Online Billing: Staying Compliant

Melody L

Things have been going along just fine, but seemingly out of nowhere, you are getting questions on your merchant processing. Technically you are compliant with the payment association rules, so why all these questions? It seems that the things you used to do are now not accepted and things that were forbidden are now allowed again. And round and round we go. Perhaps the activities are best explained by some of the information provided in this article.

The FTC has been very busy recently in its efforts to fulfill its mission: To prevent business practices that are anticompetitive, deceptive, or unfair to consumers. For instance, do you remember those toning shoes from Skechers? Apparently their advertising was determined to be deceptive and Skechers had to shell out $40 million to consumers as retribution for this misleading advertising.

You will likely know when you are changing something about your business that will create changes in your processing. It would behoove you to share these changes with your processor ahead of time.

The FTC is also working on restricting the payment methods that telemarketers can accept. Imagine that, you are a business owner and you are now told that you can not accept payments of a certain type. I think if this type of restriction is successful, then there will be many further restrictions placed on merchants going forward and many more opportunities for the FTC to appear like they are actually reducing unfair and deceptive practices.

The commission’s Notice of Proposed Rulemaking announced that it would curtail the use of four payment methods favored by con artists and scammers. The proposed changes would:

1) Stop telemarketers from dipping directly into consumer bank accounts by using unsigned checks and payment orders that have been remotely created. These instruments can make it easy for unscrupulous telemarketers to debit bank accounts without permission, according to the FTC.

2) Bar telemarketers from getting paid with traditional cash-to-cash money transfers, as well as cash reload mechanisms, that scammers rely on to get money quickly and anonymously from consumer victims.

The bottom line is that with this proposal the FTC is restricting all telemarketers from using legitimate payment methods instead of seeking out and stopping the scammers from processing at all.

The FTC is also holding more than the merchant responsible for deceptive practices of the merchant. With recent lawsuits and actions brought about by the FTC, we are seeing more processors being named and held accountable.

The FTC act standard for instituting these actions is simply a reason to believe that there are unfair and deceptive act and practices being carried out. The offense of these processors is that they should have known that the merchant was offering fraudulent or deceptive services yet continued to process the transactions. The evidence of how the processor should have known is that there are a large number of chargebacks where the standard used by the agency was one percent chargebacks is within normal range.

I see several repercussions to merchants based on this new trend of bringing actions against processors for merchant’s activities:

  • Expect the third degree when applying for new accounts as processors will require more information from merchants to set up accounts.
  • Processors will require more information from merchants on an ongoing basis for existing accounts. If your chargeback ratios go up, why? If your sales volume goes up or down, why? If your refunds increase or decrease, why? If your online complaints increase, why?
  • Fees will increase as all of this extra policing will require more systems and more people.
  • Your advertising practices may have to be fully investigated and those practices of your advertisers
  • Merchant account terminations based on discovery of merchant activities that were not disclosed, regardless of the actual impact to the processing. You will hear terms like “we are getting out of this business type” or other non-specific reasoning.

You can help yourself and your processor. You will likely know when you are changing something about your business that will create changes in your processing. It would behoove you to share these changes with your processor ahead of time.

For instance, if you change your refund policy that could lead to more chargebacks, so tell us. If you are about to run a huge campaign, that will change your sales figures, simply let us know. If you are launching a new product that will also create variances to your processing, give us a heads up.

Remember if your processor cannot adequately defend their knowledge of what you are doing, they put both your business and their business at risk. You need to work with a processor that you can trust so that you can stay in compliance beyond the merchant account rules and continue processing for the forseeable future.

Melody L is chief operating officer for L3 Payments.


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