Invasive Senate Bill Affects All Payment Processors

By: Mike Shatz

A sweeping payment processing amendment proposed by Senator Christopher Dodd has been quietly buried within a six hundred and thirty page housing bill. The legislation is found within HR 3221, The Foreclosure Prevention Act of 2008, the main focus of which is the current housing crisis. Slipped into this legislation, however, is a proposed set of laws that have generated altogether separate issues. In an effort to fund the proposed bill, the amendment's sponsors are attempting to tap into a new revenue source - small business.

In particular, Dodd hopes that documenting all credit card payments within the United States will capture taxable income that otherwise would have been untouchable (read "under the table.") The amendment would require every payment processor in the nation to track and accumulate transaction data on their merchants, and subsequently report this information to the Internal Revenue Service. By virtue of the data collected in these transactions, the reporting would contain consumer information. The legislation affects every major credit card (Visa, Discover, MasterCard, AMEX etc. ) and also specifically targets other payment processors such as eBay, Amazon, PayPal, & Google.

Since its discovery, scores of consumers, small businesses, legislators and activists have come forward to decry the legislation as being a complete invasion of privacy, and a violation of the fourth amendment of the constitution. It has also been criticized for being a "gold mine" for identity theft and corporate misconduct. Who has access to this information? Why is this anyone's business? What's to stop hackers and identity thieves from running wild with your most personal information? These are some of the serious questions being asked by concerned citizens from every walk of life. Another set of big questions is coming from the small business community. How much will the compliance costs be, and how will my small business afford them? This concern is evident when one sees that the bill is strictly opposed by the National Federation of Independent Business, the nation's largest small business association. On the issue of small business, former U.S. House Majority Leader Dick Armey had this to say: "This is a provision with astonishing reach, and it was slipped into the bill just this week..the privacy implications for America's small businesses are breathtaking."

And it's not just small businesses speaking up. Kim Rubey, a head spokesperson for the internet retail giant eBay, issued a statement on behalf of eBay in response to the proposed bill. In this statement, Rubey states that the "merchant card reporting provision.. should be crafted in a manner that does not burden the smallest entrepreneurs with new tax compliance demands, nor inappropriately raise reporting requirements on persons who are not merchants. We are actively conveying our views to congressional leaders so that legislation does not overreach and negatively impact individual Internet users, the growth of small businesses, and entrepreneurial and economic empowerment." Worries about the cost, privacy issues and security flaws surround this piece of legislation are obviously affecting businesses small and large alike. Rubey's comments likely understate the impact the legislation will have of the processing industry itself. Payment processors would be required to implement an entirely new reporting infrastructure.

Whether you're a consumer, business owner, or both, you need to protect yourself against the dangers of this legislation by working against its passage. Become active and inform others of this provision that was slipped in to a larger bill and was not voted upon. You may also wish to begin following the progress of HR 5546, the Credit Card Fair Fee Act of 2008. This antitrust legislation aims to compel the credit card Associations to negotiate interchange rates with merchants. Under the current system, the Associations mandates the fees merchants are required to pay. Unlike HR 3221, HR 5546 promises to be a lot more merchant friendly, and merchants therefore have a vested interest in its passage.

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Mike Shatz is a software industry executive and payment processing expert who's primary focus is customer-not-present payment transactions, merchant accounts and credit card interchange.

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