.png){kind=small}
Navigating credit card processing laws and regulations can feel overwhelming for merchants, especially since the regulatory landscape is constantly changing, and most merchants aren’t experts in it to begin with. From foundational federal regulations and PCI-DSS compliance to state-specific requirements, understanding your legal obligations is crucial for protecting your business from fines, penalties, and potential shutdowns.
This comprehensive guide breaks down the essential credit card processing laws for merchants to help them maintain compliant payment processing operations.
What you'll learn in this guide:
- Federal regulations governing credit card processing and merchant accounts
- PCI DSS compliance requirements and implementation steps
- State-specific laws affecting payment processing operations
- Industry-specific regulations for high-risk merchants
- How to move forward
Let’s break down each of these categories to ensure that you have a comprehensive understanding of the current regulatory landscape.
*Keep in mind that this article includes no legal advice. If you have questions about whether any of your specific operations or actions are in breach of any relevant regulations, we recommend you contact a lawyer.
Federal Credit Card Processing Laws for Merchants
Fair Credit Reporting Act (FCRA)
The Fair Credit Reporting Act, as it pertains to merchants, covers the responsibilities of merchants when maintaining or transmitting data that ends up in the hands of credit reporting agencies (CRAs) like TransUnion and Equifax. As a result, it is only relevant to merchants who furnish this data. It also outlines the responsibility of merchants to perform reasonably comprehensive investigations into credit disputes made regarding credit info they furnished, and update information accordingly if the dispute is valid.
Key compliance requirements include:
- Implement standardized policies and procedures to ensure the accuracy of data transmitted to CRAs
- Respond to and investigate credit information disputes promptly
- Correct any inaccurate information immediately after its discovery
- Provide contact information, including an address, for customers to send disputes
Truth in Lending Act (TILA)
The Truth in Lending Act requires merchants offering credit or installment payment options to provide clear, standardized disclosures about credit terms to give customers the necessary clarity to perform their duties regarding their credit agreement. For payment processors, this means ensuring transparent communication about fees, interest rates, and payment terms.
Key compliance requirements include:
- Displaying annual percentage rates (APR) prominently
- Providing written disclosure of all fees before account opening
- Offering three-day rescission periods for certain transactions
- Maintaining detailed records of all credit-related communications
Electronic Fund Transfer Act (EFTA)
The Electronic Funds Transfer Act governs electronic payments, including debit card transactions and ACH payments. Since most merchants offer at least one of these payment options, they must implement specific consumer protection measures and error resolution procedures.
Key compliance requirements include:
- Provide transaction receipts for all electronic payments
- Establish error resolution procedures within 10 business days
- Limit consumer liability for unauthorized transactions
- Maintain transaction records for at least two years
Card Act of 2009
The Card Act of 2009 primarily regulates finance institutions, but it does have some notable regulations on gift card sales and transaction fees.
Key compliance requirements include:
- Ensuring all gift cards expire no sooner than 5 years after they were purchased or loaded, whichever is later
- Charge no dormancy fees on gift cards for the same 5-year period
- Leverage a reputable, compliant credit card issuer for any loyalty cards or branded credit offerings
The Fair Credit Billing Act (FCBA)
The Fair Credit Billing Act (FCBA) provides consumers with dispute rights that directly impact merchant operations. Understanding these protections helps merchants implement effective chargeback management strategies.
Protections for consumers under the FCBA include:
- 60-day dispute window from statement date
- Provisional credit during investigation
- Right to withhold payment during disputes
- Protection against billing errors
Additionally, merchants must respond to chargebacks within specific timeframes and provide compelling evidence to contest disputes effectively.
Chargeback Response Timeframe by Reason
Failing to comply with these guidelines can lead to penalties ranging from $50 to 5,000 per infraction.
PCI DSS Compliance Framework
The Payment Card Industry Data Security Standard (PCI DSS) is a set of data security standards and requirements to ensure the protection of credit and debit data from fraud and theft. It represents the most critical compliance requirement for merchants accepting credit card payments, and non-compliance can result in fines ranging from $5,000 to $100,000 monthly.
PCI-DSS recognizes four levels of merchants, and these categories are defined by their annual transaction volume. While all of the levels must comply with the same security standards, each level has its own set of validation requirements to affirm compliance, with Level 4 having the lowest and Level 1 having the highest.
