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Legislative Watch: New Merchant Agreement Requirements

6 May

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 (ISOs), 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.

Notably, the proposed law is aimed to protect smaller merchants and will not apply to those contracts: (a) that may be terminated without assessment of fees, penalties, or liquidated damages; or (b) if, at the time the merchant agreement is entered into, the merchant has 50 or more employees or reasonably estimates that it will generate more than $2 million in credit card or electronic transactions each year.

For all other merchant processing agreements, the requirements include:

  • Caps on Early Termination Fees:  The law would prohibit the imposition of a fee, fine, or penalty that exceeds $500 if a merchant terminates the merchant agreement before the expiration of the initial term.  If the merchant terminates after the initial term, the Credit Card Processor would be prohibited from charging any fee, penalty or fine unless the parties entered into a separate renewal merchant processing agreement (as opposed to an automatic renewal of the initial agreement).
  • Disclosures:  A Credit Card Processor would be required to include several disclosures within the merchant agreement (with specific font requirements), including:
    •  the amount of any early termination fee, penalty, fine or liquidated damages that may be assessed by the Credit Card Processor for early termination;
    • the expiration of the merchant processing agreement;
    • the renewal date of the merchant processing agreement; and
    • the customer service contact information of the Credit Card Processor including phone, mailing and email address. 

This information must be clearly and conspicuously disclosed and included on the signature page of the merchant agreement.  Each item must be separately initialed by the merchant. 

  • Copy of Agreement: The Credit Card Processor would be required to provide an electronic or paper copy of the agreement to the merchant at the time it is signed by the merchant.

                Accordingly, companies providing card processing services to merchants in Maryland should assess their current form merchant (and sub-merchant) application and agreement to determine whether it conforms to the new requirements and if not, to begin the process of amending the contract to comply.  If enacted, this law will apply prospectively, meaning that merchant processing agreements entered into or renewed on or before the effective date (currently October 1, 2019) would not be subject to these new heightened requirements.

–Nicole Meisner, Attorney, Jaffe, Raitt, Heuer & Weiss, P.C.

The above is intended as general information only and should not be construed as legal advice or as creating or soliciting an attorney-client relationship. You should consult your attorney for guidance with respect to any particular issue or legal inquiry.

Nicole Meisner

Nicole Meisner

–Nicole Meisner, Attorney, Jaffe, Raitt, Heuer & Weiss, P.C. Nicole is an attorney who concentrates her practice on payment legal issues, representing payment facilitators, marketplaces, fintech companies, money transmitters, and merchant acquirers. You may reach her at:

Marijuana Banking & Payments: The Impact of AG Sessions’ Recent Memo

16 Jan

On January 4, 2018, U.S. Attorney General Sessions formally rescinded guidance issued by the Department of Justice (DOJ) during the Obama administration related to the DOJ’s approach to the enforcement of state-legalized marijuana activity.   Sessions replaced the former guidance by issuing a memo (“Sessions Memo”) that instructs U.S. Attorneys to “follow the well-established principles that govern all federal prosecutions” when determining which marijuana activities to prosecute.

The question banks and payment processors must be asking is:  How does the Sessions Memo impact the provision of financial services to marijuana-related businesses?

It is no secret that one of the critical issues that has plagued the state-legalized marijuana industry since its inception is the difficulty for marijuana businesses to obtain banking and other essential financial services such as electronic payment acceptance.

For banks and payment processors providing (or those that are considering to provide) services to marijuana related businesses, the greatest impact of the Sessions Memo is the rescission of the federal government’s hand-off approach to enforcement articulated in a memo titled “Guidance Regarding Marijuana Related Financial Crimes” issued by former Deputy Attorney General James Cole in 2014 (“2014 Cole Memo”).

The 2014 Cole Memo outlined the key enforcement priorities for prosecutions involving “financial crimes for which marijuana-related conduct is a predicate,” such as money laundering, unlicensed money transmission, and violations of the Bank Secrecy Act (“BSA”).  The 2014 Cole Memo was issued simultaneously with guidance issued by the Financial Crimes Enforcement Network (“FinCEN”).  The FinCEN guidance clarified how financial institutions could provide services to marijuana-related businesses consistent with their BSA obligations and federal enforcement priorities.

An apparent unintended consequence of the Sessions Memo is that the FinCEN guidance is now uncertain.  The FinCEN guidance is predicated on the DOJ guidance that has now been rescinded. It is unclear how the FinCEN guidance will be implemented in light of the Sessions Memo, as FinCEN has not issued any revised or supplemental guidance.  Initial news reports indicate that FinCEN was not aware of the DOJ’s change in position prior to it becoming public.  A spokesperson of FinCEN has been quoted stating the FinCEN guidance currently “remains in place.”

To be clear, the 2014 Cole Memo and the FinCEN guidance did not obviate or amend federal law prohibiting the sale or use of marijuana. Nor did it provide a defense to those violating such laws.  Instead, the guidance provided marijuana-related businesses and the financial institutions servicing such businesses a framework of the federal government’s enforcement priorities.  In that regard, it provided some degree of comfort to those providing services to this industry.

