The Green Sheet Online Edition
May 23, 2011 • Issue 11:05:02
Is now the time for registration?
Like many terms in the credit card processing industry, "registration" means different things to different people. Most in our industry understand registration to be the steps ISOs and processors take to become authorized by an acquiring bank and the major card brands to accept and process payments tendered with credit and debit cards issued by those brands.
For the purpose of this article, the term "registration" refers to registering all levels of the processing chain to a specific entity for the purpose of cleaning up our industry.
My first Street Smarts article, "Straight talk on professional certification," The Green Sheet, April 11, 2011, issue 11:04:01, covered the eta Electronic Transactions Association's Certified Payment Provider program. One member of GS Online's MLS Forum asked me privately why I wanted to rehash my first column so soon. He feels, as many do, that "certification" is the same as "registration"; it is not.
Pros and cons of registration
"Certification" is the earning of a certificate or a designation that is only as valued as the entity that grants it. The process of "registration" can include licensing and tracking for compliance purposes by a single entity for a set geographical area.
MTY MSI was the first forum member to offer an opinion on registration, "[T]he only way registration will ever work is if the [card brands] are behind it and enforcing it.
And that doesn't appear to be about to happen anytime soon. Anything less is merely window dressing, and that includes the ETA's upcoming and apparently ridiculously priced [Certified Payment Provider] program. ISO and/or MLS registration without the [card brands'] involvement is an exercise in futility."
JDECKARD said, "I can't see anything changing from having agents register. There simply isn't an entity that has the 'power' to have it make a difference. ... While it is idealistic to believe that it would make a difference ... the truth is that without any 'teeth' it's just window dressing."
"This topic gets a lot of discussion, but the ones who would likely suffer the most (if 'suffer' is the proper word) are often those not posting here but instead are out selling and know no better," CLEARENT noted. "They are MLSs with companies that keep them insulated from the market, milk them dry [and] then cut them loose."
Then N2NSOLUTIONS posted, "I'd like the ETA to license MLSs like the SEC and NASD [National Association of Securities Dealers] does financial advisors. ETA would have the corresponding authority to levy fines and suspensions. Finally, the MLS must be licensed by any state they do business in. That would totally clean up our industry."
The role of existing regulatory agencies
This comment brought two quick comments. First, JOHN GALT? said, "[T]hat would clean it up just like the SEC and NASD - now FINRA [Financial Industry Regulatory Authority] - prevented Bernie Madoff from getting in, and it certainly kept Enron, World-Com, Tyco, and AIG honest. Yep, all those regulations have kept Wall Street just squeaky clean."
JDECKARD followed up, "Exactly! Might I add, [the] last time I checked, the SEC was a government entity, which means they have the 'teeth' to do something. [Plus,] the NASD hasn't existed since they were gobbled up back in 2007 by what is now FINRA ... and again, they have the 'teeth' to do something. ... The ETA could fine me $10,000,000 tomorrow, and all it would do is make me laugh. [T]hey have absolutely zero authority to do anything."
"If someone could get the to do their job, like they did when they swooped in and grabbed CMS/TMS by the [ears], our problems would be over," SLICK STREETMAN posted. "We all know who the bad guys are, and if the FTC would get off of their duffs and send out some investigators to the scenes of the crimes, you would see the 'hired gun' rogue reps, and crooked ISOs that are paying them, running like roaches when you turn on the lights."
For years, Congress and the courts have viewed consumer contracts differently from business contracts. Business owners are normally considered to be savvier than consumers and receive less protection from federal law. Many business owners are under the assumption that they can cancel a contract within a set number of days; some agents even tell owners this (some not knowing it doesn't apply for business owners).
Unless it finds specific and "systemic" instances of fraud, the Federal Trade Commission is not likely to charge to the rescue of business owners. SDSORENSEN said, "Forcing MLS registration is simply a way for ISOs to take the focus off of the real problem - themselves. I don't understand why the 'registered' ISOs aren't held accountable for their deceptive, lying, dishonest sales training and tactics. And as I typed that I wondered, if ISO registration hasn't done a darn thing to clean up our industry, why would MLS registration be any different?"
Don't plan on help from the card brands. Did anyone else notice how the card companies threw their member banks under the bus with Sen. Richard Durbin's, D-Ill., amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010? The card brands wanted to stay off the legislative radar and knew their income would only be reduced if overall card usage declines. Taking action against processors who violate their rules would only bring outside attention that could affect their stock prices, so I do not see it happening.
