Credit Cards: Our Moral Guardians

When it comes to arbiters of morality and integrity, we look toward the Ten Commandments, our parents and -- in a strange and largely unnoticed new trend -- the corporate behemoths that issue our credit cards.

American Express, MasterCard, Visa and Discover as enforcers of community standards, individual decency and commercial honor? Really? Really.

In recent years and rarely at their pleasure, credit card companies and the banks that issue credit cards have found themselves bridging the legal voids left by regulatory agencies and politicians. Amid pressure from customers, consumer advocates and others who have no place left to turn, credit card firms have felt compelled to cut off the financial lifeblood of those working in the margins of respectable commerce.

Online gambling firms. Web-based gun merchants. Purveyors of legal marijuana for medical or even recreational use. Leakers of secret and sensitive government documents. And, most recently, the operators of shadowy websites that charge people to remove online mug shots.

All have had to curtail or even terminate their activities when credit card issuers and banks stopped processing what some people consider morally questionable financial transactions.

"These topics have definitely been of interest as of late," said Sanette Chao, a spokeswoman for American Express.

Only game in town

The credit card companies are so large, so crucial to modern enterprise, that they should not be permitted to act as an arbiter of moral right and wrong, said one representative of a cut-off client.

"In an online environment, credit cards are one of the only ways of paying," said Joe Centrich, a Texas lawyer who represents two mug shot websites that have come under fire from people whose images appeared on the sites -- and have been cut off by the credit card companies. "You take away the ability to process credit cards from a business and that business has a very short life span."

Others welcome the intrusion.

"When the credit card companies become aware that there is an identifiable large-scale extortion ring operating through its systems ... they should act to curb it," said Scott Ciolek, an Ohio lawyer who won a settlement on behalf of people who had trouble getting their mug shots removed from the websites represented by Centrich. "Otherwise, these companies all become knowing accomplices.

"When it comes to noncriminal uses like the purchasing of firearms, legal marijuana and gambling, the credit card companies have the right to deny usage, but not an obligation as they would in the case of illegal activity," Ciolek said. "But, moreover, those companies have to consider the effect of their involvement and determine if it's something they wish to involve their business, employees, stockholders and families in."

These decisions are difficult for credit card firms, and they are fraught with complications regarding the loss of revenue, the potential for legal action, the risk of becoming embroiled in political controversies, and the possibility of angering large numbers of customers.

Credit card companies say they carefully weigh their responsibilities when these issues are brought to their attention. Among the factors they must consider: the legal standing of the business. How widespread and damaging the reported abuses might be. The potential legal liability to the card issuer of acting -- or not acting. The point at which a credit card issuer's right to decide who and who not to do business with might cross the line into discrimination.

In general, though, the card companies prefer not to discuss the specific rationales for each decision or, in many cases, even their general philosophies regarding the trend.

"We cannot get into the details of our decision process," said Chao, the American Express spokeswoman. "Our decision to prohibit or allow the use of American Express cards for various industries is purely a business decision or, in the case of marijuana transactions, guided by federal law."

MasterCard spokesman Jim Issokson said the card issuer's guidelines are clearly stated and "require our customers to conduct lawful activity where they are licensed to use our brands," he said.

Matt Towson, a spokesman for Discover, said, "Unfortunately, I am unable to muse on the current environment." Representatives of Visa did not respond to several requests for comment.

Legally, card companies appear to be covered. The user agreements they craft for credit card holders, authorized users, merchants and payment processors give the card issuers and their affiliated banks the right to restrict and define the use of the cards.

Consumer advocates say they're glad to have the help, but they doubt that the card companies are acting altruistically.

"I don't believe these decisions are strictly being made on moral grounds," said David Jones, president of the Association of Independent Credit Counseling Agencies. "These banks are very interested in their bottom lines, their image with customers, and their insulation from lawsuits, especially class-action lawsuits.

"In the current hyperlitigious, class-sensitive environment, everyone is afraid to take a stand on anything," Jones said. "After all, these banks are profit-making businesses, striving to please their stockholders and fend off the regulators. In my opinion, that is the motivation, despite the appearance of moral sensitivity."

Whatever the motivation, the number and type of incidents involving the severing of credit card and debit card relationships continues to grow.

Mug shot removal services: In one of the most recent cases involving card issuers and matters of commercial morality, MasterCard, Visa, American Express and Discover now are refusing to process payments to firms that remove -- or claim to remove -- arrest photos published on a proliferating number of "mug shot" websites.

Scores of such sites now regularly search law enforcement websites and download and publish mug shots of people recently arrested -- but, importantly, not yet convicted or exonerated. Then the sites wait for the inevitable reaction.

Thousands of people are shocked and alarmed to find the provocative and reputation-damaging shots easily within view of relatives, friends and current or potential employers. What to do? Often the answer is to pay hundreds or even thousands of dollars to operations that offer to have the mug shots removed. Some of those operations appear closely related to the websites that publish the photos in the first place.

Many observers consider this as something akin to extortion, and the credit card companies -- along with PayPal, where accounts often are funded by credit cards -- recently decided to decline doing business with most mug shot removal operations.

"For mug shot removal sites, when those sites are brought to our attention, we conduct a detailed review and cancel as appropriate," said American Express' Chao.

"We do not accept transactions for mug shot removal services," said Discover's Towson.

Ciolek, the attorney for aggrieved people whose arrest photos are now on very public display, approved. "By severing connections with the mug shot firms, the credit card companies and affiliated banks eliminate the motivation to move forward with the enterprise and, over time, the hardship will bring the for-profit mug shot companies to an end," he said.

Centrich, the attorney for two mug shot websites, sees it differently. "It's really quite disappointing to me," he said. "There are only a few of these financial institutions -- it's really an oligarchy -- and they've decided they just don't like this kind of business."

