n your childhood, if your dad had said that your household was run by a set of rules, and the only way to learn them was to break them and then get whacked, you probably would have questioned his sanity. Welcome to the ISO world.

But as ISOs, you don't have to tread alone in the murky waters of card Association rules; you can go beyond criticizing them and enlist the aid of your sponsoring banks in complying with them.

Audit yourself

Rather than wait for that dreaded moment when your residuals are turned off because you have violated a card Association rule, be proactive. Do an internal audit at least once or twice a year to ensure that your organization and all agents within it are working in compliance with the rules.

This audit should take only a couple of hours and run the gamut of rule issues including logo and name use, handling of merchant information, distribution of marketing materials, and techniques and representations made by agents to merchants or prospective merchants.

The first step in an internal rule compliance audit is to know the rules. Many sponsoring banks will give ISOs summaries of the key rules. However, sponsors can do much more to assist with compliance.

Have sponsors interpret rules

If you take one thing away from this column, I want it to be the idea that ISOs should implicate their sponsoring banks or processors in rule compliance efforts.

If you are unsure about a rule, send a question about it to your sponsoring institution, and get an answer in writing. Keep the correspondence on file. Sponsoring banks have a duty to inform ISOs about the content and interpretation of the rules.

Something as simple, yet important, as ISO business cards and letterhead should always be sent to the sponsoring institution for written approval. When in doubt, ask in writing, and get a written response. The writing can be by e-mail, as long as you have a record of the direction your sponsoring organization gave you on the point of confusion.

The same principle applies to agent/ISO relationships. Agents are often new to the business and have the most to learn about the rules and other marketplace customs. Agents should expect ISOs to deliver written interpretations on points of confusion in their agent agreements.

Audit agent compliance

Many ISOs know the most important rules (for example, the requirement to sell under the correct name). However, not all ISOs make certain that their agents on the street actually are using the correct name. I am not an expert in agent management, but most readers of this publication, whether they are agents or ISOs, know how to supervise agent performance and give direction.

As many readers know, there's a huge distance in mind and body between the boardroom, where ISO deals are signed, and the pavement, where agents knock on doors and close new merchant accounts. The goal of ISOs and agents is to bridge that gap and render the agent a well-informed and fully compliant participant in the business. A strong monthly deal-count means nothing if it explodes because of unchecked rule violations.

I have seen millions of dollars of annual residual income put on the line because the wrong logos, t-shirts and so forth were used.

Beware of abuse

Some unscrupulous processors make threats regarding purported rule violations to ISOs or agents where no actual violations exist.

In this industry, fear of rule violations is second only to fear of the Almighty, and this is exploited by less-than-fair processors. For example, a processor may notice a genuine rule violation by an ISO of which the sponsoring bank is not aware. Then, the processor may coerce the ISO into signing a new long-term and onerous deal in consideration for not informing the sponsoring bank. These kinds of things happen far too often.

If you suspect that an ISO, processor or sponsoring bank you deal with is abusing a rule, get informed so that you fully understand the rule and violation in question. Then find a negotiated settlement that will protect your business and not damage the abuser's reputation (even though it probably deserves some damage).

Get on with business

When we are done kicking and screaming about how unfair it is to be governed by secret rules that have no apparent or fair judicial administration, we have to get on with business. Given the absurdity of the current rule regime, it's especially important to be hungry for knowledge about the rules; sponsoring banks should step up to the plate and educate ISOs with gusto.

With a good knowledge of the rules, every organization in this business should audit itself and its agents to make sure that violations are caught internally, before it's too late.

Learn what you can, then do what you can to comply.

In publishing The Green Sheet, neither the author nor the publisher is engaged in rendering legal, accounting or other professional services. If you require legal advice or other expert assistance, seek the services of a competent professional. For further information on this article, e-mail Adam Atlas, Attorney at Law at atlas@adamatlas.com or call him at 514-842-0886.