Experienced collection attorneys may collect a judgment against a small business by garnishing the debtor business’s credit card receipts. This is typically done by serving a writ of garnishment upon the company’s merchant account where credit card receipts are collected. Assume that a creditor is unable to serve a writ of garnishment on the debtor’s merchant bank, is there another way to garnish credit card payments?
Another attorney reported that a judgment creditor who could not garnish a debtor’s merchant account (for reasons beyond this discussion) served a writ of garnishment on an intermediary payment processor company involved in the credit card transaction.
Will this work? No. A credit card payment processor cannot be garnished by a judgment creditor.
A credit card transaction involves three entities:
(1) The issuing bank that gives the consumer a credit card;
(2) A merchant bank opened by the business;
(3) A processor that manages the relationships and the transfer between the merchant bank and the issuing bank.
When you pay for a good or service with your credit card, the issuing bank (your bank) sends an ACH transfer to the business’s merchant bank. The processor handles the transfer and collects the ACH on behalf of the merchant bank. Thereafter, the issuing bank issues a monthly bill and collects the money.
Writs of garnishment capture debts owed by the garnishee bank or company to the debtor. The merchant bank has a debt owed to the business debtor for the amount of funds in the business account collected through the processor for credit card payments.
A creditor can garnish a merchant account. The payment processor has no relationship with the debtor and owes no money to the debtor. The processor provides a service to the merchant bank.
Therefore, because the processor owes nothing to the debtor I do not think a writ of garnishment against a credit card processor may be used to collect money from a business debtor.
