Payment Processing

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As 2019 goes into full swing, it’s important for providers of payment processing services (referred to here as “acquirers”) and their merchants or submerchants to prepare for the various regulatory and industry changes coming this year. One such significant change comes in the form of Mastercard’s updated rules for negative option billing programs.

Set to take effect on April 12, 2019, Mastercard’s new rules will tighten consumer protection requirements for negative option merchants and their acquirers that process Mastercard transactions. Several laws such as the Electronic Fund Transfer Act, the Restore Online Shoppers’ Confidence Act, and various state laws already apply to negative option billing programs, but Mastercard’s new rules go even further. Among other things, the rules include a requirement for merchants to notify consumers at the end of a trial period before charging the consumer.

Applicability

Notably, the new rules cover any card-not-present transaction where the consumer purchases a subscription to automatically receive a physical product (such as cosmetics, healthcare products, or vitamins) on a recurring basis. Fully digital services are not covered.

This means the rules apply to free trial offers and most forms of negative option programs involving product sales. The negative option plan may be initiated by a free trial, nominally priced trial, or no trial at all. However, if a trial is used, special rules apply to ensure the consumer is aware of and consents to subsequent payments at the trial’s conclusion.Continue Reading Mastercard Targets Negative Options In 2019 – Demands Transparency

Signed into law on December 20, 2018, the 2018 Farm Bill may present a tremendous opportunity for banks and payments companies to provide banking, processing, and other services to the hemp industry. We expect a variety of companies to move swiftly in developing, marketing, and selling products (including CBD oil) that, until yesterday, were controlled substances. This means that banks and payment processors should be prepared for a flood of inquiries from the industry about opening bank, merchant processing, and other financial accounts.

While the Farm Bill “legalizes” hemp, there remain a number of open questions that financial institutions should consider before they start serving the industry. This article provides a brief overview of the Farm Bill’s impact on the legal status of hemp, highlights some of the open questions, and provides suggested best practices for banks and processors seeking to work with the hemp industry.Continue Reading New Farm Bill Cracks Open Door to Processing for Legalized Hemp and CBD Oil

Whether merchants can charge consumers who pay with a credit card more and how that increase in price is described has been the subject of extensive litigation. According to a divided New York Court of Appeals, New York’s anti-surcharge law, which banned merchants from imposing a surcharge on credit customers, does not actually prohibit a merchant from charging more or characterizing the difference in price for cash versus credit as a “surcharge” as long as the total price for credit purchases is posted. As a result, retailers are free to call the higher price for credit whatever they want as long as consumers do not have to do math to figure out what that price is. The decision sets the stage for the law to be upheld against claims that it restricts commercial speech in violation of the U.S. Constitution.

In 2013, a group of retailers sued the New York Attorney General in the case Expressions Hair Design v. Schneiderman, alleging that New York General Business Law § 518 violates the First Amendment by permitting higher prices for credit card users while restricting the manner in which retailers may describe those prices. Specifically, the plaintiffs would like to use a “single-sticker” pricing scheme under which they would post a single price for cash or credit with an additional amount or percentage for credit purchases, for example, “$10 for a haircut, plus 3% if paying by credit card.”Continue Reading No Math Allowed – The Saga of New York Surcharge Law Continues

In recognition of a rapidly changing ecommerce environment, Visa has created a new category of payment aggregator – a “marketplace” – for entities that bring “together Cardholders and retailers on an electronic commerce website or mobile application.” The new marketplace designation will have an immediate impact in the ecommerce market by clarifying the status and requirements applicable to ecommerce sites looking to add payment processing services to their platforms. While this model is likely to grow in popularity, it raises a number of regulatory and compliance issues that must be taken into account.

What Is a Marketplace?

A marketplace is a type of ecommerce site that facilitates the sale of products or services by multiple third-party retailers through an online platform. While the main function of a marketplace is facilitating sales by bringing buyers and retailers together, this activity necessarily requires that a payments system be included in the platform. Traditionally, many of the largest marketplaces have incorporated payments by partnering with more traditional payment processors to handle the nuts and bolts of acquiring, clearing, and settlement. The new marketplace category will provide these websites with additional flexibility to offer their own processing solutions.Continue Reading Visa Updates Rules for Marketplaces

credit cardsThe days of signing your grocery receipt may be over soon, as the four major credit card brands (American Express, Discover, Visa, and Mastercard) are each making efforts to do away with signatures for various credit card transactions. The extent and geographic reach of these changes, however, are different for each brand, but one commonality is that the changes will begin in April 2018. In particular,

  • MasterCard will no longer require signatures for purchases in the U.S. and Canada;
  • Discover is doing away with the requirement in the U.S., Canada, Mexico, and the Caribbean;
  • American Express is eliminating the requirement globally; and
  • Visa is making the signature requirement optional for EMV contact or contactless chip-enabled merchants in North America.

