Home > Credit Cards > When Credit Card Networks Say No to Merchants

Comments 0 Comments

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

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Certain credit cards and other financial products mentioned in this and other articles on Credit.com News & Advice may also be offered through Credit.com product pages, and Credit.com will be compensated if our users apply for and ultimately sign up for any of these cards or products. However, this relationship does not result in any preferential editorial treatment.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Our Owners

Credit.com is owned by Progrexion Holdings Inc. which is the owner and administrator of a number of business related to credit and credit repair, including CreditRepair.com, and eFolks. In addition, Progrexion also provides services to Lexington Law Firm as a third party provider. Despite being owned by Progrexion, it is not the role of the Credit.com editorial team to advocate the use of the company’s other services. In articles, reporters may mention credit repair as an option, for example, but we’ll also be sure to note the various alternatives to that service. Furthermore, you may see ads for credit repair services on Credit.com, but the editorial team isn’t responsible for the creation or implementation of those ads, anymore than reporters for the New York Times or Washington Post are responsible for the ads on their sites.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team