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#2077335 - 05/05/16 09:48 PM 3rd party payment processor
zozo Offline
Junior Member
Joined: Aug 2015
Posts: 27
Hi,
We may have a third-party payment processor (we never have one before). I am still in process of doing due diligence. I looked at FFIEC BSA manual for 3rd Party Payment Processor and have required information from the customer according to the manual such as merchant base, activities, volume, their underwriting/OFAC policy……. However, I still have some questions.
Hope any guru or any banker with third party payment processor experience can give me insight? Any opinion/suggestion/thoughts will be appreciated!!

1. I don’t have a complete merchant list yet, but I know this potential customer processes transactions for a pay day lender. Is there any additional things I need to pay attention besides due diligence for regular merchant? Any guidance I can look at (we don’t have pay day lender customer so this is kind of foreign to me too)?

2. How everybody monitor ACH return rate? Do you use special software, a system report or manually calculate? We called our core system (Fiserv Cleartouch) they told us they don’t have a one.

3. Does anyone require reserve balance, if yes, how much you require?

4. Any other things not listed on Manual but can help me to manage our bank’s risk?


Many thanks again in advance!

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#2077371 - 05/06/16 01:22 PM Re: 3rd party payment processor zozo
rlcarey Online
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rlcarey
Joined: Jul 2001
Posts: 83,227
Galveston, TX
1. Return rates will have to be monitored closely for unauthorized transactions being conducted by all merchants, including the pay-day lender. You need a list of merchants.

2. Manually.

3. That is a business decision.

4. If you aren't in the business of banking them, you better be whacking them for sufficient fees to cover all the extra expense involved.
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#2077408 - 05/06/16 03:23 PM Re: 3rd party payment processor rlcarey
zozo Offline
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Joined: Aug 2015
Posts: 27
hi rlcarey,
Thanks again for your useful and concise insight as usual! smile This helps a lot!

By any chance, do you know Is there a list or website I can search for pay day lender to see if they are in good standing ( like MSB, we can go online to check if they are registered) ? I am thinking once I have the name of the pay day lender, I want to do research online to see if they are doing anything unfair or deceptive to consumer or if they are under any lawsuit.

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#2077413 - 05/06/16 03:42 PM Re: 3rd party payment processor zozo
WonderWoman Offline
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WonderWoman
Joined: Mar 2007
Posts: 2,108
gone fishin'
zozo - we do a negative news search on our TPPP clients. If we see negative news (FTC, CFPB, high levels of complaints ... etc ...) we exit.

We haven't had good luck with TPPPs w/payday lenders as clients. Not saying there can't be a good one out there though - but you need to make sure all your ducks are in a row.

You'll also want to make sure you understand how your TPPP chooses who they will or will not do business with. With the unauthorized returns being .5% now - it's even more crucial to monitor that activity.

Also make sure they do not comingle funds & that each client has a unique ACH file number.
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#2077419 - 05/06/16 03:58 PM Re: 3rd party payment processor WonderWoman
zozo Offline
Junior Member
Joined: Aug 2015
Posts: 27
Hi WonderWoman,

Thanks a lot for your feedback!

I have a question:

When you said “make sure they do not commingle funds & that each client has a unique ACH file number.”
is that for monitoring return rate purpose? You also manually calculate return rate?

Thank you very much!

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#2077429 - 05/06/16 04:31 PM Re: 3rd party payment processor zozo
WonderWoman Offline
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WonderWoman
Joined: Mar 2007
Posts: 2,108
gone fishin'
Not only for monitoring return rate - but also - hypothetically - if you get a subpoena.

If it's comingled - it's a nightmare.

hypothetically.
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#2082169 - 06/07/16 02:52 PM Re: 3rd party payment processor zozo
Lindsay H Offline
Junior Member
Joined: Mar 2012
Posts: 35
Originally Posted By zozo
hi rlcarey,
Thanks again for your useful and concise insight as usual! smile This helps a lot!

By any chance, do you know Is there a list or website I can search for pay day lender to see if they are in good standing ( like MSB, we can go online to check if they are registered) ? I am thinking once I have the name of the pay day lender, I want to do research online to see if they are doing anything unfair or deceptive to consumer or if they are under any lawsuit.


To the best of my knowledge there isn't a central repository for payday lender registrations. Each state generally has different requirements regarding payday lenders with some not allowing them at all.

One thing I take into consideration when banking the TPPP is our BSA/AML Policy - for instance our Policy prohibits banking Payday lenders, based on that we wouldn't bank a TPPP that processes transactions for the prohibited business type.

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#2082503 - 06/08/16 06:48 PM Re: 3rd party payment processor zozo
Pat Patriot Act Offline
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Pat Patriot Act
Joined: Apr 2009
Posts: 450
The Exam manual alone won't really cut it in this instance.

If you're really looking to make sure your bank's approach is strong, compare your practices to the OCC's Merchant Processing Examination Handbook and the FDIC's FIL's re: TPPPs.

The old saying "Go hard or go home" applies here: either you don't bank them or you build the right infrastructure from the top down (including fees) to manage it properly and bank several processors or ISOs with numerous merchants.Otherwise, you're asking for trouble.
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