Credit Card Laundering Violates the Telemarketing Sales Rule

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You are here: Home FTC Actions FTC Guides & Rules Credit Card Laundering

The Risk of Allowing Somebody to Charge Sales on Your Credit Card Merchant Account

Credit Card Laundering Violates the Telemarketing Sales Rule

If you have a credit card merchant account for your online business and are approached by a person or company that asks to make credit card sales using your merchant account, do not do it. Not only do you risk problems with your merchant bank because it is a breach of your merchant account agreement, but it could also be a violation of federal regulations 16 C.F.R. §§ 310.3(b) and (c).

Credit card laundering is the misuse of a "merchant account" with a financial institution. A merchant account is a kind of bank account used by a seller or telemarketer to gain access to a credit card collection and payment system and to obtain cash for goods and services sold. Credit card laundering violates the Federal Trade Commission's Rules, and is a criminal offense under federal law and some state laws.

Here's how the system works for companies that make legitimate use of the credit card system. To be able to accept payments from a consumer who wishes to charge the price of goods or services to his or her credit card, a seller or telemarketer must have a "merchant account" with a financial institution that is a member of a credit card system (such as Visa or MasterCard) that issued the consumer's credit card. When the consumer pays by credit card, the merchant generates a credit card sales draft, the seller deposits the draft into the seller's merchant account, and obtains the cash amount of the deposited draft. The financial institution sends the credit card sales draft through the particular credit card system, which posts a corresponding charge to the consumer's credit card account.

So how does credit card laundering work? Sellers and telemarketers who are unable to establish a merchant account with a financial institution sometimes employ the unlawful services of a launderer (also known, inaccurately, as a "factor"). A launderer provides access to a merchant account - and the whole credit card collection and payment system - without the authorization of the financial institution or the credit card system. Obtaining access to the credit card system through another's merchant account without the authorization of the financial institution is credit card laundering.

Except as expressly permitted by a credit card system, it is a violation of the Telemarketing Sales Rule for anyone:

	who has a merchant account to deposit into the credit card system any credit card sales draft generated by a telemarketing transaction that is not the result of a sale to the purchaser by the person who has the merchant account;
	to use or solicit someone who has a merchant account (or an employee, representative, or agent of someone who has a merchant account) to deposit into the credit card system any credit card sales draft generated by a telemarketing transaction that is not the result of a sale to the purchaser by the person who has the merchant account; or
	to obtain access to the credit card system through a business relationship or an affiliation with a merchant, when such access is not authorized under the terms of the merchant account or by the applicable credit card system.

The above article was reprinted from an announcement on the Federal Trade Commission web site. Check the FTC web site for changes to the article.

This page was last modified on July 22, 2007.

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