Understanding the Credit Underwriting Guidelines

Understanding the Credit Underwriting Guidelines This document is designed to help you understand our credit underwriting guidelines so that you can effectively sign merchants and reduce pended applications. Please note that we reserve the right to ask for additional information or documentation besides what is discussed in this document if it is necessary to make the underwriting decision. Why Do We Need Underwriting Guidelines? The policies in this document cover products and programs of our merchant processing business. These policies do not cover common carrier airline, cruise ship merchant and certain tour operators processing relationships. We provide Visa and MasterCard processing and related services to qualified merchants throughout the United States. As a merchant processor, we accept charge records for goods or services purchased from the merchant. We collect funds from the bank that issued the credit card account on which the charge was purchased. We also process credit card refunds made through the merchant s distribution network and chargebacks initiated by the cardholder through the cardholder s issuing bank. As the merchant s processor, we are also responsible for providing our merchants with an authorization system. In return for the charge processing services, we deduct a discount equal to an agreed upon percent of net sales from the funds paid to the merchant. The discount rate is negotiated in a highly competitive market place on the basis of the merchant s volume projections and the composition of charges processed. Electronically submitted charges are charged a lower discount fee than paper-based transactions. The Application Package The Application Package generally consists of: Document Required When? Additional Information 1. Checklist When applicable to the sales channel Some sales channels use a standardized checklist to ensure that everything got included in the application package. 2. Merchant Application For every merchant signed We must have a signed application reflecting current ownership and documentation of that ownership on file for every merchant. Hard copy of application package must be received by New Accounts before application can be processed. 3. Application Worksheet For every merchant signed Merchant does not receive a copy of the worksheet. 4. Underwriting Notes Not required but strongly suggested, especially when the merchant account has extenuating circumstances that may not be apparent or clear in the application package 5. Voided Check for the account where the merchant s funds will be deposited 6. Proof of business existence For every merchant signed For all merchant applications Underwriting notes can be added in the Special Instructions section of the Worksheet or a separate document can be attached if more space is necessary. Include any additional information or explanation that will help the underwriter to better understand the situation. This information is read thoroughly by the underwriter. Underwriting notes can sometimes mean the difference between an approved application and a pended or declined application when the information clarifies a situation for the underwriter or gives important additional information. Can be an imprinted business check, starter check, a bank letter signed by a bank employee, or a printout from the bank s computer showing the DDA and routing/transit number. The business name and address on the merchant agreement and the voided check shall be the same. If the name or address on the voided check is not the same as on the merchant agreement, a suitable and verifiable explanation must be provided. Savings accounts are not acceptable. A sole proprietor can use a personal checking account. See Decision Factor #1 for more information on how to provide proof of business existence. 1

Document Required When? Additional Information 7. Processing statements 8. Applicable Value-Added Services Paperwork 9. Applicable financial statements Currently processing and MO/TO or Internet If merchant is enrolling in a value-added program If the owner is not personally guaranteeing the account or if personal credit is not strong enough to support requested volume or if required by the credit policy for the situation. Should be most recent consecutive 3 months of statements for MO/TO or Internet Examples: SCAN, Ladco lease or rental, etc. See Decision Factor #4 for more information about requirements for financial statements. Decision Factors Our underwriters have the difficult task of balancing our desire for growth with its desire to protect itself from risk. The underwriters depend on the sales force to provide in the application package the information they need to make good decisions on behalf of the company. When making their underwriting decisions, some of the data our underwriters look for are: 1. Does the business actually exist? Applications sometimes come to us from merchants who are actually not operating real places of business that sell products to consumers these businesses exist for the sole purpose of stealing money through credit card fraud. We must be certain that each approved application represents a legitimate, operating business. Input from the sales representative is vital to this verification process since the sales person is the front-line contact between the merchant and us. Criteria for proof of existence is met with one of the following: Onsite inspections by a Nova Information Systems staff 3 rd party site inspections 3 months of current processing statements photos of the business site yellow page advertisement business license 3 rd party prepared financials internet website registered to merchant or 12 months of checking account history 2.In what environment does the merchant conduct business? The environment in which a merchant accepts credit cards affects the fraud risk that the merchant presents to us. If a merchant operates in a trade show or kiosk environment then a copy of the lease agreement or brochure from the trade show must be provided. For example, a retail merchant who accepts credit cards face-to-face can swipe the card, get a signature, and compare the signature to the one on the card. A mail order/telephone order merchant, on the other hand, cannot swipe the card or obtain and compare signatures. The retail merchant presents less risk of fraudulent transactions than the mail order/telephone order merchant does. Card present merchants who do more than 20% of his business by a mail order or telephone order method must have two separate applications. A card present merchant that does any Internet transactions must have two separate applications. A mo/to merchant that does 10% or less Internet transactions can have one merchant application. An Internet merchant that has 10% or less mo/to transactions can have one merchant application. September 04 Internet Merchants The process of entering the card data and transmitting it to the merchant over an electronic network will determine whether a transaction is an e-commerce transaction. If a cardholder initiates the transaction by entering card data and transmits it to the merchant over the Internet (including e-mail), it is an e-commerce transaction even if the merchant does not process it via the Internet. If, however, a cardholder accesses a merchant s web site to obtain product information but sends the order to the merchant via fax, mail or telephone, it is not an e-commerce transaction but a mail/telephone transaction. 2

