This Guide provides an overview of legal issues relating to credit and debit card (referred to generically as “payment cards”) issuance, acceptance and processing, including both regulatory concerns and common issues in commercial negotiations. In this Introduction, we describe a standard payment card purchase transaction flow, identify the key players in a payment card transaction, and discuss the commercial relationships between them.
What Is a Payment Card?
Regulation Z (12 C.F.R. § 1026.2(a)(15)(i)) defines a “credit card” as “any card, plate, or other single credit device that may be used from time to time to obtain credit.” A credit card is a payment device that facilitates access to credit as its primary function. Other types of payment cards, such as debit cards, may incidentally access credit in the form of overdraft protection, but do not constitute credit cards.
Regulation II defines a “debit card” as “any card, or other payment code or device, issued or approved for use through a payment card network to debit an account, regardless of whether authorization is based on signature, personal identification number (PIN), or other means, and regardless of whether the issuer holds the account.” 12 C.F.R. § 235.2(f). An “account” in the context of Regulation II is defined as a “transaction, savings, or other asset account,” and excludes an account held under a bona fide trust agreement or an incidental credit balance in a credit plan. 12 C.F.R. 235.2(a). General-use prepaid cards constitute debit cards, but closed-loop prepaid cards (i.e., prepaid cards redeemable only at a single merchant or group of merchants) do not. 12 C.F.R. 235.2(f).
Who’s Who in a Payment Card Transaction
In every payment card transaction there are numerous players, most of whom are invisible to a consumer during a payment card purchase. These parties include:
- Cardholder—the individual or entity to whom a payment card is issued and who is responsible for paying the card account.
- Merchant—the entity that accepts payment cards as payment for goods or services, or for charitable donations.
- Acquiring Bank (Acquirer)—an entity that is a participant in a Card Network and that has been authorized by the Card Network to offer Merchants the ability to accept payment cards that run over that Card Network.
- Issuing Bank (Issuer)—the bank that issues the payment card to the Cardholder.
- Card Network—an entity that operates a system that facilitates authorization, clearing, and settlement of payment card transactions among multiple participants. VISA and MasterCard are examples of Card Networks.
- Processor—a third party company that provides technical connectivity between Merchants and Acquirers, Acquirers and Card Networks, or Issuers and Card Networks to facilitate authorization, clearing, or settlement of payment card transactions.
- Independent Sales Organization (ISO)—a subcontractor of an Acquirer that markets payment card acceptance and/or processing services.
In between the time the Cardholder’s payment card is accepted by the Merchant and the sale is complete, a complex series of transactions occur, requiring the transmission of highly sensitive data over thousands of miles in a matter of seconds. This Introduction, and the remainder of this Practice Guide explore the payment card transaction in more detail and describe various statutory and regulatory concerns for the entities operating within the transaction flow.
- Card Networks
- Merchants and Card Acceptance – The Cost of Card Acceptance
- Surcharging, Discounting and Steering
- The Role of the Merchant Acquirer
- Processors and Their Customers
- Regulatory Issues in Bank Payment Card Contracts
- Unauthorized Transactions and Errors
- Privacy Matters
- Regulation II – Debit Card Interchange Transaction Fees and Secondary Network Requirements
- Consumer Disclosures
- Payroll Cards
About the authors
Lauren P. Giles is a partner at Alston & Bird LLP, where she is a member of the Financial Services and Products practice and a member of the Firm’s Payment Systems team. Ms. Giles has particular expertise in emerging payments matters, including person-to-person payment systems and virtual currency and blockchain matters. Ms. Giles graduated from New York University Law School in 2008 and joined Alston & Bird in 2012.
Samuel D. Boro is an associate at Alston & Bird LLP, where he is a member of the Financial Services and Products practice and a member of the Firm’s Payment Systems team. He is a 2014 graduate of American University Washington College of Law and joined Alston & Bird in 2016.