Don’t Lose Your Merchant Account: 7 Free Resources for Helping Internet Marketers Stay Out of Trouble
Both the U.S. Federal Trade Commission (FTC) and credit card companies are now cracking down on deceptive trade practices involving Internet marketing and billing practices. New guidelines and rules are being issued. Some top Internet marketers have even lost the ability to process credit cards (at least temporarily) because of their past conduct that MasterCard, Visa, and others consider to be unacceptable.
The changes will affect your ability to use pre-checked boxes in offers, free trial offers, deferred billing, up-sells, cross-sells, and numerous other marketing and billing practices. Transparency and informed consent are going to be key…if you want to accept credit cards and debit cards for payment.
Here are 7 free resources for you to use to make sure you’re handling credit and debit card transactions properly in your business.
- FTC – Could Free Trial Offers Be ‘Fee’ Trial Offers in Disguise? (PDF file)
- Visa – Deceptive Marketing Explained
- FTC, Visa, and BBB Partner to Educate Consumers About Free Trial Offers and Online Scams
- MasterCard Rules (PDF file) – Be sure to read Section 5.9.7 about Illegal or Brand-damaging Transactions
- MasterCard Chargeback Guide (PDF file)
- MasterCard Merchant Security Rules and Procedures (PDF file)
- Visa E-Commerce Merchants’ Guide to Risk Management (PDF file)
Like many big Internet marketers, I recommend and use PowerPay to handle credit card processing for my business ventures. In an e-mail received a couple days ago, PowerPay described the changes this way…
PowerPay wants to inform every one of changes expected from the Payment Brands regarding practices that are considered “Brand Damaging”. As you may be aware, both Visa and MasterCard are taking action in response to increases in consumer disputes related to card-not-present and direct response products and services. PowerPay is endorsing the adoption of Best Practices to support our merchant base in conducting business in a manner that protects both businesses and consumers from fraud. To date no formal announcement has been received, however PowerPay is issuing this communication now in an effort to educate and assist our agents/merchants in complying with anticipated Payment Brand mandates and actions.
MasterCard has recently warned the Acquiring community that “Negative Option” enrollment will be considered a “Brand Damaging” business practice. “Brand Damaging” is a very broad term and is still being defined, but in light of recent fines to our counterparts, we must be proactive. Indications are that MasterCard will require immediate termination of merchants identified as using this business practice, along with any other practices considered “Brand Damaging”. This follows recent policy changes from Visa regarding descriptor formats and disclosure of corporate entities related to Direct Response offers, with the intent to enforce all chargeback and transaction monitoring programs as defined by the associations.
PowerPay cannot accept merchant applications for products and/or services employing “Negative Option” enrollment, in addition to the following practices:
Marketing models that employ “Free-Trial”, “Deferred Billing” and/or “Shipping Only”. Customers must be receiving a tangible good or contracted service in exchange for charging of payment cards. Incentivized discount offers are acceptable when the cardholder is receiving something in exchange for payment, however we will be unable to support accounts engaging in hidden or delayed charges and ‘free’ offers that are not truly free.
“Cross-Selling” and “Up-selling” business practices. All sales should be directly between the business entities (merchant) processing the transaction and the cardholder, with cardholder authorization for all purchases.
Per Payment Brand guidelines, the use of multiple merchant accounts, billing descriptors and merchant processors may be viewed as an attempt to avoid chargeback monitoring programs and is prohibited. Perceived non-compliance has led to termination of processing relationships. PowerPay will review the business consideration for opening multiple merchant accounts to ensure compliance with Payment Brand guidelines.
Transactions generated from internet traffic and all other lead sources must be managed and monitored for potential fraud using an approved system. Third Party service engagement may be a requirement for account approval.
The FTC has recently published guidelines regarding “Negative Option” enrollment programs and is taking a very aggressive position against merchants utilizing/employing this business practice. Recommendations take in part from the FTC’s website may include but are not limited to the following:
Material terms should be disclosed in a clear, concise manner. Unnecessarily long or inconsistent terms are viewed as an attempt to mislead the consumer.
Terms should be disclosed in a conspicuous manner, clearly placed and labeled on websites in a location that indicates the importance and relevance to the transaction. Fonts and colors must be easy to view.
Material terms must be disclosed prior to completion of the transaction and before a financial obligation is incurred by the consumer.
