Regulators Set Focus on ISO Activities

by Mercator Advisory Group 0

Financial institutions and payment networks aren’t the only stakeholders regulators are scrutinizing as the FTC has taken recent action against ISOs as the case of two telemarketing merchants illustrates.

It’s in the industry’s best interest for regulators to shut down criminal or abusive telemarketing companies, but ISOs nationwide are concerned the responsibilities placed on them by these recent rulings put their organizations in the position of having to monitor any company in the business of providing consumer-facing services for a fee.

From PaymentsSource:

The FTC rule on telemarketers contains the word “seller” as well as “telemarketer,” raising the possibility that regulators could sue ISOs for providing merchant services to any retailer that violates a federal rule, Targan says.

The ISO business is complicated by the fact that many such organizations’ primary activities are selling, not processing, and thus they have no visibility post-sale into a merchant’s ongoing activities. As is the case with many lawsuits and regulations, the results are unclear, leaving room for doubt as to how an ISO should proceed with protecting themselves from this kind of liability. If government agencies have found another way to put pressure on these kind of abusive consumer sales practices and force ISOs to pay closer attention to their customer base, the ISO segments willing to take on these kind of merchants may shrink, resulting in driving these activities further underground and making them even harder to identify. In addition, it’s likely that legitimate companies will be caught in the net and be forced to provide more assurances, higher escrow, fees, etc., in order to accept electronic payments.

Regulators are pursuing the suits to cause pain in the industry, according to another attendee, Deana Rich, a risk consultant. Targan agrees with Rich and suggests they’re causing the pain to prevent ISOs from providing services to such merchants. Some expect that the Consumer Financial Protection Bureau will pass along consumer complaints to the FTC for action.

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