Square Held a Verified Small Business’s Funds Without Explanation

A small business that specializes in marketing and search engine optimization did everything possible to ensure its online payments were secure and legitimate. The company provided government issued identification and linked a valid bank account to its Square profile. It submitted the Employer Identification Number document directly from the Internal Revenue Service. The firm also used third party software to connect the bank account to the Square system and produced its LLC formation documents. Furthermore, the business held a valid contract with a client for the full sum of money involved in the transaction. Despite this thorough verification process, Square suspended the account.

The suspension was not the result of a missing document or a failed bank verification. The IRS did not flag the EIN as invalid. Instead, Square cited a rule that was not even a listed reason for suspension. The business did not break this rule because the rule did not exist in the context of the suspension. The system had made its decision, and the automated process did not accept questions. The business appealed the decision, and Square promised a response within ten days. The response took two weeks to arrive. When it finally came, it was a denial. There was no explanation, no stated reason, and no human being to call. There was no office to walk into and no face to look at while the company explained that the business’s money and operations were no longer welcome. There was only a denial from a machine.

The business provided its identity, tax documents, bank account details, and the contract proving the money and the client were real. In return, it received a suspension with no reason and an appeal with no explanation. The details of this situation should concern every small business owner in the country because the terms are written in Square’s own contract and posted on its own website. Section 12 of the General Terms of Service states that the company may terminate the terms or suspend the account at any time for any reason. The phrase for any reason implies that a specific reason is optional.

Section 13, titled Effect of Termination, adds that the company will not be liable to the user or any third party for compensation, reimbursement, or damages for any termination or suspension of the services. This clause allows the platform to take an account, hold the money, and disrupt the business without financial liability. The Payment Terms, Section 12, state that the company may defer payout or restrict access to proceeds, temporarily or indefinitely. This means the revenue that a client has already paid can sit in a company account while an automated system decides the fate of the business.

Section 14 of the Payment Terms, known as the Reserve for Holding Funds, says the company may require a reserve for any reason related to the use of the services. The amount of the reserve is reasonably determined by the company. It is not determined by a bank, a regulator, or a judge. The company makes that determination. The Payment Terms, Section 1, open with a clear statement that the company is not a bank. It describes itself as a payment facilitator and a processing company. It is a software platform that takes the payment and moves the money. It acts as the pipe, not the reservoir. Yet this pipe has more power over a business than the bank that actually holds the money. Banks must follow rules and explain themselves. Banks can be regulated. Square is a software company with a suspension button that has no off switch.

When a business tries to fight the decision, the contract is waiting. Section 22 of the General Terms prohibits class actions and juries, requiring individual arbitration in Oakland, California. Section 19 states that the company’s total liability to the user is capped at the fees it earned from the user in the three months before the problem, or five hundred dollars, whichever is greater. Five hundred dollars is the maximum value of the business according to the contract. Section 7 states that if there is a dispute about who owns the account, the company will be the sole arbiter of the dispute in its sole discretion. Its decision will be final and binding on all parties. The company is the player, the referee, and the stadium.

This is a system that has allowed a company that is not a bank to act like one. It is an automation system that scrutinizes a business with zero reason and zero explanation. A merchant who did everything right and was verified at every step was suspended by a rule that was not even a reason for suspension. The appeal took twice as long as promised and died without a word. The business cannot easily dispute it because to dispute it is to arbitrate in the company’s city under its rules for a prize capped at five hundred dollars.

Square maintains a list of Unsupported Industries in its Payment Terms. Item six on that list is direct marketing or subscription offers or services. A marketing and SEO firm is one algorithmic mood away from being categorized into that group. The machine does not need the rule to be true. It needs the rule to be convenient. There is no bank that has to explain itself. There is no regulator that has to show its work. There is no human being who has to look a business owner in the eye and say why the account was suspended. There is a dashboard and a denial. There is a machine that has never met the business, never read the contract, and never spoken to the client, yet it has already decided.

This is not a payment processor. It is a toll booth on the only road a business has. It is run by a company that is not a bank and is governed by a contract that says it can do whatever it wants, whenever it wants, for any reason, and owe nothing for it. The verified business did everything right. Square did not need it to do so. That is the whole story and the whole system. Until a company that is not a bank starts acting like one, every small business in the country is one algorithm away from losing its money, its account, and its voice. This happens with no reason given and no explanation owed. Business owners deserve better than a machine that suspends them and never has to explain itself.

The situation highlights the power imbalance in digital commerce. The firm provided the ID, the IRS EIN, the LLC documents, the bank account, and the client contract. Square suspended the account anyway. The appeal was denied two weeks after the promised ten day turnaround. The denial contained no explanation. The General Terms of Service allow for termination at any time for any reason. The company is not liable for damages. The company can restrict access to proceeds temporarily or indefinitely. The company determines the reserve amount. The company is not a bank. The liability is capped at five hundred dollars. Arbitration is required in Oakland. The company is the sole arbiter of disputes. The list of unsupported industries includes direct marketing. The business was verified. The rule cited did not exist. The machine decided. The business was left with a dashboard and a denial. The system allows for this outcome without explanation. The business owner is one algorithm away from losing everything. The machine does not owe an explanation. The business did everything right. Square did not need it to. The system works as written. The business is left to navigate the toll booth alone.