PCI-DSS Level Designations
The 12 PCI DSS Requirements
There are 12 requirements that PCI-DSS lays out for merchants, and each falls under a different category of data security.
Build and maintain secure networks:
1. Install and maintain firewall configurations
2. Avoid using vendor-supplied defaults for system passwords
Protect cardholder data:
3. Protect stored cardholder data with encryption
4. Encrypt transmission of cardholder data across open networks
Maintain vulnerability management:
5. Use and regularly update anti-virus software
6. Develop and maintain secure systems and applications
Implement strong access controls:
7. Restrict access to cardholder data on a business “need-to-know” basis
8. Assign a unique ID to each person with computer access
9. Restrict physical access to cardholder data
Regularly monitor networks:
10. Track and monitor all access to network resources
11. Regularly test security systems and processes
Maintain information security policy:
12. Maintain policy addressing information security for employees
Consequences for Non-Compliance
Merchants that are determined to be in breach of PCI-DSS standards could suffer both monthly and per-instance monetary penalties, suspension/termination of payment processing privileges, public notifications of any known breaches (easily found by your potential customers), and an increased risk profile as designated by future payment processing partners.
State-Specific Payment Processing Laws
Federal standards aren’t the only credit card processing laws for merchants. Individual states have enacted additional regulations affecting payment processing operations, particularly regarding data breach notification and consumer protection. These can apply to merchants who operate out of, or sell to customers in, a given state’s jurisdiction.
The two most notable are the California Consumer Privacy Act (CCPA) and the New York SHIELD Act.
California Consumer Privacy Act (CCPA)
California's CCPA affects merchants who process payments from Californian residents. It requires explicit consent for data collection and provides opt-out mechanisms.
Key CCPA compliance requirements for merchants:
- Provide clear privacy notices at the point of sale
- Implement data subject access request procedures
- Maintain records of data processing activities
- Offer opt-out options for data sharing
New York SHIELD Act
New York's SHIELD Act expands data breach notification requirements and mandates reasonable security measures for any business handling New York residents' private information.
Compliance checklist includes:
- Implement reasonable data security measures
- Notify affected individuals within "without unreasonable delay"
- Report breaches to the state attorney general within specific timeframes
- Maintain incident response procedures
In addition to federal and state requirements, there are also industry-specific regulations to keep in mind.
Industry-Specific Compliance Requirements
Merchants in gaming, CBD, nutraceuticals, and telemedicine face additional regulatory scrutiny and compliance obligations beyond standard payment processing laws. While the individual regulations would be too complex to outline for every industry in one guide, we’ve put together a quick compliance table to help business owners in the aforementioned industries understand who regulates them on an industry-specific level so they know where to look for the necessary information.
Industry-Specific Regulation Quick Hits
As a result of these more stringent regulations and the business risk factors that necessitate them, most traditional payment processors won’t work with businesses in these high-risk industries. Specialist high-risk payment processors are usually the way around this obstacle, offering high approval rates and industry-specific compliance and payment features to help bridge the gap.
Working With Compliance-Focused Partners
The payment regulatory landscape is ever-changing, and merchants in other industries shouldn’t have to bear the responsibility of staying up-to-date on their own. They can get the proper assistance by choosing specialist high-risk payment processors who prioritize compliance and provide ongoing regulatory support regardless of the industry in which their clients choose to operate.
Look for payment partners offering:
- Proactive compliance notifications and guidance
- Industry-specific expertise for high-risk sectors
- Comprehensive chargeback management and dispute resolution
- 24/7 support for compliance-related questions
- Regular compliance training and educational resources
Quality payment processors like SeamlessChex specialize in helping merchants navigate complex regulatory requirements while maintaining efficient operations. Their white-glove approach ensures merchants receive personalized guidance for their specific compliance needs.
Navigate Credit Card Processing Laws for Merchants with SeamlessChex
Credit card processing laws for merchants encompass a complex web of federal regulations, state requirements, and industry-specific rules that continue evolving. From PCI DSS compliance to state privacy laws, understanding these requirements protects your business from costly penalties and operational disruptions.
Get help from a high-risk specialist processor with unique experience navigating complex webs of regulations in even the most heavily regulated industries. Contact SeamlessChex today.