In addition to the standards for traditional MO/TO accounts, Internet merchants must meet the following requirements, which will be verified by Underwriting: 1. The underwriter must check the website and verify that it contains all NOVA and V/MC requirements for e-commerce, which are detailed below: - The merchants DBA name appears prominently on the website. There should be a correlation between the DBA name and the product of the business. - Customer service number or email address is clearly posted - Return/refund policy is clearly stated - The merchant s delivery methods and timing are clearly described - Merchant privacy statement is outlined - Currency of transaction is in U.S. dollars - The product offered for sale is clearly described - Page where credit card information is entered is secure. In the event that the page is not secure, but the merchant needs a merchant number in order to obtain security, the following process will apply: The merchant will be approved conditionally, subject to web site security. A merchant number will be assigned to the merchant. The merchant number will be set up with a hold on MPS. The hold will be removed once Underwriting has approved the account unconditionally. - English translation option for foreign language websites must be provided 2. Underwriter must view the merchant certificate from the secured website and document the following details: - Name of Merchant Certificate Issuer - Merchant Certificate number - Merchant certificate expiration date - Ownership status of Merchant Certificate shared or individual 3. The underwriter must search www.networksolutions.com to confirm that the site registration is to the principal, and not to someone else. 4. The underwriter must place a call to the customer service number listed on the web site to confirm the product, return policy, delivery method and timing to get a clear understanding of the distribution channel and when the customer might expect to receive the product. 5. If the merchant is currently processing credit cards with another bank, copies of most recent three months processing statements must be obtained and reviewed for quality of the relationship (credit and chargeback ratios, charge volume, average ticket size, etc.). 6. The underwriter must check with the Better Business Bureau to review any information available on the merchant, the fulfillment house and the telemarketer, as the case may be. 2. What products or services does the business sell? Businesses that sell certain types of products and services are more prone to customer dissatisfaction or buyer remorse. This can result in chargebacks or returns and can even drive the merchant out of business if he cannot financially support the chargebacks or returns. If the business goes bankrupt or closes, we are liable for the payment of those returned charges. For example, a customer who makes an advance payment for the future delivery of a custom-made product cannot see the product he is buying until after it has been made specifically for him. He may be dissatisfied with the result, which leads to a return or chargeback. We maintain a list of businesses we consider Restricted, and a list that we consider Prohibited. Those lists appear and are explained later in this document. 3. Are the owner and/or the business financially solvent? We must be confident that the person(s) or business guaranteeing the account can financially support the amount of credit card volume and the potential returns and chargebacks that may be associated with the business. In the case of a personal guarantee, we must have the social security numbers of each listed owner so that their personal credit report can be pulled and reviewed. In the absence of a personal guarantee, business financials are required. Business financials would include the most recent fiscal year s tax returns (prepared by a third party) or an audited/reviewed/compiled income statement, balance sheet and cash flow statement. Financial statements need to reflect profitability for the 3