If the card brands will not act to clean up the industry and organizations like the ETA lack the authority to mandate participation, we need to find a new solution.
How registration could work
"MLSs are not the problem and registration solves nothing," stated WWW.PAYMENTLOGISTICS.COM. "The problem lies with the service providers who encourage and tolerate unethical behavior.
Show me an MLS who's a repeat offender, and I'll show you a service provider who may be grossly negligent but most likely is just crooked [itself]." This is a sentiment shared by many MLSs. For a registration program to be embraced by the MLS community, it cannot be limited to the MLS. It would need to include the entire chain from the MLS to the acquiring bank.
Any organization that forms to take the registration banner should be a nonprofit company or association that does not sell memberships. Its officers and staff should know the industry but not be receiving payments from the industry (to eliminate conflicts of interest). And an educational program must be in place before any attempt to move to the second phase.
As MLS Forum members pointed out, registration will not work without card brand or government involvement. We know the card brands won't do it, so that leaves the government - not the federal government, but the states. Once a specific plan that includes education is in place, let's approach the states individually to propose a registration program.
Provided the designated organization has a solid business plan and answers to questions a legislature might ask, it would likely be selected to administer part of the registration. Fees for the training would cover the salaries of the organization's employees and fund its needs.
Testing may have a set cost, but test administration should not be a concern, as there are state-certified testing centers that handle other state required testing.
One way to track registered entities (from MLSs through to the acquiring banks) would be to assign each entity a unique identifier, mandate entry of the identifier from each entity on applications and then track complaints. For example, an identifier in Michigan could begin 37 or MI followed by a unique number.
If the entity registered in other states, the identifier would consist of the same unique number, but with a different state code for each state (the exact method would need to be part of the plan presented to the states).
The FTC and other agencies have budgetary and logistical constraints that will limit their actions. This would not be as much of an issue with registration through a state agency. The tracking system and investigations could be paid for by registration or licensing fees and fines. Plus, with industry representation, claims could be properly investigated.
Registration fees could be as little as $100 per year for agents and $1,000 to $5,000 each year for ISOs, processors and banks.
One fear of many in the payments industry is that if the industry is regulated, we would be controlled by entities outside of the industry. I do not believe this would necessarily be the case. For example, in April 2011, Kevin Clinton was named Michigan's Insurance Commissioner to head the state's Office of Financial and Insurance Regulation.
A government press release stated Clinton will "oversee the state agency charged with protecting consumers by ensuring insurance companies are financially solvent and able to pay claims." Various news outlets reported that Clinton was a "longtime insurance executive." What a novel approach: let an industry expert head a regulatory agency for that industry.
Benefits to the industry
A registration program would bring the following benefits to many forum members:
- Create a barrier to the industry for the inexperienced.
- Make it possible to compile complaints against all levels on the processing chain.
- Limit damage caused by rogue ISOs who hire the inexperienced agents and give poor training. Even if they licensed the training and performed it in-house, agents would still need to pass the exam.
- Eliminate mass turnover. Paying $100 per agent per state will limit much of the churn and burn of some processors.
- Standardize industry training, making agents aware that they risk their license if they fail to follow the rules.
- Create an atmosphere with state government where there is enforcement with penalties for non-compliance to eliminate problems.
- By using an organization that is not offering memberships, there is less chance of a conflict of interest.
- Possibly lead to higher margins due to the combined education requirement and removal of the smoke-and-mirrors pricing tricks.
When there is cooperation between a state government and industry, the industry can be regulated by someone experienced in that industry. If we, as an industry, wait for someone to regulate us, we will wind up being regulated by people who do not have a clue as to how the industry operates.
The Durbin Amendment is a good example. Merchants confused the rates they pay with interchange and asked for caps on interchange. Had Durbin investigated on his own, he would have known interchange, along with dues and assessments, comprise only the "wholesale" cost of credit card processing, which all processors pay and, in most cases, has no bearing on the merchant cost.
Do we really want to risk letting uninformed officials dictate how our industry should be run? If we can create a great plan, including education and registration for our industry, we can keep industry experts in the driver's seat. Congress members have shown that they do not know anything about our industry and therefore cannot be trusted to be the ones implementing changes.
Bill Pirtle is the President of MPCT Publishing Co. and author of Navigating Through the Risks of Credit Card Processing. He is also a merchant level salesperson for Clearent LLC, Electronic Payments Inc. and Electronic Merchant Systems Inc. Bill's website is www.creditcardprocessingbook.com, and his email address is firstname.lastname@example.org. He welcomes all connections on Facebook and LinkedIn.
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