ver the years, some of the most indelibly remembered industry growing pains have involved exposure to fraudulent, deceptive or just plain unethical business practices. Many merchants, ISOs, vendors and merchant level salespeople (MLSs) have suffered through experiences that left them "once burnt, twice shy."

These negative experiences can stain relationships of industry professionals - particularly when victims feel they are without recourse. A desire to share their bad experiences with the world (or at least, the World Wide Web) can be intense.

Many believe there's a need for an official list of ISOs and agents engaging in fraudulent business practices. The list would have to come from a single industry authority. It would be something similar to the MATCH list for merchants.

(MATCH - an acronym for Member Alert to Control High-risk merchants - is a card Association-maintained list of merchant accounts that have been terminated for cause.)

Why would the want or need for such a list arise? Many sectors of the payments industry are unregulated, and unethical entrepreneurs may take advantage of that. In addition, no formal license or credential program exists for ISOs and MLSs. Almost anyone can sell payment processing products and services.

The Electronic Transactions Association does offer its members a Code of Conduct, but there is no such code from any authority intended for the feet on the street.

Regrettably, the feeling that a list would be useful, and perhaps even lengthy, is very nearly universal. The obstacles lie in the difficulty of administering it or preventing its abuse.

"The vast majority of people in this industry are good, professional, honest people," said Anthony Ogden, an attorney and principal of BankCardLaw.com. "But for years, ISOs and acquiring banks have had unscrupulous or rogue agents that essentially commit fraud and then easily move on to another ISO or bank.

"The actions of a few bad apples can cause substantial damage, and that hurts everyone. A central list of fraudulent agents - to the extent that it doesn't cause harm - could be a useful tool in combating this serious problem."

A good thing for ISOs?

Every ISO, processor and bank would subscribe to an independently managed list of "bad" agents, said Jared Isaacman, Chief Executive Officer of United Bank Card Inc. "The list would have to be managed exceptionally well with a strict criteria on how an agent can be added or removed ... But if it was accomplished correctly, I guarantee it would be a big hit," he said.

Jason Felts, CEO of Advanced Merchant Services Inc., said such a list is overdue, and if regulated appropriately, could be a good thing for the industry.

"I would just encourage those considering the development of such to make sure it's not one-sided - on either side of the spectrum. The ISO or MLS should need to produce clear documentation of any breach," he said.

"There is a need for information to be shared in this industry," said Allen Kopelman, CEO of Nationwide Payment Systems. But he questions the who, what and how of doing so.

"One thing is for sure," he said, "banks and processors don't know who is writing up all the deals they get. If they did, there would be a list of agents who have sent in fake deals, bad deals, deals where money was lost."

In the absence of a list, information is shared in a more informal way: around the water cooler, in the aisles at regional association shows, in online forums, through well-placed phone calls and even over drinks.

"While I think [the list] is a great idea, unfortunately the potential legal liabilities continue to prevent any formal attempt" at one, said Sam Cain, President and CEO of Card Payment Services Inc. Cain has kept his own "unofficial" list for 18 years and often compares names with other ISOs. He said his list recently helped a major ISO avoid becoming a victim of fraud.

Water cooler whispers

"Unless someone comes up with a fair plan to control who is listed and what is said, then I'd probably be more in favor of ragging on our enemies over a drink in a bar after an association meeting," said Neil Mink, an agent with United Bank Card. "That's being done right now and works quite well. The best information I've learned at meetings is always after the meeting is over when everyone goes to the bar." There are drawbacks, however, to sharing this kind of information informally. Even the most robust informal payment processing social networks can't reach everyone. And scam artists often move frequently. In a fast-paced business environment, informal due diligence on every potential business partner can be extremely time consuming.

Furthermore, while such information is often shared more honestly and without fear of liability in informal settings, no uniform criteria exist for comparison. Warnings are largely anecdotal, and filtering out the genuine grievances from the bad blood or hearsay can be tricky.

Finally, a system that relies on word of mouth and well-established social networks is inherently unfair. Newcomers to the industry and the introverted may not have access to the same information as others. And those named as unscrupulous have no way to contest the charges.

Who has the authority?

The very concept of creating a list evokes images of Sen. Joseph McCarthy's infamous Senate hearings and the shattered careers of innocent people. One of the biggest obstacles to the creation of such a repository is the potential for abuse. "Finding a neutral, regulating authority is a potential problem," Felts said. "Perhaps having an arbitration board or something similar would prove beneficial. I see a great potential for ISOs and agents alike attempting to have the other listed when the issue is more personality clashes than legitimate breaches."

