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Table of Contents

Lead Story

Bundle services, capture merchants

News

Industry Update

MasterCard, Visa form payment security group

Chicago's Ventra Card program back on track

Mt. Gox, Pony and other bitcoin troubles

Features

Large financial institutions choose mass card reissues in wake of Target breach

Casey Merolla
First Annapolis Consulting

'Surround sound' marketing

Views

Checks can still rival cards

Patti Murphy
ProScribes Inc.

Education

Street SmartsSM:
Lean in, sign on, step out

Dale S. Laszig
DSL Direct LLC

Which sales model is right for you? – Part 2

Aaron Nasseh
Prudential Payment Systems Inc

The value-add value proposition

Cynthia Bailey
The Idea People LLC

Georgia's Merchant Acquirer Limited Purpose Bank Act

Tyler B. Dempsey and
Brendan J. Thomas
Troutman Sanders LLP

Company Profile

The Formula

New Products

SMB cloud collaboration

Sage 100 ERP 2014
Sage North America

Check is in the email

Mobile Checkbook
VerifyValid LLC

Inspiration

Give yourself a tune-up

Departments

Resource Guide

Datebook

A Bigger Thing

The Green Sheet Online Edition

March 24, 2014  •  Issue 14:03:02

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Georgia's Merchant Acquirer Limited Purpose Bank Act

By Tyler B. Dempsey and
Brendan J. Thomas

On March 28, 2012, the Merchant Acquirer Limited Purpose Bank Act was enacted in the State of Georgia. The statute permits a company that performs merchant acquiring activities or settlement activities in the State of Georgia to apply for a merchant acquirer limited purpose bank (MALPB) charter from the Georgia Department of Banking and Finance. The rules implementing the statute became effective on Dec. 23, 2013.

Upon receipt of an MALPB charter, a company may apply directly to the card companies for access to their networks and would no longer be required to rely on a relationship with a sponsoring bank in order to gain access to such networks. As traditional banks have seemed less interested in assuming the sponsorship function in recent years, the statute (and its accompanying rules) presents merchant acquiring businesses with the potential opportunity to reduce or eliminate dependency on sponsor banks, as well as to lower their operating costs.

MALPB activities

An MALPB is authorized to carry out key merchant acquiring functions, such as:

  1. Obtaining and maintaining membership in one or more payment card networks
  2. Signing up and underwriting merchants to accept network-branded payment cards -Providing the means to authorize valid card transactions at client merchant locations
  3. Facilitating the clearing and settlement of the transactions through a payment card network
  4. Engaging in settlement activities
  5. Providing access to one or more payment card networks to the MALPB's affiliates, customers, or customers of affiliates
  6. Sponsoring the participation of the MALPB affiliates, customers, or customers of its affiliates in one or more payment card networks
  7. Information reporting and technical assistance for client merchants
  8. Terminal support
  9. Encryption servicing
  10. Authorization and capture
  11. Dispute processing

An MALPB must seek authorization from the Georgia Department of Banking and Finance in order to engage in any incidental activities and is precluded from performing the following functions:

Furthermore, the rules state that an MALPB may only engage in merchant acquiring activities originating in the United States with a merchant having a physical location within the country. With respect to transactions taking place over the Internet or other similar electronic mediums, an MALPB may only engage in merchant acquiring activities with a merchant that has a fixed place of business located in the United States where the economic activity is completed.

Employee requirements

Additionally, the rules require that an MALPB have, and continuously employ, at least 50 employees that reside in the State of Georgia and are devoted to performing merchant acquiring activities for the MALPB within one year of the MALPB receiving its charter.

In certain instances the employees of an eligible organization (an organization that an MALPB has contracted with to perform certain administrative support, information technology support, financial support, or tax and finance support) who reside in the State of Georgia and are devoted to performing merchant acquiring activities may be considered employees of the MALPB for purposes of meeting this requirement.

Capital requirements

The rules also set forth minimum capital requirements that must be maintained by an MALPB. The minimum leverage capital ratio of an MALPB cannot be less than 10 percent. The minimum payment volume capital requirement for an MALPB is determined using a tiered formula that takes into account the total dollar amount of payment transactions executed by an MALPB over a 12-month period.

The minimum risk capital requirement of an MALPB cannot be less than the greater of the aggregate dollar volume of chargebacks for the previous six-month period or the forecast dollar volume of chargebacks for the following six-month period. Lastly, an MALPB's charter approval will include a requirement to maintain minimum statutory capital of no less than $3 million. It is possible that the card brands may seek to impose additional or increased capital requirements on an MALPB.

Other requirements

In addition to the employee and capital requirements discussed above, the rules impose certain other requirements on an MALPB that are similar to those requirements imposed on financial institutions. For instance, as part of the MALPB charter application process, the Georgia Department of Banking and Finance must approve the ownership of the applicant and the applicant's holding company, as well as the directors and executive officers of the applicant and the applicant's holding company.

The rules exempt the principal shareholders, executive officers, directors and control persons of a holding company that is a public company from certain requirements related to this approval process.

As the MALPB concept is in its infancy, it can be expected that the statute and the accompanying rules will be revised and interpreted as companies obtain MALPB charters and commence operations. All participants in the merchant acquiring business should review and understand the MALPB alternative and monitor continued developments in this area.

Tyler B. Dempsey is a partner in the Atlanta office of Troutman Sanders LLP, focusing on the representation of public and private companies in mergers and acquisitions, joint venture transactions, private equity financings and general corporate and securities matters. Tyler also has experience in representing payment processing companies in general commercial matters. He can be reached at tyler.dempsey@troutmansanders.com or 404-885-3764. Brendan J. Thomas is an associate in the Atlanta office of Troutman Sanders LLP, focusing on the representation of public and private companies in general corporate matters, mergers and acquisitions, and joint venture transactions. Brendan also has experience assisting community banks with bank regulatory and general commercial matters. He can be reached at brendan.thomas@troutmansanders.com or 404-885-2552.

Notice to readers: These are archived articles. Contact names or information may be out of date. We regret any inconvenience.

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