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ED July 2016

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26 July 2016 Club Bulletin www.EDpublications.com C onventioneers Moe, Larry and Curly saunter into your club after dinner and a few—or maybe more than a few—adult beverages. One private dance leads to another; one more rounds of drinks leads to another; and pretty soon the tab is in the stratosphere. Moe says, "It's on me," handing over his plastic. This is wonderful, right? Well, as you may know, maybe not. Moe's wife or employer sees this charge, exclaiming, "What the hell is this?" "Must be some scam," says Moe, a little red in the face. So, for Moe to save his job or his mar- riage, he reports the charge as fraud. You get a notice; and if you don't respond properly and on time, you are out the tab, and worse. Plastic Axiom: Merchants need the "plastic empire" profoundly more than that empire needs merchants. Read that sentence again. As explained in this article, the plastic empire does pretty much what it wants with merchants. Perhaps the biggest lobbying effort by banks was bank- ruptcy reform. Back during the Bush II administration, the banking lobby managed to persuade Congress to effectively eliminate consumer bankruptcies (The Bankruptcy Abuse Pre- vention and Consumer Protection Act of 2005); people could no longer engage in the long-standing practice of wiping out their credit card debt in bankruptcy. But you look at credit cards from a different angle. You worry about customers whose credit cards do not have a high enough limit to cover their bill. And, worse, customers who charge back their tab from the night before. How the credit card system works is really quite some- thing. Having often fought against merchant processors, the author has unfortunate familiarity with all of this. Use of credit cards became increasingly prevalent during the 1970s, fueled by Congress' enactment of 15 U.S.C. § 1643(a)(1)(B), limiting the cardholder's liability for unautho- rized use of his or her card to $50. The law goes on to say that the cardholder is not responsible for any charges after giving notice of the missing card. And even if the consumer hasn't given notice, the $50 cannot be charged unless the card issuer has jumped through all kinds of hoops. As a prac- tical matter, banks usually waive the $50 anyway; it is worth it to keep happy customers. The obvious significance of this 1970 legislation was to allow the masses to carry credit cards without fearing financial disaster if they were lost. The credit card industry, and particularly the bank card industry, continued to thrive. Merchants could not compete unless they accepted credit cards, especially bank cards. Meanwhile, banks began retreating from the business of directly issuing VISA and MasterCard merchant accounts in favor of what are known as "independent sales organiza- tions," or ISOs. These ISOs include the infinity of companies that constantly bombard most of you with spam that tells you how favorable their rates are. Visa U.S.A., Inc. has regulations that include a two-volume set consisting of hundreds upon hundreds of pages. Even the table of contents is a couple of dozen pages long! Every VISA transaction, every VISA merchant account agreement, every VISA statement and everything else about VISA cards is governed by this two-volume tomb. In fact, the Visa U.S.A., Inc. operating regulations undoubt- edly is amongst the most important documents in commerce today, perhaps the most important document in e-commerce. Want a copy? Not! The bottom line is an imponderable par- adox: The agreement you signed when you applied for your VISA merchant account (bet you didn't read it!) requires that you comply with all of the VISA regulations. And yet, you are not provided a copy of, nor can you even obtain a copy, of the confidential regulations. As a merchant, you have signed on with VISA and, there- fore, agreed to adhere to its contractual requirements, includ- ing its dispute-resolution procedure. That procedure starts when the issuer registers a "retrieval request" from the issuer to the acquirer. The acquirer must respond with support for the transaction, and supporting documentation comes from the merchant. The response must be in a format set forth in the regulations, and must include specified data. The regulations include very detailed and streamlined mediation and arbitration procedures, without which the en- tire credit card world would come to a screeching halt. And know this: On the merchant end of this, you will wind up with a chargeback if you fail to "dot all of your i's PECIAL FOCUS EXTRA S by Clyde DeWitt Buyer's remorse, and the damage it can do to your club Chargebacks have become an unfortunate inevitability in the big-spender's world of adult nightclubs. What steps can you take to prevent chargebacks, and how much damage can be done to your merchant processing if you don't take these steps? Attorney Clyde DeWitt explains.

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