previous year fiscal year and tangible net worth in order to be an acceptable substitute for a personal guarantee. An application without either a personal guarantee or business financials must be pended since there is nothing on which to underwrite it. If there is any reason to believe that a guarantor s personal credit may not be strong, it is advisable to include business financials with the initial application package. Business financials will be required for merchants with certain dollar volumes. Please refer to the Quick Sheet for specific information on when business financials are required. Generally, business financials are not required in the initial application package for retail and restaurant merchants (card present, card swiped environment) with less than $500,000 in annual Visa/MasterCard volume, as long as a Personal Guarantee is obtained. However, if Underwriting finds the Personal Guarantee to be insufficient, the application will be pended and business financials will be requested. Interim tax information will be required if the business is more than half way through its fiscal year when the application is submitted. 4. How is the business structured for tax purposes? The way a business is structured affects who can sign the contract, whether a corporate resolution is necessary, and whether business financials will be necessary. The following chart explains the effect of each type of business structure: Business Structure Definition Is a Corporate Resolution necessary? Who is required to sign the application? Sole Proprietorship General Partnership Limited Partnership Limited Liability Corporation (LLC) S-Corporation C- Corporation Closely or Publicly held Non-Taxable One person owns all the assets, owes all liabilities, and conducts affairs in his or her own capacity, often under an assumed name (DBA). A partnership in which all partners participate fully in running the business and share equally in profits and losses (though the partners monetary contributions may vary) A partnership composed of one or more persons who control the business and are personally liable for the partnership s debts (called General Partners) and one or more persons who contribute capital and share profits but who cannot manage the business and are liable only for the amount of their contribution (called Limited Partners) A company statutorily authorized in many states that is characterized by limited liability, management by members or managers, and limitations on ownership transfer A corporation whose income is taxed at the shareholder level (similar to a partnership s income) rather than at the corporate level. A corporation whose income is taxed at the corporate level rather than at the shareholder level. Closely held usually indicates a small, closed group of shareholders, such as family members. Publicly held usually indicates shares offered for sale to the general public. A corporation organized under special statutes for some purpose other than making a profit (such as charitable or educational purposes) (Includes churches, charities, non-taxable hospitals, etc.) No, because sole proprietor has 100% ownership. The owner should sign the application/ agreement. If the business is guaranteeing, all partners must sign the contract in order to bind the entire partnership, unless the partnership has as part of its partnership agreement a document giving a certain partner(s) permission to bind the entire partnership. Requires a copy of the partnership agreement showing whom the general partner is and what authority he/she has. The general partner is expected to sign the application. Yes, if the signer is not a majority owner and/or the business is guaranteeing. No, if a majority owner is signing and personally guaranteeing. Yes, if the signer is not a majority owner and/or the business is guaranteeing. No, if a majority owner is signing and personally guaranteeing. Yes, if the signer is not a majority owner and/or the business is guaranteeing. No, if a majority owner is signing and personally guaranteeing. Yes. Signer as indicated in the corporate resolution. Non-profits are required to provide proof of tax-exempt status. Determination Letter from IRS [(501 (3)]; Certificate of Good Standing (or certificate of DBA) Articles of Inc, Articles of Assoc, Trust Instrument, or Corporate Charter 4

Business Structure Definition Is a Corporate Resolution necessary? Who is required to sign the application? IRS Form 990 or IRS form 990EZ, or IRS Form 990-PF; or Third Party prepared financial statements Schools Educational organizations Yes. Signer as indicated in the corporate resolution. Associations and Clubs Small groups of people who band together because of a shared interest or activity Yes. Signer as indicated in the corporate resolution. 5

Credit Underwriting Decision Tree This decision tree will help you determine when to get a Corporate Resolution in various situations. START HERE: Is the signer personally guaranteeing the contract? No How is the company organized for tax purposes? Yes Signer s Social Security number must be on the application. Personal credit report will be obtained and signer will be personally liable for the account. General Partnership If the business is guaranteeing, all partners must sign the contract in order to bind the entire partnership, unless the partnership has as part of its partnership agreement a document giving a certain partner(s) permission to bind the entire partnership. Must include a copy of the partnership agreement showing who the partners are. Limited Partnership Requires a copy of the partnership agreement showing whom the general partner is and what authority he/she has. The general partner is expected to sign the application. LLC S-Corp C-Corp Non-Taxable Must have Corporate Resolution showing who has authority to bind the company into indebtedness (borrowing resolution). The company may give permission to one person or multiple people, depending on how the company wants to do business. The signer of the Corporate Resolution (secretary, etc.) must be a different person from the one(s) being given permission to sign the MPA (a person cannot give himself permission to sign). 6

