For years, “FBO” has been one the payments industry’s favorite buzz words. The FBO account structure has been a common “best practice” by payments providers seeking to remove themselves from the flow of funds to reduce their risk of being regulated as a money transmitter. As a foundational matter, FBO accounts are merely custodial depository accounts maintained at financial institutions and established “for the benefit of” (FBO) intended beneficiaries of funds in the accounts. The structures of such accounts can
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Sweeping Changes to Surcharging Practices in New York
This week, New York’s new surcharging law went into effect, replacing the prior surcharge ban which had been attacked at the U.S. Supreme Court (as discussed here). The old law was simply a wholesale ban on credit card surcharges, although since being reinterpreted by the New York Court of Appeals in 2018, it has not been enforced categorically. The new statutory language appears to be an attempt to codify the Court of Appeals’ interpretation under which surcharge programs are
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New Joint Regulatory FAQs Regarding Suspicious Activity Reporting and other AML Considerations
On January 19, 2021, several federal banking regulators including FinCEN, the Federal Reserve, the FDIC, NCUA, and the OCC jointly issued answers to several frequently asked questions (FAQs) regarding suspicious activity reports (SARs) and other anti-money laundering (AML) considerations for financial institutions covered by SAR rules. As used below, the term “financial institution” includes money services businesses.
Importantly, the FAQs do not alter existing BSA/AML legal or regulatory requirements, nor do they establish new supervisory expectations. Instead, they are intended to clarify the regulatory requirements related to SARs to assist financial institutions with their compliance obligations.
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Card Brand Guidance for Managing COVID-19 Related Chargebacks
In light of the significant increase in chargebacks resulting from COVID-19, Visa, Mastercard and American Express recently issued guidance to assist acquirers, issuers, and merchants in navigating the dispute process. Below is a summary of that guidance. Visa On March 27, 2020, Visa released a bulletin titled “Managing Disputes Through COVID-19: Programs, Best Practices and FAQs to Help Clients” in which it provides guidance about managing and responding to disputes as a result of COVID-19.
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Legal Impacts of COVID-19 on the Payments Industry
The Taft Paytech & Payment Systems team has prepared the following tips for ISOs, processors, payment facilitators, ISVs, money services businesses, and banks in light of COVID-19 developments.
- Review Termination Rights and Implications. Contracts often include a force majeure clause that excuses nonperformance when it is caused by unforeseen events beyond the control of the parties. An evaluation of whether the current circumstances qualify as a force majeure event should be conducted. If the contract does not contain such a provision, there may be other remedies if you are unable to perform.
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California Consumer Privacy Act (CCPA) Goes into Effect
As of January 1, 2020, the California Consumer Privacy Act (CCPA) is now in effect. As we explained here, the CCPA imposes requirements on merchants and payment processors to protect personal information of California residents.
Enforcement of the law does not begin until July 1, 2020, which is good because the regulations interpreting the law have not even been finalized yet. The draft regulations, published this past October by California’s Attorney General, propose rules relating to consumer disclosures, processing consumer requests, and other implementation details. Final rules will be issued before the July 1, 2020 enforcement date.
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Oklahoma AG: Surcharges OK
Recent opinion provides welcome clarity on Oklahoma’s position on surcharge ban enforceability, relating to electronic payment processing
Judicial developments surrounding the legality of credit card surcharging have made keeping up with the latest news on this issue a challenge. Currently, there are several states with laws in place prohibiting surcharges. Merchants have challenged the constitutionality of these laws in court, sometimes with some confusing results.
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Legislative Watch: New Merchant Agreement Requirements
The Maryland legislature has passed legislation that, if signed by the Governor, will require merchant acquirers to revise their merchant applications and agreements. Under the proposed law, merchant services providers, financial institutions, independent sales organization (ISO’s), or any subsidiary or affiliate of those entities (“Credit Card Processors”) will be required to provide merchants with specific disclosures and notices clearly and conspicuously within the merchant agreement. We interpret this to include payment facilitators. There is also a cap on the fees or penalties that a Credit Card Processor can levy against a merchant for its cancellation of the merchant agreement.
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AML Program Tips
Developing an anti-money laundering program (AML) can prove challenging for card processing companies. While not an exhaustive list, here are 9 areas that an AML program should be sure to include:
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The Surcharge Muddle: NY Ban Law Survives Lawsuit
The legality of surcharging keeps getting more confusing. Recent reports seem to indicate that New York’s law prohibiting surcharging was overturned. Unfortunately, that overstatement confuses the actual status of the statute.
As you may recall, the card brand rules allow merchants to add a fee on top of the regular price for goods and services, also known as a surcharge, if a consumer pays by credit card. The rules require merchants to follow certain conditions and requirements if they surcharge credit card transactions.
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