The Electronic Transactions Association is compiling best-practices guidelines in response to the Federal Trade Commission’s heightened scrutiny of the acquiring industry.

The best practices will provide the trade group’s members with guidance on screening merchants before signing them up for transaction services and on monitoring merchants’ subsequent behavior, says Jason Oxman, ETA CEO.

The initiative, which the association hopes to complete by the end of the year, should also demonstrate to law-enforcement agencies that the group’s members are not necessarily complicit in wrongdoing by merchants, Oxman says.

His Washington-based association is concerned about what it sees as misguided guilt-by-association because the FTC recently sued two ISOs that provided transaction services to companies that allegedly made fraudulent claims.

“The FTC has been attentive of late to ISOs and processors,” Oxman says.

The guidelines should prove particularly helpful to small ISOs, he observes, adding that larger companies may have already put best practices into play.

To lead the initiative the ETA has retained Deana Rich, president of Van Nuys, Calif.-based Deana Rich Consulting Inc., which specializes in strategic risk management.

“The goal is to build a best-practice policy that will ensure that rogue merchants do not enter the payments ecosystem,” Rich says.

She’s forming a working group of 20 or so industry leaders to develop the guidelines and expects to hold the first meeting via telephone before the end of the month.

To ensure the guidelines reflect the interests of all facets of the acquiring industry, Rich is contacting the card brands and asking the leaders of diverse ETA committees for the names of one or two volunteers each to take part in the working group.

“This has to be a collaborative product because if it’s not it won’t take hold,” Rich says of the guidelines.

The ETA committees involved represent much of the industry. They include the Large Processors Council; Education; Government Relations; Industry Relations; ISO Practices; and Risk, Fraud and Security, Rich says.

The idea of creating best-practices guidelines arose in the Large Processors Council, she notes.

Besides huddling with volunteers from those committees, Rich anticipates working with Oxman and Mary Bennett, ETA’s director of government and industry relations.

Some members of the working group that’s charged with honing the guidelines won’t come from the ETA committees, Rich says. One such member, Donna Embry, a senior vice president at Louisville, Ky.-based Payment Alliance International, serves as president of the Midwest Acquirers Association.

Embry views the guidelines as an educational project for ISOs and emphasizes the importance of working with the FTC to help the agency’s staff understand the industry.

Embry and Holli Targan, an attorney who’s a partner in the Southfield, Mich., office of Jaffe, Raitt, Heuer and Weiss and is serving as ETA’s president-elect, warned of the FTC’s newfound interest in the acquiring industry during a “sound-off” session at last month’s MWAA annual conference.

Targan described FTC lawsuits filed in June against the Independent Resources Network Corp. and Newtek Merchant Solutions. Both ISOs are accused of supplying transaction services to call centers even though they knew or should have known that the call centers were engaged in fraud.

The ISOs may have been going about business as usual in the acquiring industry, Targan suggested at last month’s MWAA meeting.

“They think they’re doing the right thing and get caught sideways,” Embry says of ISOs and the law.

That’s why the FTC should work with ISOs instead of suing them, says Barrie VanBrackle, an attorney and partner at Washington-based Manatt, Phelps and Phillips, who has also joined the working group.

“It’s better to stop such cases at the outset, rather than hit them later,” VanBrackle says. “That’s just not right.”

In another recent FTC action against an ISO, the agency charged that Merchant Services Direct LLC, which also does business under five other names, misrepresented itself as merchants’ current transaction-services providers during sales calls.

That type of malfeasance made a list of the most common ISO scams that Bill Pirtle, editor of the book “Credit Card Processing for Sales Agents,” compiled for an ISO&Agent Weekly article.

But such cases usually fall to state attorneys general or the Better Business Bureau – not the FTC, says VanBrackle.

Consequently, the industry is reacting strongly to the FTC’s charges.

“It has been made clear that the FTC is looking at our industry closely, and we probably have not seen the end of their actions,” Rich says.

That lends urgency to the working group’s project, in her view.

“It’s the right time, we’re putting together the right group and it’s going to be a very useful document,” Rich says.

Members of the industry can offer advice on the guidelines by contacting Rich at deanarich@deanarich.com.

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