Violations of Credit Card Policy

April 13, 2006

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The surest way to lose your merchant account forever is to get caught doing something that violates credit card company policy. Here's a look at two areas in particular that you should avoid at all costs.

Misrepresentation. When you're filling out your merchant account application, don't fudge on the numbers in order to improve your chances of getting the account. Don't misrepresent the nature of your business or the extent of your business experience. In short, don't intentionally misrepresent anything on the application. If you're caught, you may never get another chance to open an account.

Suppose you fill out your application honestly but business conditions change so that the information is now inaccurate. Do you have a duty to inform the bank? That depends upon what changed. If you represented that you wouldn't be taking any credit card sales over the phone, but now you want to, you probably should tell the bank. On the other hand, if your annual sales drop slightly, you probably don't need to tell the bank. The dividing line for determining whether to tell the bank is whether you believe the information alters the credit risk the bank is taking. If you think it might, you should tell the bank. If you're in doubt, tell the bank.

A good policy for notifying the bank of business changes is to tell it before you want to make the change. Get the bank to agree to the change and document the agreement in writing (this may mean simply getting a letter from your banker).

Factoring. In this context, factoring is the process of running the charges of another business through your merchant account in order to generate profits. Don't do it; it's wrong, and, in some cases, it's illegal. If you're not swayed by the moral or legal argument, don't do it because it's easy to get caught. All it takes is one customer initiating a chargeback, and you can lose your merchant account forever.