The Consumer Financial Protection Bureau’s proposed junk fee rules and recent Federal Trade Commission actions against payments firms were targets for criticism this week at a trade association conference in Atlanta.
Scott Talbott, the ETA’s senior vice president of government affairs, called the vibe on Capitol Hill “vitriolic” as he moderated a Wednesday panel on “Policy Threats to the Payments Industry” at the annual Electronic Transactions Association’s Transact conference in Atlanta.
He cited regulatory “threats,” including the CFPB’s moves to restrict credit card late fees and junk fees, and what he referred to as an FTC focus on the payments industry over the past decade.
Still, Talbott said he expects little action from Congress until after next year’s presidential election due to ongoing political gridlock that will be stoked by President Joe Biden’s run for reelection announced this week.
The CFPB has proposed capping credit card late fees at $8 per payment, and that action is part of a broader Biden administration effort to take on junk fees.
The FTC recently targeted multinational credit card processor Nexway, its affiliated companies and its executives, for processing payments related to tech support scams. In that action, regulators alleged that Nexway engaged in credit card laundering by allowing its clients to use Nexway’s credit card merchant accounts for the scam charges despite Nexway not being the merchant in those transactions.
In that instance, the FTC was taking issue with the merchant of record model employed, Ellen Berge, a partner at law firm Venable, noted during a separate lawyers committee breakfast at the conference. She also mentioned the junk fee attention from regulators.
“One of the things we’ve been thinking about, and watching, is whether all these additional surcharges and convenience fees and service fees and those types of things that are being added — and that a lot of payments companies are working with merchants to add to help recoup processing costs or whatever it is — will be put in that junk fee category,” Berge said.
During the panel highlighting “threats,” Ed Marshall, a partner who co-chairs the payments systems team at law firm Arnall Golden Gregory, said the payments regulatory environment “seems scary.” “The bar in terms of what constitutes actionable conduct is getting lower and lower and lower,” he explained.
Some of the FTC’s recent actions signal to the market that the agency expects not just the payment processor or the ISO to be aware of what a merchant is doing, but everyone who touches that merchant account, which is alarming, Marshall said during the panel.
“In the merchant context, the bar has been lowered, from active collusion to what might be called mere negligence in boarding, underwriting and monitoring a merchant account,” Marshall said.
The FTC is also pursuing ancillary payment providers such as chargeback mitigation companies, Marshall noted. The agency, along with the Florida attorney general, earlier this month sued Chargebacks911, alleging the company tried to subvert consumers’ attempts to dispute credit card charges.
He argued that the FTC has expanded its range of targets, not only taking aim at payments companies for supporting questionable merchants, but also calling out the way some merchant acquirers pursue clients.
As an example, he pointed to the FTC’s action against First American Payments System last July. That payment processor and two sales affiliates were cited for “trapping” small business merchant customers with “hidden terms, surprise exit fees, and zombie charges,” the FTC said.
That action against First American was “a little bit of a wake-up call” that payments companies’ business dealings with merchants are viewed as part of the broader consumer protection mission, Berge said during the lawyers session.
Given the watchful eye of regulators, it’s crucial for companies to have a government affairs team that is embedded in the business and engaged in product development, said Katie Stone, a government relations adviser at Atlanta-based payments processor Global Payments.
That way, “they can tell you, ‘That product that you’re thinking about — there’s no way it’s ever going to come to fruition, or there’s no way the government’s going to let it exist the way that you want it to,’” Stone said during the panel discussion.