Compliance

Regulatory Action Looms in Merchant Acquiring

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CHICAGO The Federal Trade Commission's recent lawsuits against two independent sales organizations for alleged violations of the Telemarketing Sales Rule may be the "tip of the iceberg" of regulatory action against the acquiring industry.

The FTC alleges that the ISOs provided transaction services for telemarketing companies even though the ISOs knew or should have known that the telemarketers were committing crimes, Holli Targan, an attorney with Jaffe Raitt Heuer and Weiss PC, said in a presentation here at the Midwest Acquirers Association's 11th annual conference.

The FTC rule on telemarketers contains the word "seller" as well as "telemarketer," raising the possibility that regulators could sue ISOs for providing merchant services to any retailer that violates a federal rule, Targan says.

In both cases, the FTC states that the ISOs either knew the telemarketing companies had legal problems or should have known because the telemarketers had excessive chargebacks and the card brands had issued alerts regarding the telemarketers, she notes.

Both ISOs, the Independent Resources Network Corp. and Newtek Merchant Solutions, may simply have been going about their usual business of providing merchant services, Targan says.

The suits, filed last month, are part of the FTC's campaign against telemarketing scams by companies collecting fees on the promise of lowering consumers' credit card interest rates and then failing to deliver.

Including the ISOs represents a "ramping up" of regulatory action against the acquiring industry, Targan says.

The suits are "the tip of the iceberg" of what could become a broad and sustained regulatory assault on the industry, says Linda Rossetti of Bluestone Payment, an ISO attending the meeting.

Several ISOs in attendance point out that they operate "no liability" businesses, but Targan says those are contractual details and would not affect FTC actions.

Some discussion at the meeting centers on whether ISOs, which focus on selling, have the capacity to track merchant wrongdoing. Some merchants open multiple transaction accounts to cloak high chargeback volumes, they say.

Regulators are pursuing the suits to cause pain in the industry, according to another attendee, Deana Rich, a risk consultant.

Targan agrees with Rich and suggests they're causing the pain to prevent ISOs from providing services to such merchants.

Some expect that the Consumer Financial Protection Bureau will pass along consumer complaints to the FTC for action.

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