Customers must provide affirmative consent to any offer, examples include a mandatory “I Agree…” statement checkbox, where the customer is acknowledging the Terms and Conditions of the offer and consents to be entered into continuity program as a result of completing the transaction. Pre-checked boxes do not qualify as affirmative consent.
Merchants must not discourage or make difficult in any way the disclosed cancellation procedures and all cancellation requests must be honored in accordance with the stated terms of the transaction.
This is not unique to PowerPay. Internet marketers using other services sent me nearly identical language they had received from their credit card processing companies.
Some of the Internet gurus who lost their accounts will now try to pretend they’re experts on the subject of ethical billing practices and offer you teleseminars, webinars, and maybe even sell you an info product or two about how to avoid getting nailed like they did.
What’s the guilty guru’s motivation for this new interest in doing the right thing?
- Rebuilding their public images after losing their merchant accounts?
- Selling you more products?
- Teaching you how not to get caught?
The motives don’t have to be pure but you should always question the intent behind it. If someone tells you they’ve created a “compliance system” or “best practices” that guarantees you won’t get in trouble with the FTC or lose your merchant account, run the other way. Sometimes hype crosses the line into outright deception.
I don’t expect you to be an expert in credit card billing. However, it is your responsibility as an online business owner to keep up with the legal and contractual requirements of accepting credit and debit cards as payment for your products and services.
Note that some of the Internet marketers who have lost their credit card merchant accounts didn’t know they were engaging in marketing practices that could get them into trouble. Don’t use a broad brush to paint them as con artists. Some deliver real value but inadvertently goofed up and are now paying the price. Everyone makes mistakes. If perfection is the standard by which marketers are to be measured, none would meet it.
Just as success leaves clues, so does integrity. Perform due diligence before you invest in products or services from anyone.
Additional Recommended Reading:
Free Trial Offers: Are They Good Deals?
Internet Marketing On Life Support
About the Author
With an advanced international law degree from Georgetown University and more than 15 years of real world legal experience, Attorney Mike Young is President of the Internet Ethics Council and creator of Website Legal Forms Generator software. He helps entrepreneurs protect and grow their businesses online.
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The FTC is on a mission to make examples of people. Every marketer is in the crosshairs.
My merchant account company has their own compliance review department. We recently went through an extensive check list with a live customer service agent to ensure we are in compliance. It was a welcomed way to ensure we don’t violate any of the nenw rules unkowingly. We passed but we can see how many marketers could easily violate some of the new rules without knowing they are in volation.
Good article, but I cannot believe that people engaging in brand damaging actions weren’t aware of their activities. And if they were not, they don’t have a proper economic moral compass in my opinion.
Affiliate marketing resembles the franchise frauds rampant in the 60’s and 70’ss.
Michael,
That’s a pretty sweeping comment about affiliate marketing. It’s like saying “all attorneys are scumbag”.
Maybe it would be more accurate to say “most” or “much” of affiliate marketing – but “Affiliate Marketing” as a whole?
@Paul;
In the 60’s and 70’s, many illegitimate franchise systems traded off the perceived marque of a franchise system being a proven business model. There was no statutory disclosure, which helped enable the misrepresentations even further.
I am a big believer in the use of affiliate marketing tools, especially for a permission based marketing strategy – but, I also see the how “affiliate marketing” is acquiring a reputation for being a “proven system”, which is as misleading as it was for “franchise system” in the 60’s and 70’s.
Hope I have cleared that up.
@Paul Schlegel
Looks like you’re doing a little comment keyword spamming.
Mike Young says nothing in this post about affiliate marketing, unlike your website, which promotes affiliate marketing programs.
And you wonder why so many of us have a low opinion of affiliate marketers in general.
@Paul Schlegel
Just noticed that the commenter before you was also named Michael (I had assumed you were addressing Mike Young).
I take back my comment about keyword spamming, though I still have reservations about many affiliate marketers (I’ve been inside the affiliate marketing industry and have seen many scummy practices).
@ Karl
Paul’s post doesn’t really constitute comment keyword spamming. Michael’s post probably does.
The article mentions “internet gurus” and “internet marketers”. I think most (but not all) of the “internet marketing gurus” are scummy. But anyone selling anything on the internet is an “internet marketer” and the scum ratio in that category is the same as in all other commercial enterprises (including affiliate marketers).
@ Michael:
My 2 cents puts banks and bankers among those that don’t have a proper economic moral compass. My legal background, of course, influences that point of view.
