has $7,000 withheld until October, told Motherboard. “They are taking sales away from us that my company has made. This is paralyzing.”