When Credit Card Networks Say No to Merchants

Credit cards offer both cardholders and merchants a secure and convenient method of payment. And just as most cardholders have found their credit card transaction denied at least once for one reason or another, there are some merchants who have been denied the ability to accept credit cards.

Some of the merchants who can not take credit cards are excluded for some very good reasons, such as those selling illegal goods and services. But a closer look reveals that payment networks face some very difficult business and ethical decisions when merchant activities are extremely controversial or not completely legal.

Let’s look at some examples of merchants who may not make the cut.

Hate Groups

Organizations that explicitly practice racism and discrimination are illegal in many European countries, but Americans enjoy broad free speech rights under the U.S. Constitution. Just like other businesses and nonprofits, these controversial organizations seek to sell products and accept donations from supporters who use credit cards.

So just because it is legal to organize and conduct hate speech, should banks and credit card networks do business with groups that many Americans would find repulsive? This question is at the center of a debate recently published in the New York Times. Each of the four participants in the debate agreed that credit card networks were within their rights to deny merchant accounts to hate groups, but they differed on the wisdom of doing so. Mark Potok, a senior fellow of the Southern Poverty Law Center in Montgomery, Alabama, made the case for hate groups to receive merchant accounts, comparing this service to basic utilities such as electricity. On the other hand, academics Jamie Chandler and Palmer Gibbs argued that banks are hypocritical when they market themselves as supporting diversity while conducting business with hate groups.

In August, MasterCard executives met with New York City Assemblyman Dov Hikind and agreed not to conduct business with groups selling selling racist, anti-Semitic and Holocaust denial products.

Medical & Recreational Marijuana

In this case, a product has been legalized by several states, but remains illegal under federal law. Further confusing this matter is the fact that the Department of Justice has chosen not to challenge state marijuana laws. For their part, the credit card networks have not prohibited marijuana dispensaries from accepting credit cards, but banks still consider these businesses to be high risk, and many won’t do business in this industry. In response, several smaller merchant processing banks have begun to specialize in enrolling merchants in the legalized marijuana industry.

Mug Shot Sites

There are websites that post arrest photographs of people, and then charge them a fee to remove the picture. In many cases, these arrests never resulted in trials or convictions, but the mere existence of the photographs can be damaging to people’s reputation.Recently, the New York Times spoke with several of the major credit card issuers that work with these sites, and most of them moved to terminate their relationships with those sites.

WikiLeaks

WikiLeaks has been operating as a not-for-profit media organization since 2007. For its first three years, it hosted a relatively obscure website that served as a conduit between anonymous sources and investigative journalists. But in the fall of 2010, it burst into the headlines when it disclosed a large cache of classified data from the U.S. State Department. Within months ,Visa, MasterCard, PayPal and others ceased to accept payments on behalf of WikiLeaks. WikiLeaks’ website now refers to this coordinated campaign as a “Banking Blockade.” To highlight this perceived injustice, WikiLeaks’ website claims that “There are no judgements [sic], or even charges, against WikiLeaks or its staff anywhere in the world.” In the years since, WikiLeaks has apparently broken through this blockade and now accepts donations via Visa, MasterCard, PayPal and other services.

In the U.S., companies have the right not to do business with a particular organization, if doing so does not violate anti-discrimination laws. And while there are many clear-cut cases where group engaging in illegal conduct will not be able to accept credit cards, there are also many gray areas.

Image: Photodisc