On October 27, 2011, the IRS announced that backup withholding will be postponed for one year. Backup withholding will be applied to amounts paid after 12/31/2012.  The penalty relief will not, however, extend to entities that fail to file or make no effort to file 2011 Forms 1099-K as required.

Bottom line: If your IRS TIN does not match your merchant account information, then you could be subject to penalties.
“First Data continues to review State regulations related to Section 6050W backup withholding.    Based on our research to date, we currently believe that the backup withholding delay will apply to both Federal and State.    As a result, First Data is in the process of adjusting our project timelines to support backup withholding for missing / invalid TINs as of January 1, 2013. Although the delay impacts activation of backup withholding processes, development efforts continue for timely implementation.
We are in the process of researching IRS plans for the CP2100 process, expected for the Fall of 2012. Once we have additional details we will notify you.
The above announced changes do not impact our client’s responsibility to obtain valid Tax Filing Names and Tax Identification Numbers from their merchants as applicable. This information is required to ensure accurate filing of the form 1099-K reporting to the merchants and the IRS.”

Related article, Jan. 1, 2011 Deadline for credit processing reporting to IRS looms.

The IRS announced a penalty enforcement delay for merchants. Set to begin January 2012, merchants would have been subject to penalty of 30% withholding, with deductions automatically taken from their merchant account deposits.

PDF download: Official IRS noticeIRS bulletin n-11-89 regarding backup withholding 1099k for card payments

The Federal Reserve Board on Monday, October 17, 2011, announced the approval of a final rule to implement the resolution plan requirement in the Dodd-Frank Wall Street Reform and Consumer Protection Act.

The final rule requires bank holding companies with assets of $50 billion or more and nonbank financial firms designated by the Financial Stability Oversight Council for supervision by the Board to annually submit resolution plans to the Board and the Federal Deposit Insurance Corporation.

Each plan will describe the company’s strategy for rapid and orderly resolution in bankruptcy during times of financial distress. A resolution plan must include a strategic analysis of the plan’s components, a description of the range of specific actions the company proposes to take in resolution, and a description of the company’s organizational structure, material entities, interconnections and interdependencies, and management information systems.

Under the final rule, companies will submit their initial resolution plans on a staggered basis. The first group of companies, generally those with $250 billion or more in non-bank assets, must submit their initial plans on or before July 1, 2012; the second group, generally those with $100 billion or more, but less than $250 billion, in total non-bank assets, must submit their initial plans on or before July 1, 2013; and the remaining companies, generally those subject to the rule with less than $100 billion in total non-bank assets, must submit their initial plans on or before December 31, 2013.

Which merchants will receive the new low debit fee rates? This video provides a detailed look at rate differences and how to examine your merchant agreement schedule A and statement. While all merchants qualify for them, only a fraction will actually have debit discounts passed down from their processor. Will you be one of them? Pull out your merchant statement, then watch the video so you can compare data.

On October 1, 2011, new debit interchange rates go into effect as a result of the Durbin Amendment, part of the Dodd-Frank Wall Street Reform Act.

There are multiple bills pending regarding data breach responsbilities and summaries are below. With PCI Compliance never achieving the goal of 100%, can we really expect any better with theses other issues. Government regulation is increasing due to the failure of businesses to self police and protect data they collect.

S. 1535: Personal Data Protection and Breach Accountability Act of 2011

6/7/2011–Introduced.
Personal Data Privacy and Security Act of 2011 – Amends the federal criminal code to: (1) make fraud in connection with the unauthorized access of personally identifiable information (in electronic or digital form) a predicate for racketeering charges, and (2) prohibit concealment of security breaches involving sensitive personally identifiable information. Sets penalties for attempts and conspiracies to commit fraud and related activity in connection with computers. Requires a data broker to: (1) disclose to an individual, upon request, personal electronic records pertaining to such individual maintained or accessed for disclosure to third parties; (2) disclose adverse actions by third parties against an individual; and (3) maintain procedures for correcting inaccuracies and incompleteness in such records. Defines a “data broker” as a business entity that collects, transmits, or provides access to sensitive personally identifiable information on more than 5,000 individuals who are not the customers or employees of that business entity for purposes of providing such information to non-affiliated third parties on an interstate basis. Establishes standards for developing and implementing safeguards to protect the security of sensitive personally identifiable information. Imposes upon data brokers and business entities civil penalties for violations of such standards. Requires business entities to notify: (1) any individual whose information has been, or is reasonably believed to have been, accessed or acquired, (2) all nationwide consumer reporting agencies if an agency or entity is required to notify more than 5,000 such individuals, and (3) the United States Secret Service and the Federal Bureau of Investigation (FBI) if the number of individuals involved exceeds 10,000.
Authorizes the Attorney General and state attorneys general to bring civil actions against business entities for violations of this Act. Requires the Administrator of the General Services Administration (GSA), in considering contract awards totaling more than $500,000, to evaluate: (1) the data privacy and security program of a data broker, (2) program compliance, (3) the extent to which databases and systems have been compromised by security breaches, and (4) data broker responses to such breaches. Requires federal agency information security programs to include procedures for evaluating and auditing the information security practices of contractors or third party business entities supporting the agency information systems or operations involving personally identifiable information and for ensuring remedial action to address any significant deficiencies. Requires federal agencies to conduct a privacy impact assessment before purchasing personally identifiable information from a data broker.