Legalized marijuana: Though the sale and use of marijuana for medicinal purposes is rapidly being approved around the nation -- and Colorado and the state of Washington have legalized pot for recreational use -- most credit card companies still refuse to process transactions regarding pot.

They say the legal environment remains too blurry, and they fear violating federal banking and drug laws that remain in effect.

"American Express continues to prohibit the use of the card for marijuana sales," Chao said. "It is our policy to adhere to federal law in such matters."

MasterCard's Issokson said the issue already is complex and seems to be getting more so. "When it comes to the marijuana issue, we're facing a situation where there's an inconsistency between federal and state laws," he said. "As such, we're now seeking guidance from the federal government.

"In this instance, the federal government considers marijuana sales illegal, but is currently not challenging state laws that legalize marijuana sales," Issokson said. "Given the complexity of this situation, we will continue to seek guidance and inform merchant acquirers of any new developments."

Visa, on the other hand, seems to be softening its stance, saying it will defer to the rules and wishes of each bank or other entity that issues its cards. "In offering our payment service, Visa adheres to the rule of law and seeks to prevent our network from being used for unlawful purposes," the company recently told The Denver Post.

"In this instance, the federal government considers the sale of marijuana illegal, but has announced that it will not challenge state laws that legalize and regulate marijuana sales," the company told the newspaper. "Given the federal government's position and recognizing this is an evolving legal matter with different standards applicable in different states, our local merchant acquirers -- banks -- are best suited to make any determination about potential illegality."

So, for now, most legal purveyors of pot still must deal in cash, which carries other risks.

"For many businesses, this means storing hundreds of thousands of dollars in personal safes, carrying sacks full of hundreds to the state Department of Revenue in order to pay taxes, and looking for unusual sources of startup revenue," the Marijuana Policy Project, a Washington, D.C.-based group that lobbies on behalf of reforming marijuana laws, said in a statement. "For some businesses, the added burdens have forced them to close shop."

Online gun sales:

A key element of the credit card industry recently began refusing to process online transactions involving legal gun sales. Authorize.net, owned by Visa, last September severed its relationship with the nation's largest online gun purveyor -- the Hyatt Gun Shop of Charlotte, N.C. Authorize.net told Hyatt officials that their operation violated its "acceptable use guidelines." Other online gun retailers also were cut off.

Authorize.net is one of the nation's leading "payment gateways," operations that securely link online merchants to credit card issuers. The gateway's acceptable use guidelines prohibit, among others, transactions involving any product or service that is unlawful, anything obscene or pornographic, and anything associated with illegal gambling operations, illicit drugs and "the sale of firearms."

Representatives of Authorize.net and Visa have declined to comment specifically on the decision to terminate operations between Authorize.net and online gun shops, though they note that Visa itself will still handle payments for such transactions -- if they come through a different payment gateway. And there is no problem using credit cards for legal purchases at brick-and-mortar gun shops.

Still, the development has infuriated online gun merchants and their customers, some of whom have organized a boycott of any business that displays an Authorize.net logo.

Online gambling: Under federal law, credit card companies now are prohibited from processing transactions connected to online gambling, including those related to the immensely popular online poker operations.

The federal Unlawful Internet Gambling Enforcement Act of 2006 required card networks and banks to navigate a swamp of conflicting definitions and rules if they wanted to do business with U.S. online gambling sites. Most decided, the heck with it -- we're just going to cut off the gambling sites.

The law took full effect in 2009, and it had an unintended and, for some Americans, financially disastrous effect. It pushed many online gamblers into using offshore gambling sites, which soon were accused of defrauding unprotected U.S. gamblers out of hundreds of millions of dollars.

Now, members of Congress and state lawmakers are working -- sometimes at cross purposes -- to make sense of a chaotic knot of online gambling rules from federal and state laws and regulatory agencies. Some measures would continue the ban on credit card use, though others would authorize online gambling credit card transactions -- under tightly controlled circumstances.

"It is far better for the players' financial fate if the safety and security of Internet gaming transactions are in the hands of the U.S. banking system and the responsible and regulated American gaming corporations," John Pappas, executive director of the Poker Players Alliance, which claims more than 1 million members, told a congressional committee last month. "If anything, a prohibition would make the likelihood of money laundering or other fraudulent activity far greater because it would be forced underground without any oversight or control."

WikiLeaks: The operation that takes pride is publishing secret documents leaked from various governments and other entities around the world, WikiLeaks was largely crippled in 2010 and 2011 when MasterCard, Visa and American Express stopped processing donations.

The card companies said WikiLeaks, which does its work in the service of what it calls "transparency," was engaging in illegal activity and they would have no part of it. "MasterCard rules prohibit customers from directly or indirectly engaging in or facilitating any action that is illegal," spokesman Chris Monteiro told CNET at the time.

WikiLeaks and its supporters intermittently found ways around the ban, and the operation's website now provides an online donation form that encourages credit card donations, though with a touch of mystery.

"Since late 2010, credit card donations to us have been blocked by Visa and MasterCard, in an effort to suppress our public interest publishing activities," WikiLeaks says in a statement concerning "the banking blockade against us."

"The blockade is still in effect, but as of summer 2012, there are ways around it ... ," WikiLeaks says. "We have won several victories against the banks in the courts, and we will continue to fight the banking blockade."

How will this all play out? No one seems to know, though American Express and presumably other credit card companies believe their first responsibility is to the customers who use their cards.

"High-risk industries account for high levels of card member credit losses and customer service disputes," said Chao, the American Express spokeswoman. "Prohibited card acceptances for various industries are designed to protect our card members by limiting fraud and unfair practices, among other things."