5. How much is the average ticket and monthly volume? We must know how much credit card volume the merchant expects to have so that we can determine whether the owner(s) and/or the business can financially support the volume they expect to process. It is vital that the average ticket and monthly volume be estimated as accurately as possible. If the merchant has been previously processing, use the most recent three statements from the previous processor to determine monthly volume. If the merchant has never processed credit cards, estimate monthly volume by using the merchant s business plan, which should list the anticipated sales volume of the business. In general, about 20% of a retail merchant s sales volume will be by credit card. About 40% of a restaurant s sales volume will be by credit card. About 90% of a MO/TO merchant s volume will be by credit card. The estimated volume shown on the application affects the merchant account in three ways: 1. Underwriting: The underwriter uses this information to determine whether the processing volume can be supported by the financial state of the owner(s) or the business with acceptable risk to us. This can be compared to asking a bank for a loan the bank looks at the amount the borrower is requesting to be loaned and compares that with the collateral and financial situation of the borrower to determine the risk involved. If the monthly volume is estimated too high for the financial situation of the merchant to support it, it will cause the application to be declined. 2. Risk Management: Our Loss Prevention department uses this information to establish a normal business profile for the merchant. Each incoming batch is then monitored by computer to be sure it falls within the normal business parameters set for the merchant. If the average ticket or monthly volume is underestimated, it will cause batches to be flagged for security investigation. It may even be necessary to go back to the merchant for additional financial information if it is found that the monthly volume will be consistently higher than the original financials will support. 3. Capping: Hard caps are generally imposed on merchant accounts and are based on the level of risk the merchant presents to us. This reduces our risk by keeping a merchant account from greatly exceeding the volume his/her financial situation will support. If the monthly volume is underestimated, the cap will be too low. This will result in a shutdown of the merchant s terminal for the rest of the month. If the cap is reached, a security investigator and an underwriter will review the account. Further financial information may have to be requested from the merchant. If the investigation shows that the financial situation warrants it, the merchant s cap will be increased and the account will be reactivated. If not, the merchant account may be terminated. (Note that seasonal merchants, one-time events, national accounts, and merchants signed by processing banks that hold liability on their merchant accounts will not typically be capped. Processing banks can request that their accounts be capped if they wish.) 6. How much experience does the owner have? If a merchant has been in the current business for less than 2 years or is buying or starting a new business, this presents a higher risk to us because most business failures happen within the first 2 years. But our risk is reduced if the owner has previous experience in the same field. It is important for the sales person to note previous experience in the appropriate place on the Merchant Application and to explain the previous experience fully in a cover letter. For example, a hair stylist buying an existing hair salon who has 25 years of previous experience and who managed the current salon for 5 years before buying it presents less risk to us than if the stylist just graduated from school. 7