7/22/2011–Introduced.
Data Breach Notification Act of 2011 - Requires any federal agency or business entity engaged in interstate commerce that uses, accesses, or collects sensitive personally identifiable information, following the discovery of a security breach, to notify: (1) any U.S. resident whose information may have been accessed or acquired, and (2) the owner or licensee of any such information that the agency or business does not own or license. Exempts: (1) agencies and business entities from notification requirements for national security and law enforcement purposes and for security breaches that a risk assessment concludes do not have a significant risk of resulting in harm if specified certification or notice is provided, subject to review by the Secret Service; and (2) business entities which utilize a security program that blocks the use of sensitive personally identifiable information and provide notice of a breach to affected individuals. Requires notifications regarding security breaches under specified circumstances to the Secret Service, the Federal Bureau of Investigation (FBI), the Postal Inspection Service, and state attorneys general. Authorizes the Attorney General to bring a civil action in U.S. district court against any business entity that violates this Act. Sets civil penalties for violations. Amends the Fair Credit Reporting Act to require agencies to include a fraud alert in the file of a consumer that submits evidence of compromised financial information to a consumer reporting agency. Authorizes: (1) civil actions by state attorneys general to enforce this Act, and (2) appropriations for costs incurred by the Secret Service to investigate and conduct risk assessments of security breaches.

You can follow these bills here:  Data Breach Protection US Congress (official list of bills and links)

Within the 700-page Housing and Economic Recovery Act of 2008 is an important new measure that requires “merchant acquiring entities” to report the gross amounts of their merchant customers’ payment card transactions to the IRS. A “merchant acquiring entity” is defined as the bank or other organization contractually obligated to make payment to merchants in settlement of payment card transactions. These new requirements apply to transactions beginning on January 1, 2011 (with required reporting and tax withholding to begin in 2012).

In order to identify under-reported sales, the IRS will collect information via third-party corroboration of the
amount of a merchant’s credit card, debit card, gift card (open loop only) and eCommerce (such as PayPal or Bill Me Later) transactions. The IRS also requires the reporting entity to collect and verify the tax identification number (TIN) and the information (legal name and address) associated with that number for its merchant customers. If a merchant fails to provide its TIN or if there is a discrepancy between the merchant’s TIN and the associated information in the reporting entity’s records and the IRS’ records, the reporting entity will be required to withhold 28 percent of the merchant‘s future payment card transactions until the issue is resolved.

This withholding provision goes into effect for transactions starting in 2012 (unlike the reporting provisions of the legislation which apply to transactions beginning on January 1, 2011).

Resulting Requirements for Reporting Entities and Merchants

- Reporting entities must collect and verify the TINs and associated legal names and addresses of their

merchant customers

- Beginning with the 2011 tax year, reporting entities are responsible for filing individual information returns (presumably a Form 1099) reporting the total annual dollar amount of payment card transactions for each of their merchant customers. In January 2012, reporting entities will file the information return with the IRS and distribute a corresponding statement for the 2011 tax year to each merchant.

- Beginning in 2012, reporting entities must withhold 28 percent of payment card transactions for any merchant whose TIN/name combination used by the reporting entity does not match the merchant’s information on file with the IRS.

Merchants

-  Merchants must ensure that their TIN/name combination on file with the IRS matches the information held by the reporting entity for their payment card transactions.

- When merchants receive copies of the information returns filed by their reporting entities each year, merchants should compare that information with their own records to validate the accuracy of the information.

EDITORS NOTE:  Institutions now usually require a W9 with any contractual paperwork for merchant services to ensure accuracy for IRS reporting requirements. The penalties are high for a mismatch and it is strongly recommended merchants review prior IRS filings for accuracy.

The Dodd-Frank Wall Street Reform and Consumer Protection Act, including the Durbin Amendment, set off a series of changes in the financial world, several with big impacts to businesses. This bulletin reduces hundreds of pages of regulations into a a two page overview. Included are critical excerpts from each regulation, advice, and real world solutions you can use to leverage legislation to your benefit. It answers the questions-  What do I need to know, and how can I use this to improve EBITDA and reduce risk?

This reference guide is targeted primarily towards the needs of businesses that match our current and future client base. Mid to large size retail and card not present business operations including manufacturers, distributers, non-profits, utilities, retailers, and non-grocery, non-fuel entities.

KEY TAKEAWAYS:
• Lower cost debit coming soon will create huge incentive for merchants to drive debit.
• Merchants may steer customers to lower cost payment methods by offering discounts and publicly stating their preference for payment types.
• Merchants may be held criminally liable for identity theft.
• Merchants need to make it easy for customers to opt-out of recurring billing.
• Merchants updating technology should consider the flexibility they’ll have for ongoing regulation changes.

