CHICAGO The regulatory landscape has become far more complex for acquirers and independent sales organizations, mainly because federal agencies are showing more interest in the various layers of the payments ecosystem.
When combined with ongoing changes mandated by the card brands, companies building merchant relationships have to devote far more manpower to monitoring industry guidelines.
"It used to be we could just go out and sell [merchant accounts and equipment], but now we really have to be educated and be aware of regulatory changes," said Deana Rich, founder of Rich Consulting, during a July 16 presentation at the Midwest Acquirers Association 2015 conference.
As an effect of Operation Chokepoint, the Consumer Financial Protection Bureau recently sued processors and ISOs for allegedly accepting and processing payments from a debt collections merchant that was misleading consumers. The CFPB has also become active in urging banks to begin shoring up consumer protections as the industry moves toward real-time payments.
"Why would the bureau go after payments companies? Because they say those companies should know that the merchant was acting badly," Jason Oxman, CEO of the Electronic Transactions Association, said as part of a panel of experts addressing regulatory change in the acquiring industry.
Such a shift in where regulators focus should sound the alert for acquirers to pay attention to their merchant onboarding procedures, Oxman said. "It really highlights the importance of having guidelines for merchant acceptance."
Acquirers now live in an industry in which the card brands have always served as the regulators, "but now the federal government is getting involved in a back-door way," said Holli Targan, partner, Jaffe Raitt Heuer & Weiss P.C.
As such, it becomes even more vital for ISOs and acquirers to be aware of any changes the major card brands deliver in their operating rules, Targan said.
MasterCard recently added a requirement that acquirers include a separate file in the merchant contract that discloses fees and provides explanations of those fees, while also mandating that acquirers inform the merchant 30 days in advance of any fee changes and allow the merchant to opt out of the contract after seeing the new fees.
Meanwhile, Visa has become a stickler for how network fees are described, Targan said. "Visa now has rules that prohibit an acquirer from representing a fee as a Visa fee," she added. "It has to be described as a processing fee for a Visa transaction."
Generally, when regulators see that a company's merchant acquiring policies are well thought out and cover all of the bases, it is helpful if any legal matter unfolds, the experts agreed.
"But if you have a policy and are not following it, that's even worse," Rich said.
MasterCard has also addressed a new problem in merchant accounts that deal with merchants operating a website while accepting payments as a different business. For example, a website might indicate a company sells flowers, but it is really accepting payments for marijuana.
"MasterCard calls it transactional laundering, and that's exactly what it is," said Joan Herbig, CEO of ControlScan.
The guideline is designed to encourage acquirers to have a better understanding of what their clients are doing, Herbig said.
On top of these recent developments, the U.S. is preparing for the Oct. 1 EMV liability shift in which the party unable to handle chip card payments becomes liable for fraud at the point of sale.
"EMV is not mandated, but it is worth having the conversation with your merchants," Oxman said. "Of the total universe of $6 billion in card fraud, about $3 billion of that is ready to shift to merchants [who are not EMV compliant]."