GS Logo
The Green Sheet, Inc

Please Log in

A Thing
View Archives

View flipbook of this issue

Care to Share?

Table of Contents

Lead Story

The POS tablet revolution

Dale S. Laszig


Industry Update

Analysts predict healthy holiday spend

SF City Attorney declares AmEx pricing illegal

Restaurants adjust to EMV tipping

NFC Forum urges EMV, NFC upgrades


Open Mobile Summit taps innovative minds

The blockchain phenomenon

Balancing high tech with high touch

Mobile opt-in hold steady


Including checks in payments modernization

Patti Murphy
ProScribes Inc.

Risk encompasses far more than chargebacks

Kevin Mendizabal
Frates Insurance and Risk Management


Street SmartsSM:
Let's make the MLS Forum even more useful

Jeffrey I. Shavitz
TrafficJamming LLC

Choose bold, new transparency for 2016

Jeff Fortney
Clearent LLC

Defending your online business from CNP fraud

Chris O'Donnell
Instabill Corp.

The one man show: Juggling your personal life

John Tucker
1st Capital Loans LLC

The facts about EMV security

Best get it in writing

Adam Atlas
Attorney at Law

Company Profile

CardWare International Inc

New Products

App to optimize, simplify EMV acceptance


Security toolbox for small to midsize merchants

Trustwave SMB Security Toolkit
Trustwave Holdings Inc.


Be a friendly competitor


Readers Speak

Letter from the Editors

Three books to strengthen leaders

Resource Guide


A Bigger Thing

The Green Sheet Online Edition

December 14, 2015  •  Issue 15:12:01

previous next

Risk encompasses far more than chargebacks

By Kevin Mendizabal

During the financial crisis, finding an insurance carrier that would offer regulatory coverage for a struggling bank was nearly impossible. Banks were willing to pay any premium for even sub-limited coverage for the simple reason that they did not want to end up in the same situation that numerous executives of the payments industry have found themselves in recently.

There have been numerous well-publicized regulatory suits within the last few years in which both the companies and individual executives were named. For example, last year, the Federal Trade Commission sued the ISO CardFlex Inc., its agents and officers, which demonstrates the regulatory risk in the payments industry, as well as the liability executives face of losing their personal assets.

In another example, discussed at the 2015 Midwest Acquirers Association conference, the regulatory issues of Newtek Business Services Corp. and iStream Financial Services were highlighted. Interestingly enough, Newtek did not indemnify one of its former executives after he was individually named, leaving him to absorb all of the costs. Similar regulatory suits have been increasing in frequency and not just limited to the FTC. What all of the suits have in common is that the inquiry, defense and even settlements could have been covered by a well written insurance policy. Moreover, these cases have brought the issue of lacking or poorly written bylaws to light.

CardFlex was nearly bankrupted by a $3.3 million judgment by the FTC, in addition to one of its principals being forced to pay $150,000 and liquidate $1.2 million of his own personal assets. Also named in the complaint was a manager of Blaze Processing LLC and Mach 1 Merchanting LLC, who settled for over $328,000 and was barred from payment processing in any capacity.

But why would the FTC go after an individual's assets if the person is part of a corporation? Because it can. When a company cannot indemnify its directors or officers, it will rely on its management liability insurance. Numerous types of suits with respect to managerial liability could impact an organization; the regulatory arena just happens to be the one with the headlines as of late.

In many sectors, one would be hard-pressed to find an individual willing to serve on the board or as an officer of an enterprise without first seeing evidence that he or she will be indemnified by the company, in addition to examining the company's insurance. Indemnification becomes meaningless in the event of financial insolvency, hence the need for such insurance.

Stories like this are increasing in frequency and financial impact, poking additional holes in the notion of "no liability" and the relatively nonexistent risk management in the payments industry. All too often in payments, liability is associated with chargebacks only. Although financial products exist to cover those types of losses, numerous other kinds of liabilities could dwarf any chargeback loss.

But just as a successful organization in the payments industry is built with industry veterans, it can be properly protected with the aid of experienced industry attorneys and specialists in risk management.

Kevin Mendizabal, Director of Financial Institutions at Frates Insurance and Risk Management, specializes in the electronic payments industry. Prior to joining Frates, Kevin was part of the Financial Institution division at AIG. Previously, he held underwriting and leadership roles in the mortgage banking sphere, as well as at Bank of America. Kevin has a degree in computer science from Rutgers University. You can reach him at or at 405-290-5610.

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

previous next

Spotlight Innovators:

North American Bancard | Simpay | USAePay | Impact Paysystems | Board Studios