The payments world is in a constant state of change, and the requirements surrounding clauses that must be included in card processing agreements with merchants are no exception. Typically, language that must appear in merchant contracts is handed down from the card brands. To remain compliant with those constantly-evolving requirements a close eye on card brand rule revisions has been essential. But now states are getting into the act as well.
Tennessee provides the latest example. Effective March 1, 2016, Tennessee requires that all merchant agreements disclose certain terms, such as the effective date and term of the contract, the circumstances surrounding early termination or cancellation, and a complete schedule of all fees applicable to card processing services. These requirements are benign enough, as the vast majority of commercial contracts already contain those provisions.
But here comes the sticky part. In addition to the above, the Tennessee statute requires the payment acquirer to provide monthly statements. So far so good – everyone provides monthly statements. However, the law mandates that certain data points be included in each monthly statement, including an itemized list of all fees assessed since the previous statement, the total value of the transactions processed, and, if the acquirer is not a bank, an indication of the “aggregate fee percentage”. The aggregate fee percentage is calculated by dividing the fees by the total value of processed transactions during the statement period.
The troubling requirement is the last one: that any non-bank payment acquirer include in monthly statements the fees imposed, calculated as a percentage of the total value of the transactions processed during the statement period. Currently such a calculation is not determined, so systems will need to be revamped to include that information in statements.
And a determination will need to be made as to who, exactly, this requirement applies to. The law says it is imposed on non-bank payment acquirers. Certainly that includes payment facilitators. But if both an ISO and a bank are a party to a merchant agreement and provide the statement, does the aggregate fee percentage need to be included in the monthly statement? It’s not clear. A conservative interpretation would suggest that if any non-bank is a party to a merchant agreement, the aggregate fee percentage should be disclosed each month.
Interestingly, the remedy for non-compliance with the Tennessee law is limited to an option by the merchant to terminate the contract. Before the merchant may cancel the agreement, it must give the acquirer 30 days’ notice. If the non-compliance is cured, then the merchant is not permitted to terminate the agreement.
ISOs, banks, and processors should review the new Tennessee statute to ensure compliance with its provisions. And now that the payments industry is on the radar of state legislators, card processors will need to monitor state law developments to keep up with shifting obligations.
–Holli Targan, Partner, Jaffe, Raitt, Heuer & Weiss, P.C.