Fearing the federal governments Operation Choke Point campaign against predatory payday lenders could result in more regulation of the acquiring industry, the Electronic Transactions Association has led an effort to develop guidelines designed to show the industry can police itself.
Concern over Choke Point intensified last July when attorney Holli Targan, a partner in the Southfield, Mich., office of Jaffe Raitt Heuer & Weiss, used a Sound-Off session at the Midwest Acquirers Association annual conference in Chicago to warn of the crackdown.
The feds had filed suit against at least two independent sales organizations for helping to process transactions for payday lenders or collections agencies, Targan told session attendees.
The Department of Justice is leading the campaign, and an alphabet soup of other federal agencies supports it, she said.
Believing that the agencies increased scrutiny of the industry could bring further regulation, the ETA commissioned Deana Rich, president of Van Nuys, Calif.-based Deana Rich Consulting Inc., to develop guidelines to help smaller ISOs learn to underwrite and monitor merchants and other ISOs. Larger ISOs tend to have risk departments that already address those issues.
This shows regulators what we are doing to educate ourselves, Rich says of the guidelines. This could help regulators take a sept back.
An important element of demonstrating the industrys concern is showing that it can view the situation from the consumers perspective, she notes.
To that end, Rich contacted members of ETA committees in August for help in building a working group to tackle the job of writing guidelines.
Using suggestions from the committees, she assembled a panel of 50 executives from 40 diverse companies. For two and a half months, she held conference calls twice a week, speaking each time with a portion of the group.
Rich finished a first draft of the guidelines in time for the ETAs Strategic Leadership Forum in October in Scottsdale, Ariz. There, she met face-to-face with 15 members of the working group to refine the document.
After that, Rich held another five or so conference calls with group members to keep perfecting the guidelines. By the end of the year, the finished document numbered 100 pages, plus a 10-page addendum of exhibits that include examples of the guidelines put into practice. Its called Guidelines on Merchant and ISO Underwriting and Risk Monitoring.
Much of the information in the guidelines concerns complying with rules laid out by Visa, MasterCard and the federal government, Rich says. The guidelines link to 10 or 15 federal documents, she notes.
Besides the ETA the Merchant Acquirers Committee, a risk-oriented trade group, assisted with the guidelines, Rich says.
When the ETA chose Rich to lead the guidelines effort, it also brought on Venable LLP as legal counsel for the project.
Venable is leading two of five sessions devoted to the Choke Point at the ETAs Transact 14 conference in April in Las Vegas, and Rich is leading another, she says.
One of the panels Venable plans to moderate may include representatives from the Consumer Financial Protect Board, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency, Rich says.
Collectively, three of the five sessions focused on Choke Point are billed as Operation Choke Point Boot Camp.
All of the shows attendees will receive a copy of the guidelines, Rich says.