Although the Sessions Memo presents a change in the status quo of the federal policy on marijuana enforcement, the Sessions Memo is not as aggressive as many had feared it would be given Sessions’ outspoken criticism of marijuana.   The current policy continues to recognize the prosecutorial discretion of the U.S. Attorneys in determining on which conduct to focus its efforts.  Further, it does not instruct U.S. Attorneys to take a more aggressive approach towards state-legalized marijuana conduct by enforcing federal law in all circumstances, nor does it impose a more stringent set of enforcement priorities.  Instead, the current policy leaves marijuana enforcement up to each state’s U.S. Attorney.

For now, it is imperative to closely monitor the actions of the states’ U.S. Attorneys to gauge how the new policy will be implemented.  There is more uncertainty as to whether the federal government will take a more aggressive approach. The bottom line is, more uncertainty = more risk.

Only time will tell the full extent of the impact that the Sessions Memo will have on marijuana-related businesses and the companies that service them.  Stay tuned.

–Nicole Meisner, Attorney, Jaffe, Raitt, Heuer & Weiss, P.C.

DISCLAIMER:  The possession, sale, use, and distribution of marijuana and conduct that assists or facilitates such conduct is illegal under federal law.  This blog is for informational purposes only.  The information contained herein is not legal advice—consult with legal counsel for definitive advice.

Nicole Meisner

Nicole Meisner

–Nicole Meisner, Attorney, Jaffe, Raitt, Heuer & Weiss, P.C. Nicole is an attorney who concentrates her practice on payment legal issues, representing payment facilitators, marketplaces, fintech companies, money transmitters, and merchant acquirers. You may reach her at:

Technology Platform Providers and the Risk of Money Transmission

16 Nov

A recent trend that we are encountering frequently is software and internet-based platform providers (“providers”) venturing into the world of payments—sometimes unwittingly. A typical scenario looks something like this:  A provider develops a platform that assists merchants (such as hair salons, utility providers, or medical offices) accept electronic payments from the merchant’s customers.  Most commonly, the providers’ software or technology offerings assist these merchant businesses with virtually every aspect of their operations.  So it seems only natural for the providers to offer a payment solution through the platform.

Although it can be lucrative for a provider to offer customers the ability to accept electronic payments, there are perilous regulatory consequences that must be considered.

First, the provider should consider whether the operational structure implicates money transmitting laws and regulations. A common misconception is that these laws and regulations only apply to person-to-person remittance transactions—for instance, when an individual sends money to a family member located overseas through a third party.  However, this is simply not the case.

Money transmission is regulated at both the state and federal level. To the dismay of money transmitters and those who are trying to decipher whether they are subject to money transmission regulation, there is no universal definition of money transmission in the United States. On the federal level, “money transmitter” is currently defined as: “A person that provides money transmission services.” The term “money transmission services” means the acceptance of currency, funds, or other value that substitutes for currency from one person and the transmission of currency, funds, or other value that substitutes for currency to another location or person by any means.”  The term “person,” however, is not limited to a natural person.  Instead, the term also includes corporations, and partnerships, among many other types of entities and legal personalities.  Federal regulations provide several circumstances where a person’s acceptance and transmission of currency, funds, or other substitute value would not be deemed money transmission—thus, the determination of whether a person is deemed a money transmitter is a matter of facts and circumstances.

To make matters more complicated, nearly every state has its own regulatory regime for money transmission. Each state law has a different definition of money transmission, different exemptions, and varying requirements.  One thing that is consistent across the all regulatory regimes is that the penalty for operating as an unlicensed money transmitter is severe—and can include both civil and criminal penalties on a state and federal basis.

It is imperative for providers to determine whether they are engaged in money transmission so they can understand their own risks and decide how best to operate. Often, providers’ operations can be restructured to mitigate the regulatory risks. Other times, exemptions to the regulatory burden can be utilized, such as through agency relationships with strategic partners such as banks or licensed money transmitters. Unfortunately, there is not a one-size-fits-all solution that works for every provider and the analysis is driven by the unique facts and circumstances of the transaction flow.

Apart from money transmission issues, if the provider offers its merchants the capability of accepting credit cards from their customers, the provider should also consider whether its operations implicate any of the card brand Rules. For instance, the provider may need to consider whether it is operating as an unregistered payment facilitator or marketplace.  The card brand-specific issues are separate from, but parallel to, the money transmission considerations.

The regulatory implications of enabling payment solutions on technology platforms should not be taken lightly. The world of payments is constantly evolving in our tech-driven environment, and that change can be overwhelming.  But by taking a proactive approach, you can understand the laws and regulations that impact your business, identify potential regulatory implications, and work toward a solution that is right for your business.

–Nicole Meisner, Attorney, Jaffe, Raitt, Heuer & Weiss, P.C.

Nicole Meisner

Nicole Meisner

–Nicole Meisner, Attorney, Jaffe, Raitt, Heuer & Weiss, P.C. Nicole is an attorney who concentrates her practice on payment legal issues, representing payment facilitators, marketplaces, fintech companies, money transmitters, and merchant acquirers. You may reach her at: