adult merchant underwriting

Adult Merchant Underwriting Guidelines

In the merchant account industry, the payment service providers and merchant acquirers are required to follow the procedures established by Visa and MasterCard’s payment card association to complete the proper adult merchant underwriting process while higher risk payment processors and acquiring banks have additional guidelines and requirements to follow when considering an adult merchant account application. Many of these higher risk payment processors and acquiring banks also have their own internal guidelines and protocols in place that they follow in addition to the payment card association guidelines to determine the risk of a prospective business apply for adult merchant services.

Who enforces the adult merchant underwriting guidelines?

The payment card association of Visa and MasterCard has established strict rules and regulations for the members of their payment card network to follow, whether they are underwriting new merchants or are the merchants themselves. These guidelines help insure that the products or services being offered along with the other practices of the merchant members of the network fully abide by all local and federal laws and assist in the maintenance of the card brand reputation.

Underwriters from the various payment service providers, acquirers and other payment facilitating organizations are required to verify that the guidelines set forth in their payment card network agreements are maintained by merchants and prospective merchants before being admitted to the network. Failure to maintain compliance with these guidelines can jeopardize both the merchant’s and the merchant acquirer’s relationship with the card association; resulting in warnings, fines or the possible loss of their card network relationship.

What are the adult merchant underwriting guidelines?

Adult businesses operate in an environment that can open themselves up to many potential legalities or other problems that more conventional businesses do not normally face. This has lead the card brands that are part of the payment card association to create their strict guidelines and provide underwriters and payment service providers with updated information about their concerns and potential problems they may face when reviewing new or auditing existing merchant accounts.

To keep payment services providers updated and informed with the card association guidelines, each member of the payment card association has created their own acquirers program; Visa named their program the Global Brand Protection Program (GBPP) and MasterCard refers to their program as the Business Risk Assessment and Mitigation (BRAM).  Both companies regularly review and update their programs to reflect the changes and concerns that they want to inform acquirers and merchants to.

Though each program has different guidelines and regulations to follow,  higher risk industries share most of the terms and conditions, including the requirements of adult merchants accepting credit cards.  A few of the most important conditions that both companies require are:

  • 2257 Compliance
  • No Child Exploitation
  • No Offensive Adult Pornography
  • Certified Web Scan Completion
  • Members Area/Password Protected
  • Proper MCC Coding

One of the most important requirements of online adult merchants is the 2257 Compliance required by federal law, meaning that whether they produce content or publish content, they have to know that the material being used is within the guidelines of the law. Producers, both the creators of the content and the organizations that publish content, print and/or electronically, must maintain specific records that can be produced upon request by the FBI during unannounced visits, failure to maintain these records or any violations will lead to strict punishments.

Another important audit done by payment service providers checks that the content on the merchant’s website do not portray, reference or otherwise imply any type of offensive pornography, including images or speech from the webmasters or users alike. Using companies such as G2 to run onsite and offsite scans to check for any violations or questionable content is a common practice of underwriters prior to accepting a merchant and periodically during the merchant services agreement.

During the adult merchant underwriting process, the acquirers check that the content published by the merchant is legal and compliant with federal compliance guidelines and are also confirming that the website is not accessible by non paying web browsers. To maintain the security of an adult website and to prevent any potential legal ramifications, it is important for webmasters to install a members area that prevents adult material from being viewed by users that might be underage in the jurisdiction.

One of the final rules that the payment card association enforces is the use of the correct MCC (merchant category code) for the adult businesses. Content providers, publishers and other publications are generally placed in MCC 5967, requiring USA acquirers to charge merchants an annual registration fee for being an adult business.  Adult video stores and similar type businesses are generally placed in MCC 7841 whose merchants are not necessarily required to register with the card association and pay the annual fee.  This is the reason why MCC enforcement confirms that all merchants are properly coded to their correct industry to prevent any problems with the card association or other legal consequences that might be affecting the industry in its entirety.

Why are the adult merchant underwriting guidelines so strict?

The payment card association realizes that the adult industry generates a substantial amount of revenue for the themselves and the banks they partner with, but there are also large risks that come with allowing these merchants to access their payment card network. As an industry that operates in an area that attracts a significant amount of attention, and many times the attention is negative, has the potential for legal problems that can loom overhead.

Insuring that merchants are in compliance with 18 U.S.C. §2257 can help protect the merchant services companies, merchant acquirers and card brands from any potential legal problems that might arise from a violation on the business side.  Merchants can face enormous fines and up to 5 years in jail for their first violation, while companies or individuals that may not be publishing material but are otherwise benefiting from the sales of content can also potentially face large fines and up to a year a prison for a violation of 2257.

How do acquirers keep merchants compliant?

Upon approval with the payment services provider or acquirer, merchants of MCC 5967 are registered as an adult provider with MasterCard of the payment card association. The annual fee for registration in the USA is $500, charged to the merchant by the acquirer informs MasterCard that the acquirer has verified the merchant’s compliance and that the merchant remain in compliance during their tenure as an adult content publisher.

Another way that the acquirer and payment service providers check on merchants in MCC 5967 is by running site wide scans of their content along with offsite scans to verify that no violations or potential violations have occurred since the last yearly review. Protecting both the merchants and acquirers helps keep the adult industry compliant with federal laws and helps fuel its exponential online payments growth year over year.

Where do you start your adult merchant underwriting process?

Merchants operating an adult business that feel they should become compliant with the payment card association guidelines or are processing outside the USA and want to change to a domestic bank are encouraged to speak to one of our adult merchant account professionals. Our team at Adult Merchant Services will be happy to answer any questions or clear up any uncertainties about your company and help direct you to the best solution for your adult credit card processing and adult merchant account needs.