Download PDF 3D Merchant Services Condensed Guide for Merchant Payments Related Legislative Updates 2010, 2011 and to 2012. An apology in advance, it was very difficult to fit and is best viewed on your screen.

Download secondary PDF about some of the solutions mentioned. 3D Merchant Payment Processing Technology to increase debit and other benefits.

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How can merchants use the US vs Visa and MasterCard settlement to lower  costs and improve EBITDA? Most believe the most critical element to any solution is knowing exactly what merchant fees are for cards presented. Thus while the settlement is a huge win for merchants, The Federal Reserve Bank of Boston concludes merchants do not likely have the information or capability to fully take advantage of the new rules. IN this article I’ll review how merchants can use our CenPOS technology to leverage the new rules, without needing  to decipher the interchange rate for every transaction in real time.

Note that American Express did not participate in the settlement, thus any suggestions do not apply for their brand.

This is an excellent article and I recommend reading it. Federal Reserve Bank of Boston Public Policy Discussion: An Economic Analysis of the 2010 Proposed Settlement between the Department of Justice and Credit Card Networks. Excerpts:

In 2010, the Department of Justice (DOJ) filed a lawsuit against the credit card networks American Express, MasterCard, and Visa for alleged antitrust violations. We evaluate the extent to which the recently proposed settlement between the DOJ and Visa and MasterCard is likely to achieve its central objective: “…to allow Merchants to attempt to influence the General Purpose [Credit] Card or Form of Payment Customers select by providing choices and information in a competitive market.” In word and spirit, the Proposed Settlement represents a significant step toward promoting competition in the credit card market. However, we find that merchants are unlikely to be able to take full advantage of the Proposed Settlement’s new freedoms because they currently lack comprehensible and complete information on the full and exact merchant discount fees for their customers’ credit cards.

The basic problem is that merchants currently lack sufficient information to disclose fees or differentiate their prices according to the method of payment. In theory, the Proposed Settlement would allow merchants to try to steer consumers toward lower-cost payment instruments by disclosing the fees merchants incur in accepting payment cards, and by offering enhanced discounts. In practice, however, merchants may not be able to use these privileges effectively because they may not know the exact merchant fee on each credit card until long after the transaction has taken place, and even then merchants typically learn only their aggregate monthly fees and not the specific fee for accepting a given card. Interchange fees—which account for the bulk of merchant fees—range from below 1 percent to over 3 percent. Merchants may be aware of this range, but they currently do not have all of the information they need to enable them to match an individual credit card presented by a consumer to the corresponding merchant fee for that card. Therefore, merchants would not be able to disclose the relevant card fees to their customers or to completely and accurately differentiate prices across payment instruments.

If merchants had the necessary information in real time (that is, at or before the time of the transaction) to facilitate the mapping of cards and fees, under the Proposed Settlement they could attempt to steer customers toward lower-cost payment methods. However, merchants would still be restricted in the mechanisms they could use to this end because the Proposed Settlement did not challenge the Visa and MasterCard rule that prohibits merchants from imposing surcharges that reflect the costs they incur in processing payments.

End excerpts.

The new rules, together with Dodd–Frank Wall Street Reform and Consumer Protection Act, empower merchants with new flexibility to manage costs. The industry response is that only the biggest of merchants can benefit from the settlement. But that’s not true. Our technology enables merchants to provide discounts right now.

Ideas to reduce payment processing costs based on new rules:

1. Check your merchant agreement schedule A. Does it state anywhere on the agreement “pass through interchange”. If not, your options to reduce fees may be limited.
2. Put up a sign for a minimum charge amount. (Minimum cannot apply to debit cards.)
3. Put up a sign informing customers of really basic information. For example,  you could put up a sign “Please help us keep costs low by using your debit or check card. For every $100 sale our costs average: Cash $0, Debit/ check card $.90, credit card $1.85, rewards card $2.50.”
4. Implement our CenPOS technology and offer discounts based on rules you set. For example, do you want to offer a percent or a flat amount? Do you want to offer the rule only if they use one card brand such as Visa? Only over a certain amount? Only on certain days? The options are endless and can be remotely managed in real time, completely removing cashiers from any part of the discount process.
5. Identify your average ticket and average cost per transaction. Test and measure different incentives to customers using CenPOS.
6. Implement CenPOS technology in a retail setting and steer customers to enter their pin number, reducing risk of chargebacks. The 2010 national average for pin debit penetration was less than 29%; CenPOS users averaged 74%.

Considerations for offering incentives of any type or payment steering.

• Do you know what percent of your transactions are debit right now?
• Do you know what percent of your transactions are any type of card right now?
• Do you know your average cost per transaction on debit? On other card types?
• Do you know if card type usage is cyclical by time of day, day of week, location of your facility, or how payment is accepted (retail, online etc)

CenPOS technology provides real time information about all of the above so you can manage how and what type of discounts to offer. Merchants can use integrated check and ACH services with CenPOS.

CENPOS SALES: Call the credit card processing hotline at the top of the page for direct merchant sales, ISO sales, and other 3rd party reseller sales.