Mink said the biggest problem would be with control. "I doubt there is an ISO out there that doesn't have some agent that would put them [the ISO] on the list for some crazy reason. Agents would be placing their competitors on the list for sure."

Further complicating the picture is the difficulty in deciding what transgressions should be covered, and what the burden of proof should be. Criteria could range from the clearly criminal to actions that wouldn't make Mom proud, but might have been unintended, to just bad business management.

When 'bad' is really bad

There are many examples of actual agent deception or fraud - "too many" according to Ogden.

Deceptive business practices that might justify inclusion on the list, if proven, include improperly disclosing fees, improperly explaining the commitments relating to the merchant account or lease, forging merchant signatures, failing to disclose termination fees, or placing merchants in multiple agreements leaving them subject to unnecessary fees and/or early termination commitments.

Another possible transgression, Felts said, might be misrepresenting a merchant to an ISO, for example, by "trying to pass off a non-keyed merchant as a swiped merchant or a buy-here-pay-here car lot as an auto repair shop."

More examples: "There have been agents who trade on a merchant's account," Ogden said. "They will transact sales through that merchant's account and profit themselves on it. This has gotten the attention of law enforcement. Some agents open fictitious merchant accounts and pass fictitious transactions through these accounts.

"Some agents have even engaged in what might be considered threat or extortion: threatening to add merchants to the MATCH list if they change processors is a prime example."

Determining the criteria to use as grounds for a listing is tough, but developing the procedures to ensure the process remains fair, and impossible to abuse, is even more daunting.

"Our industry has a blend of law and trade practice rules, which is very unique," Ogden said. A relatively small number of attorneys specialize in the bankcard industry. It's an industry in which some areas are largely unregulated and others have long-ranging legal repercussions.

Ogden pointed out that unless the process was very carefully developed, the owner of such a list could get himself into hot water. "You'd be dealing with First Amendment privacy issues," he said, "as well as defamation type issues such as slander or libel. You could be accused of interference with business relations or potential business relations."

Additionally, a method of separating fraudulent or unethical practices from contractual disputes would be needed.

A list of ISOs is a bit harder to institute than one of agents since many MLS complaints stem from a misunderstanding of contract terms and obligations, Cain said. "That's not to say there aren't bad ISOs. I just think the MLS marketplace does a good job getting the word out on the bad guys."

Agents want a list, too

Many agents feel that a central repository warning agents against ISOs whose business practices are deceptive is an even greater need than a list warning about bad agents.

New agents usually lack the informal professional networks to warn them against ISOs with ill intent. If agents sign an unfair contract, they may have little recourse except to sacrifice their portfolio and move on, poorer but wiser. Hiring a lawyer to review contracts before signing, checking with associations such as the Better Business Bureau, and talking with an ISO's current agents and merchants are all actions MLSs should consider taking prior to signing agreements.

Even though a "bad" ISO can't move across state lines as easily as a rogue agent, it's not always easy to track the business ethics of a particular entity. A business can go under and re-emerge under another name, or owners and managers can change dramatically practically overnight.

Sandra L. Young is just one agent who believes the need for a bad-ISO list is even greater than the need for a rogue-agent list. She had what she described as an extremely negative experience with a deceptive and unethical ISO. "I'm a single mom with four kids. I nearly lost everything hanging in there believing that this will be good for me," she said.

Although Young has since started writing business for Nationwide Payment Solutions and was relieved to find that "the experience is completely night and day, there is not one similarity between the two companies whatsoever," she is still frustrated by the feeling that the portfolio she worked hard to build is being eroded by her previous ISO.

"There should be some type of help for agents in our industry warning against the unethical treatment [by] certain ISOs," she said. Possible ethics violations for ISOs could include fraudulent or deceptive practices aimed at merchants, agents or acquiring banks.

"I would assume the No. 1 concern would be ISOs not paying or not paying the agents properly," Felts said. "Others might include merchant fraud, for example, drafting money incorrectly or without permission from merchants."

Show me your license

Kopelman believes certification or licensing might be a good thing for the payment processing industry, and that having some sort of central licensing board could help combat the problem of fraud or deception.

"Accountants, attorneys, real estate brokers and agents, mortgage salespeople, financial planners, stockbrokers ... have to take tests and have a license," he said. "If any of those people get into trouble, there is a legal agency to report them to, like bar associations. Who checks on the payment processing community? Nobody."

For now, Kopelman said, almost anyone who wants to can sell payment processing services. Until the industry is regulated by Visa and MasterCard or self-regulated by banks, processors and ISOs, this business will have both good and bad people.