Is there anything in Visa/MC rules that would prohibit us (financial institution)from telling our customers that they are not able to use the credit card we have issued them to pay for a loan with us.

There is...

VISA Operating Rules Refinance Existing Debt 5.1.C

A Merchant must not accept a Card to collect or refinance an existing debt unless either:
• The Transaction results from conversion of a Merchant's existing card program to the Visa or Visa Electron Program
• The Merchant is a government agency and the Transaction represents a loan payment. In this case, the Transaction amount must not equal the loan balance unless it is the final payment.


MasterCard Rule 5.11.5 Prohibited transactions

A Merchant must not submit a payment into interchange, and a Customer must not accept from a Merchant for submission into interchange, and Transaction that:

1. Represents the refinancing or transfer of an existing Cardholder obligation that is deemed to be uncollectable, or
2. Arises from the dishonor of a Cardholder's personal check, or
3. Arises from the acceptance of a Card at a terminal that dispenses scrip.

We are a Visa Issuer. Is this saying that we should NOT be accepting OUR credit card or any credit card?

Thanks

It is saying you should not be accepting any credit card.

VISA does offer a "Debt Repayment Program" in the U.S. region. It permits you to accept debit cards for loan payments. If you have an existing acquiring program for providing cash advance services, check with your processing vendor to see if they offer this service and what the costs would be.

Does that also mean we should not do a cash advance on a credit card for our customer to make their loan payment with us?

That is correct. A customer's overall credit situation is certainly not going to improve by paying a cash advance fee to the issuer, and likely an interest rate in excess of 20% to pay any type of bank loan (Hence the rule). If they have the credit line available and really want to shift debt around, they should use one of the balance transfer checks many credit cards provide.

Regardless of the card rules, it would be especially bad if it is your own credit card and they are paying on an secured loan. Bad practice as you most likely will never collect on the credit card if things go south.

Here's a scenario at our bank--A loan customer gets her monthly social security benefits loaded on a card. One of our branch offices has agreed to do an "advance" (no fee) from this card for the amount of her payment and apply it to her loan each month. Does the rule apply in this case? Is this transaction allowable? thanks for any help.

It's not a credit card. You may be able to do the transaction if it's a Visa debit card and you subscribe to Visa's debt repayment program (see Brian Crowe's post above). I don't know if MasterCard has a similar provision.

Thanks, John. It is a MasterCard.

Anon, since it's a debit card, you are simply helping the cardholder get the funds off the card instead of sending them to the ATM to pay a surcharge. This transaction is fine.

Thanks Brian. That's good to hear.

Until coming across this, I have never thought about this is being an issue, but it makes perfect sense. We currently accept payments over the phone or in person via a cash advance from cards, and I don't believe anyone questions if it's a debit or credit card, so I know we have violated this.

Quoting the above operating rules to management has them under the impression that it really only pertains to "uncollectable debt" and not normal business operations. This is likely because they don't want to acknowledge a problem or have to change what they consider a good and convenient option (since we don't do check by phone or anything else, this is the only option to take a payment over the phone short of setting up an ACH origination).

It seems very clear to me in the VISA verbiage that it applies to any debt, not just uncollectable debt, but I have the following from the massive 1318 page Visa Internation Operating Regulations document dated 10/18/2011 that seems to contradict itself.

General Prohibitions
Refinance Existing Debt 5.1.C
A Merchant must not accept a Card to collect or refinance an existing debt unless either:
• The Transaction results from conversion of a Merchant's existing card program to the Visa or Visa
Electron Program
• The Merchant is a government agency and the Transaction represents a loan payment. In this
case, the Transaction amount must not equal the loan balance unless it is the final payment.

At the option of a Visa Region, a Merchant may accept a Visa Card or Visa Electron Card as payment for an existing debt, provided the debt is not considered uncollectible (e.g., payments to a collection agency or an attempt to recover funds for a dishonored check).

I suppose it's necessary to define "Visa Region" to know if the bolded statement applies. Any thoughts?

Then, on a later page (483)

Refinancing of Existing Debt - U.S. Region 5.2.F
A U.S. Merchant must not accept a Card to collect or refinance an existing debt that has been
deemed uncollectible by the Merchant providing the associated goods or services.
A U.S. Merchant must not accept a Visa Consumer Credit Card or Commercial Visa Product, issued by a U.S. Issuer, to collect or refinance an existing debt.

So, how do I explain that this applies to any loan payment made via credit card aside from saying that the person who said it was ok several years ago and has since retired does not count as proof that we can continue to do this when there seems to be a debate that Visa's own guidance is unclear?

For VISA, this was effective October 4, 2008. Maybe the practice was set up before that time and the rules changed without anyone realizing?

I'm pretty sure that's the case, yes. I don't think the English can be much more clear, particularly on the 5.2.F section.

What if you are a debt collection agency? Are you able to accept credit card payments on accounts where you are engaged in third party collections?

Not sure how that would get around this rule:

A U.S. Merchant must not accept a Visa Consumer Credit Card or Commercial Visa Product, issued by a U.S. Issuer, to collect or refinance an existing debt.

You won't find a Visa Merchant Category Code for one if that is any indication. There is a Debt Repayment Program that is outlined starting on page 646 of the current Visa Operating Regulations, but the transactions are limited to Consumer Debit cards and Business check cards and to merchants who are properly assigned Merchant Category Code (MCC) 6012, "Financial Institutions - Merchandise
and Services," or MCC 6051, "Non-Financial Institutions - Foreign Currency, Money Orders (not
Wire Transfer), Travelers Cheques"

I have a question about using a credit card to pay overdrafts. Does that make a difference....not sure an overdraft really classifies as a loan payment.
Thoughts.

"Existing debt".

An overdraft is basically an unsecured loan...

And we are commenting on a thread that has been dead for 27 months???

HA! I swear I thought it was in the "active topics" list I was looking at... now I'm worried about my health.

GM, you are in compliance. Temporary setbacks are allowed based on usual stress conditions.

OMG! We've been doing this for years!! We have a couple borrowers who make their monthly loan payments over the phone charged to their VISA or MC (issued by a different bank.) I believe it we process it as a cash advance.

Thank goodness for accidently bringing this thread back to life! So just to be clear - can we take loan payments over the phone from borrowers using their debit card, just not a credit card?