@Michael – Yes, that does make sense and as you know it’s one of MY big gripes, too. There is NO proven system. There are only systems that will increase ones odds of success.
@Karl,
Thanks for the retraction.
I dont’ want to get this off-topic. But your post makes no sense on many levels besides the one you noted.
First of all, Michael Webster and I have known each other a long time. Second, a keyword spammer would hotlink the keyword they want to link for within their name field. Third, this is a no-follow blog – which means the link would do little good anyhow.
Good points. Working with your merchant account provider to ensure compliance is a big step in the right direction. Too many play fast and loose hoping they can hide deceptive practices…and then “retire” to start up another con using a different company name.
Michael,
Many are aware they’re engaging in brand damaging. They are scammers.
Others are me-too marketers. Applying group think, they believe that their conduct is okay simply because they’ve seen Gurus A, B, and C use the same methods and get away with it.
There is another set…the brilliant entrepreneurs (often with ADD, ADHD, Aspergers, etc.) that are too busy with the creative side of things to pay attention to details (like reading and complying with merchant account rules). No harm intended. Simply not focused on the issue.
Best wishes
-Mike
Mike, thank you for sharing my post.
I love this: “Everyone makes mistakes. If perfection is the standard by which marketers are to be measured, none would meet it.”
If perfection were the standard, we’d all be in big trouble.
Also, as you pointed out, just because somebody’s merchant account was shut down doesn’t make that person a con man. Right now, Visa and MasterCard are probably being overzealous. Then again, they’ve been forced into that position by widespread abuse.
Ryan
Charla,
Bankers and Lawyers? Heck. Let’s add politicians to the mix.
Best wishes,
-Mike
Thanks, Ryan, for weighing in and for your excellent post on the subject. My hunch is that Visa and MasterCard are making examples to avoid further oversight/regulation by Congress and the FTC. As for the particular marketers who got nailed, I’d speculate that about 1/4 fall into the scammer category. The rest simply didn’t know or were too busy dealing with other matters in their businesses to make sure they were compliant. An expensive lesson that others can learn from.
Best wishes,
-Mike
@Mike Young
Sounds like a good hunch, especially considering the recent MoneyGram case that Michael Webster wrote about here:
MoneyGram scam and GateKeeper liability
Plus, we already know the FTC has pressured advertising networks to stop running scammy ads – so it seems likely they’d want to insert themselves into every part of the chain of distribution.
Also, in addition to “me-too” marketers there are marketers that
a. Allow themselves to be pressured by affiliate networks into structuring offers in ways they wouldn’t otherwise.
b. Have too much going on to pay attention to what the affiliate networks are doing with their offers
c. Put too much trust in how affiliate networks are going to present their offers.
A great example of this was Joel Comm’s recent My Google Payday/My Internet Payday offer which took his A+ business rating down to a B- partially because of complaints about hidden charges.
I’m not saying that an individual shouldn’t know what’s going on with their offers, but things like this DO happen – and Joel’s company quickly took corrective actions and got his BBB rating back to an A+ rating, something that companies that knowingly engage in brand-damaging activities don’t bother to do.
InfoMedia back to A+ rating quickly
Mike,
Great article. I’ve linked to you from our site: http://www.datamonetization.com. I think it is critical information, and a lot of people are going to be affected. I think the Acai Berry guys have ruined it for everyone.
Thanks again!
Jon
Mike,
Do you have any idea how Visa/Mastecard are going to affect companies that are NOT doing “free” trials, but DO have continuity programs? Any examples that have happened in the last 2 weeks that you can share?
Thanks!
Jon
http://www.conversionvoodoo.com
Jon,
I do not have insider information from Visa or Mastercard as to what they plan to do with continuity programs. The safe bet for now appears to be transparency and fully informed affirmative consent by the customer prior to making the purchase.
Any additional information that I do possess beyond what has been posted on this site cannot be shared because it is protected by attorney-client confidentiality.
Best wishes,
-Mike
There are a lot of rules that the amateur online marketer is breaking. Even the most basic things like having a law cleared policy on the website about payments and conditions is lacking.
Paul,
Thanks for reminding me about the “no follow” status.
I’ve now installed a “do follow” plugin.
Will test it.
Thanks to Akismet, the comment spam that plagued “do follow” before should be minimized.
Best wishes,
-Mike