DataWedge February 2010 Newsletter

The detals of the CARD act can be read in any number of news reports... the main item that may pertain to RDS operations might be the following rule:

Over-limit fees: Previously, customers could go over their credit card limit and only pay a penalty in the form of an increased interest rate or some other short-term penalty.

Now with CARD, customers must specifically OPT-IN to this program. The customers that do NOT opt-in to this program will instead be given immediate DECLINES on their card when their limit is reached. This will most likely result in more declines coming back to the RDS.

It's difficult to gauge how the credit card and banking industry react to particular legislation like CARD... but (if history is any indicator, and knowing that banks are just about the most risk-averse institutions out there), they most likely will OVERCOMPENSATE for the language/letter of the law by going above and beyond to make sure they are covered.

In the case above, "Signature" cards, "Loyaly" cards and "Corporate" credit cards have particular budget amounts that can be set to limit/restrict spending at merchants that are not established with a SIC code of "Restaurant".

It's my understanding that prior to CARD rules going into effect, previously anyone using one of these cards simply got a slightly higher interest rate when they went over their pre-determined "budget" amount.

Now that CARD rules are in effect, the reaction from the issuing bank or credit card companies is simply to issue a DECLINE when this budget amount is reached instead of just "dinging" the customer with the simple interest penalty.

(The irony, of course, is that now customers will inevitably get DECLINES on their credit cards in the most uncomfortable of all social/business situations instead of a quiet penalty behind the curtain).

Can you switch your MID to be classified as a "restaurant" instead of a "caterer"? Yes. But it comes with still penalties, as we found out with another DMS customer a few years ago, purely by accident.

In that case, we had a DMS customer accidentally coded as a 'RESTAURANT", and their resulting credit card rate came back as nothing short of HORRIBLE.

What took us a few months to figure out was with the classification as a RESTAURANT, the assumed transaction type is a "CARD-PRESENT"... which means that for every hand-keyed transaction (MOTO) that occured against that SIC, a VERY STEEP downgrade penalty is assigned, resulting a wrecked effective rate.

This puts the RDS into the position of "damned-if-you-do-damned-if-you-dont". Code yourself as a "Restaurant" and get slammed for every single approval you key into your system... or (now with the CARD rules) code yourself as a "Caterer" (or any other category, frankly), and face a random decline from a signature/corporate/loyalty credit card.

There't not really a "fix" for this... it's the (ever evolving) nature of the beast.

(The best way to "fix" this, of course, is to draw up enough lobbying support and have Visa/MC/Amex create a SIC code for "RDS"... but I can't ever see where this will happen in our lifetime).

The most you can do is be prepared... both for the increased number of declines as well as the explation back to your customers when you are forced to ask for a different credit card number.