Visa Rules Compliance – James Huber on the Merchant Sales Podcast

James Huber, Global Legal’s expert electronic payments attorney, weighs in on Visa compliance and Visa Rules on the Merchant Sales podcast. Click here to listen to the full podcast episode.

Have you seen any changes since Visa has been pushing non-cash adjustment programs?

I’ve been advising people on cash discounting for over 10 years. With this though, it looks like they want to kill what’s out there and working, and we’ve seen it really help businesses, particularly over the last two years. So, while I’m all for regulation, not at the expense, particularly of small businesses.

Every ISO signs an agreement that in some way references Visa Rules. What is their responsibility and requirement to follow Visa Rules?

As it relates to the ISO, they are responsible for the rules. Even on a retail ISO, read your contract a little closer. If an ISO is found violating the rules and something goes on, they’re going to get popped potentially. It’s rare unless they are out there doing things egregiously or they have a partner that doesn’t value their agents as much as some other people, other entities. But ultimately, yes, they are on the hook for how they’re selling and in cash discounting.

An ISO is responsible for making sure that the merchant has the proper signs, the proper disclosures, their machines are working properly, etc. In a lot of cases, we’ll see ISO agreements where they’re saying, “You need to make sure the merchant is trained on card acceptance.” Sometimes, we will edit that in ISO agreements, but I look at that as every time they hire a new person, the ISO better go down there and make sure that person knows how to properly accept a card because that’s what the agreement says. If not, the processors are the bigger ISOs, and sometimes they’re looking for ways to pop their agents. If the processor gets a fine from Visa, they don’t want to pay that fine, they’re going to come to the ISO. So if one of these secret shoppers goes and hits your merchant and they get a fine, guess who’s going to get an offset or an ACH deduction? They likely will not go after the smaller merchant, they’ll go top-down.

How does the merchant’s process of communicating prices fit in with their contractual obligation to Visa or MasterCard?

The merchant is on the hook for the Visa Rules. Any time we agree to something you click to agree, we’re in, no matter what’s in that agreement. It’s difficult for merchants to be on the hook for the card brands when the obligations are not easily accessible.  There are the Visa acceptance rules, there are the Visa issuing rules, etc. YParticularly here, the merchants of small businesses will actually be hurt by this.  There’s legislation trying to be pushed saying, “Hey, no more arbitration agreements because it’s too expensive to arbitrate and the whole path of the benefits of arbitration has gone violently off course, because if I have an arbitration clause, I can’t afford it.” So, I think that putting this on these businesses and finding them saying, “Hey, you agreed to the card brand rules, you should have known.” If I’m the merchant, I’m 100% going to look at the agent and go, “What? You told me I would save money and I could keep my business open because of these margins and now I’m getting fined? I’m done.” Because a fine like this, if you put a 25, even $5,000 fine on certain restaurants, they’re done.

In relation to the Durbin Amendment, where it says the card brands cannot inhibit a person through a contract from doing cash discounting kind incentive type programs, does the non-cash adjustment program fall within that?

Technically, the merchant is not allowed to do this based on the document that they signed in the Visa Rules. They’re not allowed to add a fee to debit, they aren’t even really allowed to add it to credit if they have it registered with the card brands that they’re surcharging.

As far as the free speech versus the contract, does that merchant have any kind of legal ground to stand on there to say, “Well, we’re doing this because we believe that this is a violation of our constitutional free speech rights.” What are your thoughts on that topic?

I think a lot of people when they took this issue and made it free speech, they were not fully understanding the implications of your constitutional rights and your business, what you agree to in a contract. You can’t make a contract against the law. The card brands until very recently have operated a lot like the DMV. This is a privilege, not a right. We’ve talked about this with MATCH listing and how putting somebody on the MATCH list is, in my opinion, a violation of their due process rights. You put me on this list without any hearing, you took away my right to operate — my business. We’ve seen a switch in how judges are looking at this, I think, because COVID came along and they’re suddenly going, “Huh? This big wad of cash is useless from my living room.” So I see that here, shaping the landscape, the card brands are very large organization. And this argument of the corporations are so big, they’re having too big of an effect had a really prominent proponent a few years ago when Trump got banned from Twitter. This argument had a very prominent proponent. Donald Trump said, “Hey, Twitter, you can’t ban me because you have too big of an influence. I have free speech rights and these big corporations shouldn’t have this much of a say, only I should.” No. So Visa and the card brands they’re in a similar spot here. They are very big. They affect almost everybody’s life on a day-to-day basis. And they’ve made using them expensive. When cash discounting came along first, everyone was going, “No, my customers aren’t going to want to pay that.” And so it gained all the steam, we’ve all kind of accepted. We all understand that it costs money and they charge these fees and you go to a business, you usually appreciate the business, so you pay the fees. But they’ve made it so expensive and then they’re just saying, “This is the way it is.” But they’ve created the situation themselves and they’re not allowing a way to work around it.

When you’ve got the small businesses literally keeping the rails on track here, and we’re seeing things quickly deteriorating, we better put them in check here. I’m glad that they’re checking it out and doing some recon, but I think they better watch their step here. When they talked about raising interchange a couple of years ago, I think Durbin furrowed his brow and they said, “Nevermind.” I think they’re going to get the same backlash here if they push this. Because when they start penalizing the processors and it’s pushed down and it even gets near the merchant, and you tell a merchant they can’t do this. If you tell some merchants, they can’t do this right now. That margin. I mean, what’s the most restaurants’ margin? It’s like 3% or 4%, so there you go.

Are regulators and legislators going to get involved in this debate?

I think it’s going to come from the legislature because we’re really talking about consumer protection issues, talking about small businesses being affected here, and humongous corporations too.

Should ISOs be responsible for everything the merchant says and does as it relates to accepting payments? Or should they only be responsible for what happens when they accept the payment?

If you’ve got a merchant who’s not going to follow your rules, why should theyI be on the hook for this? Now there are all sorts of things we try and do. Let’s say you have a merchant selling CBD. I’ll make a nice little write up that says, “Hey, if you go outside of these lines, you agree I have nothing to do with this.” So I’ll usually recommend something like that. A lot of the processors say, “No side agreements between you and the merchant.” Okay, fine. But this has nothing to do with the fees, I’m not charging you an extra rate or getting any kind of clear kickback or anything. No, I’ve got a thing that says, “Hey, I’m not responsible if you go and run this debit card discounting program way outside the line.” Nobody likes having more paperwork. But just like the small businesses running a thin margin, we’re all running our margins too, and having a lawsuit or a big fine against a merchant is not something they should have to deal with.

Why do these sorts of compliance things always come out of Visa and not out of MasterCard?

MasterCard runs the MATCH list and I’m battling with them. They don’t come out with memos, but they are the ones pushing fines a lot. As far as the memos, I think Visa is the biggest player and they’re the ones getting looked at the most. MasterCard’s still the underdog. You got a MasterCard, you’re kind of the up and comer, scrappy one.

How can ISOs protect themselves from state laws and federal laws?

There are little things they can put in place to protect themselves. Using these documents as a sales tool, as an educational guide for the merchant. Put some information that’s actually valuable on there. If they’re doing the side by side, give them a little guide that says, “Hey, this is how the program works, you agree that you’re working it this way. You also agree that there’s a whole bunch of stuff out outside of us going on. It’s not your responsibility to teach them all about it, but you can’t make it overly complicated to be in this landscape.

For those that need legal advice and help in how to get a compliant program in place and other areas related to the payments industry, reach out to our expert attorneys at Global Legal Law Firm. We love working with agents. We understand that they’re the ones pushing this industry forward and that’s how our law firm was founded.