Continue Reading Say Goodbye to Credit Card Signature Requirements

We wrote previously that for payment processors the death of Operation Choke Point was greatly exaggerated.  We also noted that a prior challenge to the FTC’s ability to impose joint and several liability on an executive for his former employer’s actions had failed. A recent appellate victory for the FTC reinforces both these points.  In FTC v. Universal Processing Services, 11th Circuit affirmed the district court’s imposition of joint and several liability on a payment processor for substantially assisting the Telemarketing Sales Rule (TSR) violations of its merchants.

Simply put, the court’s ruling affirmed that a payment processor can be held responsible for the total volume of sales processed for a merchant when the processor’s conduct amounts and unfair or deceptive practice under the Federal Trade Commission Act (FTC Act).  A violation of the TSR constitutes a violation of the FTC Act, which allows for penalties including equitable monetary relief.Continue Reading The Joint (And Several Liability) is Jumpin’

healthcare and fitness appsLast week, in an ironic twist of fate, the Federal Trade Commission (FTC) charged the operators of the Pact Mobile App, which paid consumers for keeping their fitness promises and charged consumers who missed their goals, for failing to honor its promises to consumers.

According to the FTC’s complaint, when consumers signed up for the Pact App (formerly GymPact), consumers provided the app with their payment card information and set a workout or fitness goal. When signing up, users specified an amount of money the app could deduct if the user missed a workout or fitness goal for the week. The charges ranged from $5 to $50 per missed activity. If, on the other hand, the user achieved the goal, Pact would pay them. To track consumers’ compliance with their goals, Pact required users to check in at gyms using their phones’ GPS. Pact also allowed consumers to set other goals, using the app’s VeggiePact and FoodLoggingPacts options.Continue Reading Mobile App Settles Charges with FTC that it Broke Pact with Consumers

prepaid cardsFor those of us who are regular readers of FTC press releases, the allure of last week’s announcement that the FTC settled its lawsuit against prepaid card company NetSpend Corporation may be more in the substance – or lack thereof – of the announcement itself. In four sentences, the FTC simply stated that the advertiser agreed to settle, that the Commission vote approving the final order was 2-1, and that Acting Chairman Ohlhausen issued a dissenting statement.

No details were provided about the claims at issue or the monetary relief imposed on the advertiser. And the FTC did not, as it often does, publish an ancillary blog on the FTC Business Center website to educate us (albeit entertainingly) on all of the terrible things that must not be done. Is this a sign of how case announcements will be handled under the Ohlhausen administration? For companies that settle with the FTC to avoid the expense and distraction of litigating with the government, a departure from condemnatory FTC press releases would be welcome.Continue Reading FTC Settles Major Prepaid Card Advertising Case and Doesn’t Say Much about It

The Federal Trade Commission (“FTC”) has just released its Annual Summary of Consumer Complaints, and debt collection (29%), identity theft (16%), and imposter scams (11%) top the list of the most common categories of consumer complaints.

The Consumer Sentinel Network Data Book is produced every year from complaints received by the FTC’s Consumer Sentinel Network, including consumer complaints and complaints forwarded from state and federal law enforcement agencies, national consumer protection organizations, and non-governmental organizations. While the data book consists of unverified complaints, it is a useful tool for tracking developments and issues important to consumers.

The FTC’s summary overall shows little change from last year.  There were a few categories that changed places; for example debt collection complaints traded places with identity theft to claim the top spot, but the FTC also noted that the spike in debt collection complaints was due in large part to one data contributor employing a new mobile app to collect such complaints.  Internet Services, which had been number 10 fell out of the top ten to be replaced by Credit Bureaus, information furnishers and report users.
Continue Reading Debt Collection Tops 2015 List of Most Common Consumer Complaints

Last week, the Federal Trade Commission (FTC) released new amendments to the Telemarketing Sales Rule (TSR) that the FTC first proposed in July 2013 and that will go into effect in 2016.  As expected, the new amendments make a number of substantial changes, including a ban on the use four types of payment methods in telemarketing.  It also clarifies certain issues relating to the FTC’s Do Not Call enforcement policies and their application to business-to-business calls, demonstrating the existence of an “established business relationship,” and the sharing of the cost of Do Not Call (DNC) Registry fees. 
Continue Reading FTC Amends Telemarketing Sales Rule: Amendments Include a Ban on the Use of Certain Payment Mechanisms in Telemarketing and Clarification on Existing Provisions, Including the Business-to-Business Call Exemption