Washington’s ‘Vitriolic’ Mood Isn’t Slowing the March of Major Regulation Affecting Payments

There’s plenty of proposed legislation affecting the payments business just now, and casting a long shadow over all of it is the present atmosphere of partisanship. “The mood in Washington is vitriolic, childish. It’s all-out war,” said Scott Talbott, senior vice president of government relations for the Electronic Transactions Association, which lobbies on behalf of payments firms.

That strife makes it hard to predict how key regulatory questions will be resolved. And the list of such issues confronting merchant-service providers, software vendors, payment facilitators, and the banks that back them is long, Talbott told the audience Thursday at the annual meeting of the Northeast Acquirers Association in Boston.

At the federal level, a key concern right now is how Congress will legislate the messy issue of consumer privacy. “Privacy is a hot topic,” Talbott told the audience. “Policy makers are focused on it acutely.” Specifically, any legislation will regulate how companies handle and protect personally identifiable information. Merchants, banks, and processors could all be caught up in that net, Talbott warned, because of their need to access PII for authorizations, at a minimum. “If you track PII, you will have new restrictions,” he said.

But one federal law, complicated though it may be, will be better than multiple state laws, Talbott cautioned. “We want a national standard, not 50 privacy laws,” he said. A related concern is the so-called right to be forgotten, which would compel companies to wipe out personal data at the request of the consumer. Such a provision is already contained within the European Union’s General Data Protection Regulation, which took effect in May 2018. “We have an issue here, we need to be able to see your data to fight fraud,” said Talbott. “We can take a flyer or deny the transaction. Neither [option] is palatable.”

Key to the issue is that both GDPR and similar laws in Canada and California make some allowance for legitimate fraud concerns—an allowance the ETA wants any federal legislation to include. “The permissible use to fight fraud is our main message,” Talbott told the audience.

But, from the Washington, D.C.-based ETA’s standpoint, not all the mischief is at the federal level. “States have stepped forward,” Talbott warned, adding they pose “a lot more risks to our industry. In the last two years, we’ve seen that in spades.” On the issue of privacy alone, some nine states have now introduced proposed regulation, he said, creating a potential welter of complicated law. “Complying with 50 different privacy rules is going to be a challenge.”

To be sure, 48 states have already enacted data-breach notification laws, but Talbott said privacy statutes are likely to be much more challenging for payment companies. The difference, he said, is that the notification rules lie dormant until a breach happens, whereas privacy laws demand immediate compliance. “They are live ammunition now,” he told the audience. “The fines and penalties are very challenging. There are lawyers out there sharpening their pencils waiting for somebody to make a mistake.”

States are also looking at beefing up sources of revenue, including their sales tax regimes. One such state, Massachusetts, has a proposal for a so-called real-time remittance that would require larger merchants to send sales tax proceeds to the state daily, rather than monthly. Since the governor’s proposal implicates processors for compliance, Talbott said the ETA convinced the state to include in it a provision to let merchants prepay at the start of each month what they expect to collect in sales tax. 

But nothing has been enacted yet, and the real-time proposal lingers still in the governor’s budget, Talbott said, adding, “It’s a solution in search of a problem.”

On yet another key issue, Talbott said the ETA scored a partial victory by getting the federal government to reduce its tariff on point-of-sale terminals imported from China to 7.5%. The toll on terminal parts from China, however, remains at 25%. “We’re hopeful we’ll continue to get them down to zero,” he said. 

But Talbott added a dash of realism concerning the entire panoply of federal proposals that holds true regardless of the atmosphere of extreme partisanship. “This is Washington,” he reminded the audience. “They’re going to regulate.”