Demystifying Credit Card Processing Rules & Regulations
Published: November 30, 2023
Understanding and complying with credit card processing laws is not just an innovative business practice in an era dominated by card transactions but a non-negotiable obligation. We will expertly navigate this vast expanse of compliance requirements, exposing crucial components that businesses must understand to ensure uninterrupted operation in the dynamic world of credit card processing.
Payment Card Industry Data Security Standards
The PCI Security Standards Council (PCI-SSC), a non-governmental group created by major credit card companies, mandated the Payment Application Data Security Standard (PA-DSS) and Payment Card Industry Data Security Standard (PCI-DSS) for any business that accepts credit cards.
PA-DSS requires all point of sale (POS) equipment and terminals to fulfill the PCI-DSS requirements, which means if you have a POS system, your POS hardware will handle most of your PCI compliance.
However, the PCI-DSS is the most important rule to follow. Think of it as the compass guiding businesses through the overwhelming regulatory field. PCI-DSS is a comprehensive set of security controls designed to ensure that any company handling credit card information maintains secure systems and adheres to the industry's best practices.
To be PCI compliant, companies must abide by 12 different compliance regulations. They are as follows:
- Installing and maintaining a robust firewall configuration to protect payment card data
- Implementing unique passwords and other security measures to restrict access to cardholder data
- Safeguarding stored cardholder-sensitive data through encryption
- Regularly monitoring and testing networks to ensure security
- Developing and maintaining security systems and applications
- Updating antivirus software and malware protection regularly
- Creating an information security policy and keeping it up-to-date
- Limiting access to cardholder data to just those who require it
- Physical access to cardholder data, such as device access, should be restricted
- Requiring users to log in or authenticate before they may access certain parts of the system
- Tracking and monitoring access to network resources and cardholder data
- Encrypting the transmission of cardholder data across open, public networks. To stay in compliance, you need to keep track of how data flows and how many times it needs to be accessed
Remember, compliance with PCI-DSS is not a one-time effort; it's an ongoing process that helps prevent security breaches. Regular assessments and audits are essential to identify and address vulnerabilities promptly.
Navigating the PCI Compliance Levels
There are four tiers of PCI compliance based on your company's annual credit card payments, each with its validation requirements.
Businesses are divided into four categories depending on their credit card transaction volume over a period of 12 months, regardless of the channel used. Each level has compliance standards that ensure organizations are held accountable based on their risk profile.
- PCI Level 1: Any merchant with over 6 million transactions annually, regardless of their acceptance channel
- PCI Level 2: Any merchant with 1 to 6 million transactions annually, regardless of their acceptance channel
- PCI Level 3: Any merchant with 20,000 to 1 million Visa e-commerce transactions annually
- PCI Level 4: Any merchant with fewer than 20,000 Visa e-commerce transactions annually and all other merchants processing up to 1 million Visa transactions annually
Understanding your business's PCI compliance level is akin to knowing your company's specifications; it allows you to navigate the regulations more efficiently.
It’s important to know that if a payment processor thinks a merchant is "high risk" for any reason or if the merchant has a data breach that raises security worries about customer credit card data, the merchant account provider can choose to move the merchant to PCI-DSS level one.
What's the alternative to self-managing PCI-DSS compliance?
Business owners with little expertise or interest in cybersecurity think they can't accomplish all PCI standards, but the good news is that they have another choice for compliance. They can work with one of the best PCI-compliant credit card processing service providers, such as Stax, Square, and Stripe.
This usually comes with an extra price, which averages $100 annually. However, if you handle it yourself and are discovered non-compliant, many credit card processors may charge you a monthly PCI noncompliance fee.
Additional Credit Card Processing Regulations
The Payment Card Industry Security Standards Council is one of the most essential CCP regulators to be aware of; however, there are more rules and laws to know.
The credit card processing industry has witnessed a transformative change with the advent of Europay, Mastercard, and Visa (EMV) compliance standards. EMV chips in credit cards add an extra layer of protection against fraud by generating a unique code for each transaction. Businesses not adopting EMV technology may face increased liability for certain fraudulent transactions.
Address Verification Service (AVS)
Beyond securing cardholder data, businesses must also navigate through Address Verification Services (AVS) to enhance transaction security. AVS adds a layer of authentication to lower the risk of fraudulent transactions by comparing the billing address that the cardholder provides with the data on file with the card issuer.
Compliance with card brand rules
In addition to overarching industry standards, businesses must adhere to specific rules set by card brands such as Visa, Mastercard, American Express, and Discover. Each credit card company has its requirements, and non-compliance can result in fines, penalties, or even the termination of your ability to accept that brand's cards. Large and small businesses must follow these guidelines to transact with any signatory bank.
Mobile payments and compliance:
As mobile payments gain popularity, businesses must adapt their credit card processing systems to accommodate this shift. Mobile payment solutions, such as Apple Pay and Google Wallet, come with their own set of compliance considerations.
The Internal Revenue Service (IRS) mandate:
Because the IRS taxes business income, they want to keep track of all sales, not just those that come in cash or by check. To do this, the IRS made a rule called Section 6050W, also known as the "IRS mandate." This rule says merchant services providers must inform the IRS about their clients' annual gross transactions with a credit or debit card or a third-party network.
Businesses must give their provider their tax identification number to make filing easier. If you don't do this or the IRS informs the provider that your stated income differs from your actual income, the merchant services provider must take tax out of all your future credit card sales.
National Automated Clearinghouse Association
The National Automated Clearinghouse Association (NACHA) controls ACH transactions and the network that they utilize. Direct deposits and payments from bank and credit union accounts are examples of ACH transactions.
A new rule called the Nacha Supplementing Data Security Rule was enacted in June 2021. It says that companies that handle 2 million or more ACH transfers annually must secure payment information on their computers when it's not being sent to a bank. The new rule doesn't apply to businesses with less than 2 million ACH transfers yearly, but they should still follow it.
Some states have restrictions that govern how credit cards are processed in addition to federal ones. In several places, such as Connecticut, Massachusetts, and Puerto Rico, it is illegal to charge customers additional fees to cover all or part of the cost of processing their credit cards. According to California law, retailers cannot deceive customers by concealing price discrepancies for cash, credit cards, and debit cards or imposing extra charges at the register without informing them.
In the expansive and ever-evolving landscape of payment processing compliance, businesses must proactively understand, implement, and maintain the necessary standards. From PCI-DSS to EMV compliance, tokenization, and beyond, each component plays a crucial role in ensuring the security of transactions and protecting both businesses and consumers.
By embracing compliance as a fundamental aspect of your operations, you mitigate the risk of data breaches and fraud and contribute to a more secure and trustworthy payment ecosystem. Stay informed, stay vigilant, and confidently navigate the vast credit card processing compliance field. Your customers, your business, and the integrity of the entire payment industry will thank you for it.