Third Party Payment Processors Form Association in Response to Federal Campaign

Jan 07, 2014

A recently formed trade group called the Third Party Payment Processors Association (TPPPA) is battling hard against the US Treasury department regarding what they call unjust attacks on third-party payment processors. Collection agencies, payday lenders, and even payroll companies are vulnerable to the Federal initiatives regarding the industry despite household names such as PayPal, Intuit, MoneyGram, and Western Union representing a legitimate industry with credible businesses.

Third-Party Payment Processors

The complication with collection agencies and other third-party payment processors comes from the perception that these companies are vulnerable to money laundering and other illicit transactions. Many high-risk businesses with bad credit cannot open their own merchant accounts so they opt to use third-party accounts. In the case of bad loans, collection agencies will use third-party accounts to facilitate payment processing. Businesses sometimes simply prefer the services third-party processors offer. With the Federal government going on the offensive, the TPPPA was formed to help protect companies such as collection agencies and represent their interests in Washington.

Federal Campaign

The US Treasury Department aims to restrict illegal activity by third-party payment processors through an online campaign called “Operation Choke Point.” The Treasury Department’s Financial Crimes Enforcement Network is behind the campaign as an inter-agency force between including agencies such as the Department of Justice, the Federal Deposit Insurance Corp., and others. The campaign targets collection agencies and payday lenders in particular as likely candidates for illegal activity.

Unintended Consequences

The TPPPA claims that the Federal campaign may have unintended consequences unforeseen by the government agencies. Reeling in third-party payment processors could hurt groups such as community banks, homeowners associations, and even payroll companies that would in turn keep workers from receiving their wages. All of these organizations make use of third-party payment processors.

The TPPPA’s response is to create a compliance system to ensure there are rules governing banks’ oversight of third-party payment processors and to educate concerned parties regarding third-party payment. Through increased and regular oversight a lot of the illegal activity could be eliminated the TPPPA argues without creating restrictions that would punish legitimate collection agencies and other small businesses. Small business owners, particularly those targeted by the Federal campaign like collection agencies, should monitor Federal efforts and those of the TPPPA moving forward as the industry continues to grow and change with new efforts at regularization.

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Having a merchant account allows an account holder to take advantage of merchant cash advances. When a merchant is approved for an advance, the business agrees to receive a lump sum of cash in exchange for an agreed-upon percentage of future credit card sales.

Pricing varies depending on the merchant’s industry, past credit card processing history, the type of business seeking the account, average ticket sales, and average transaction volumes.

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A merchant account is a business account with an acquiring bank. Without this business account, which actually works more like a line of credit, a merchant cannot accept and process credit and debit card transactions. Businesses need a merchant account to accept major credit cards via a static point-of-sale terminal, mobile card reader, or through a virtual payment gateway.

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