HAVING ISSUES GETTING A COLLECTION AGENCY CREDIT CARD PROCESSING ACCOUNT?
Regardless of the industry, reputation is everything. A great reputation will allow you to reach great heights, while a bad one will cause irreparable damage. Unfortunately, over the years, Collection Agencies have developed a poor reputation, bringing them further scrutiny when applying for a merchant account.
If you’re a collection agency, you will find this a challenging process. The following article will guide you in obtaining a collections credit card processing account for your agency.
WHY DO PROCESSORSVIEW COLLECTION AGENCIES AS HIGH-RISK?
Processors offering merchant accounts look at the reputation of your company within the respective industry when reviewing your application for credit and debit card acceptance or ACH payments. Underwriting can decline an application simply from a merchant’spoor reputation online. The bank will look at a Collection Agencies responses and how they resolve consumer complaints made to the Consumer Financial Protection Bureau (http://www.consumerfinance.gov/) and the Better Business Bureau (https://www.bbb.org/),and whether those responses or were made in a timely manner and if the number and nature of the complaints are reasonable given the size and nature of the merchant.
Why the bleak outlook when Collection agencies are viewed as important business pillars to most organizations since they deliver a service, they are not able to provide on their own without considerable cost and manpower. As customers would ultimately choose to pay off past due financial obligations via a credit card or electronic check, acquiring a merchant account is vital.
Unfortunately, the actions of a small percentage of collection agencies across the country tarnish the reputation of even the agencies working honestly, fairly and within all regulations.
In addition to negative public perception, the industry is highly regulated by governmental forces such as the FDCPA and CFPB; enforcing Agencies to be abreast of all changes and remaining compliant. This additional factor also makes opening a debt collection merchant account challenging.
WHAT OTHER FACTORS MAKE ACQUIRING A MERCHANT ACCOUNT DIFFICULT?
Banks also take into consideration the number of chargebacks a business experience on a monthly basis. There are plenty of people who make a payment, only to call their bank or credit card company and dispute the validity of the transaction. As this can quickly accumulate to a large amount, Banks are always concerned a merchant will not be able to repay this amount, leaving such liability on the bank’s shoulders. Chargebacks are to be kept under 1.5%.
WHAT’S NEEDED TO APPLY FOR A COLLECTIONS CREDIT CARD PROCESSING ACCOUNT?
At a minimum, be prepared to provide the following documentation when applying for payment processing:
- Voided Business Check
- 3-Months Most Recent Bank Statements
- 3-Months Most Recent Processing Statements (if applicable)
- Valid Driver’s License for All Application Signers
- Company Articles of Organization or Business License
- Verification of the Company’s EIN Number
Submitting all the paperwork in its entirety, ensures a timely turnaround for an approval. Keep in mind, while having the appropriate documents does not guarantee your approval.
WHAT DO UNDERWRITERS LOOK FOR WHEN APPROVING A MERCHANT ACCOUNT?
At the end of the day, Underwriters assess risk. To ensure your collection agency is approved for credit and debit card payment processing, it is crucial to demonstrate you operate a reputable business, comply to all applicable laws and regulations, and are a good credit risk. Here are some additional things underwriters consider when reviewing a debt collection business for a merchant account:
- Extensive experience within the ARM industry
- Proper and required state licensure if applicable
- Solid business model
- Business owner’s personal credit score
- Prior processing history if available
- Website compliancy per Visa/Mastercard regulations
Collections Acceptability Requirements
- Complies with the Fair Debt Collections and Practices Act as well as any applicable federal or state regulations governing the collection of a specific type of debt.
- Employs a qualified Compliance Officer to monitor and enforce rules compliance.
- Maintains current and valid collections licenses in those states in which Merchant conducts collection activity Is not home based and has a professional, verifiable business address
- Is not home based and has a professional, verifiable business address
- Maintains a current SSL certificate for any web pages on which payment transactions are accepted.
- Monitors the activity of collection agents who engage verbally with debtors on behalf the Merchant.
- Monitors, responds and resolves consumer complaints made to the Consumer Financial Protection Bureau (http://www.consumerfinance.gov/) and the Better Business Bureau (https://www.bbb.org/) in a timely manner and the number and nature of the complaints are reasonable given the size and nature of the merchant.
- Has created and implements a Complaint Resolution Policy.
- Maintains a chargeback ratio of under 1% of net settled payments
- Provides a digital receipt to each cardholder for each transaction processed.
- Records and retains all verbal payment authorizations received over the telephone from cardholders and has the ability to retrieve and provide such recordings upon request.
- Ensures that the use of automated dialers meets the Telephone Consumer Protection Act guidelines and regulations as well as any other applicable federal or state laws or regulations for the purpose of making telephone contact with debtors.
- Does not accept transactions for any non-existing debt, which could not be otherwise collected through a lawsuit or debt that is over 48 months only or outside a governing states collection statue.
- Does not: accept Visa credit card for the repayment of a loan or debt of any kind, and employ technology in the form of software or a payment gateway or payment platform, which has the capability to limit payment acceptance to a Debit or Pre-paid card.
- Does not accept Discover or American Express cards for the repayment of a debt. Does not collect Pay Day Loans.
- Can, upon request, can provide a source document validating a given debt for which a payment has been accepted
- Does not store or retain card numbers, cardholder names, and expiration dates once the transaction is processed
- If the merchant is a new business, the owner can provide a resume showing extensive management experience in the collections industry. Owner must have good credit, a solid background and a minimum $10,000 bank account balance.
WHAT ARE THE STANDARD MERCHANT FEES FOR COLLECTION AGENCIES?
Depending on the bank you ultimately process with, the fees assessed monthly or annually will vary. Additionally, the specific collection niche you focus on and upcoming sales projections can also influence the fees assessed.
Generally, expect to see these fees with your high-risk collection agency merchant account:
- Monthly Minimum Account Fee
- Monthly Gateway Fee
- Discount Rate
- Per Transaction Fee
Be sure to thoroughly review your merchant application for disclosure of all applicable fees. If you are unclear of anything, ask your merchant provider or acquiring bank for clarification.
HOW IS A COLLECTIONS CREDIT CARD PROCESSING ACCOUNT CLASSIFIED?
All merchants accepting payments within the United States receive a four-digit Merchant Category Code (MCC) or Standard Industrial Classification (SIC). These codes identify the primary purpose of a business and classify them according to the goods and services provided. Typical MCC’s seen within a collections credit card processing account include 8931 for professional bookkeeping services, 8099 for an agency collecting on medical past due receivables, or 6051 for non-financial institutions. Discuss the available options with your merchant account provider to ensure there are no limitations to your processing capabilities. Make sure your Merchant Account Providers has not classified you under the incorrect MCC code just to get you an approval. This will be short-lived at best; worst case scenario could see your business Blacklisted from ever acquiring a merchant account.
If you want to work with a company that specializes in obtaining a credit card processing account for Collection Agencies, contact High Risk Holdings today!