7. Is the business an additional location of an existing merchant? There are several possible scenarios for additional locations. For an add-on location to have a brief review, the following cumulative conditions (all four) must apply: The new outlet shares the same principals/officers/owners as the existing merchant. The new outlet is under the same legal entity as the original location approved. Independent franchises would not qualify. The new outlet has the same line of business and operations as the current business of the merchant (SIC or MCC matches exactly). If the MCC is different, the add-on location is to be evaluated as a new merchant. In addition the existing relationship needs to be evaluated. The new outlet legal or DBA name matches existing merchant or suggests same line of business as existing merchant. If all four of these conditions are not met, the add-on location is to be evaluated as a new merchant. In addition, the existing relationship needs to be evaluated. The different add location scenarios and the requirements for each are: 8. Is the merchant listed on the MATCH query? The Member Alert to Control High Risk (MATCH) query is a list maintained by MasterCard of merchants who have been reported by processors as having defaulted on their contractual obligations to the processor. We check each new merchant application against the MATCH query and if the business or the owner is listed, the application will be declined. We cannot remove a merchant from MATCH who was placed there by another processor. If the merchant wants to dispute his/her listing on MATCH, the merchant must obtain a letter from the processor who placed the merchant on MATCH explaining why we should now consider the merchant. Underwriting will then review the letter with Loss Prevention to determine whether or not we will accept the merchant. 9. Is the merchant listed on the OFAC list? The Office of Foreign Assets Control (OFAC) administers and enforces economic and trade sanctions against targeted foreign countries, terrorism sponsoring organizations, and international narcotics traffickers. Each new application will be checked against the OFAC list. If a merchant is found on the OFAC list we cannot process for that merchant. 10. Does the merchant have a Federal Tax ID number? If the business is a corporation, we are required by VISA and MasterCard to have in our records the Federal Tax ID number of the corporation. It is also used in Information Verification. 11. What is the merchant s return policy? We must be confident that the merchant can support his/her return policy. A return policy that allows anything to be returned for a refund with no restrictions requires a stronger financial base to support it than a return policy that only gives store credit and has a time limit. 12. Is the merchant seasonal, a short-term event, etc.? If any merchant account is closed on any of the merchant accounting systems we use for inactivity, seasonal concerns, cause or otherwise, Underwriting must re-approve the account before it can be opened again. This applies to any timeframe as the prevailing legal opinion indicates that the standard contract terminates at closure. 8

Restricted Merchant List The Restricted Merchant List contains merchant types that have proven to be a higher risk to us. Some factors in this higher risk include: Higher incidence of bankruptcy or business closure. Higher incidence of customer dissatisfaction or buyer remorse, which results in a high number of returns and/or chargebacks. Charges accepted for future delivery of a product or service. This product or service may not be delivered at all or may not be as represented, resulting in returns and/or chargebacks. Higher incidence of engagement in illegal or fraudulent activities. While we do accept these types of merchants, we must look at them more closely to be assured that our risk due to factors such as those named above will be as minimal as possible. Underwriting will require additional information and supporting documentation to assist them in making their decision. A merchant s business is considered to be Restricted if more than 20% of sales are from one of these types of businesses. General Merchant Types Description of Restricted Activity Types Typical MCCs* Airlines To be underwritten by the Major Merchant Group. (Includes charter airlines) 3000-3299 4511 Adoption Agencies Non-Profit Agencies such as Catholic Charities, Children s Home Society, Luther Social Services, etc. Will generally be affiliated with main-line denominational churches. 8398 Annual Memberships and Recurring Charges Auction Houses Bail Bondsmen Buying and Shopping Services and Clubs Checking Cashing Institutions (nonfinancial) Collectibles and High Market Value Items Companion/Dating Services Computer hardware Computer software sales Computer maintenance/repair Computer network/information services Any situation where a cardholder pays a scheduled charge over a period of time for a service or membership example: country club dues, health club memberships, etc. Sakes via an auction format of antiques, fine art and premium collectables to dealers, private buyers, museums and other institutions. Merchants that post bail to the court system as security for the appearance of the arraigned individual. Merchants that provide buying and shopping services to individuals or businesses on a fee basis. These businesses do not directly sell the merchandise to the consumer, but act as an intermediary to facilitate the buying process. This MCC must be used for the funding of an account, the purchase of foreign currency, money orders, travelers checks, or the transferring of a value to a stored value card occurring at non financials institutions such as currency exchanges, money merchants and hotels Merchants falling into this category sell items with an arbitrary market value that is largely dependent on what the going rate is and what consumers are willing to pay, which results in frequent customer disputes. Also, fraud is frequently involved in these types of businesses the product is a fake or its value is deliberately overestimated. Any service that provides companions for social or other events, arranges introductions for the purpose of dating, etc. Merchants that sell, service computer hardware and programming software services for personal and business use. Merchants that provide electronic bulletin board access or on-line services via computers. Includes Internet Service Providers (ISPs). 7997 8999 9223 7278 6051 5999, 5972 7273 5732 5734 7379 4816 9

General Merchant Types Computer programming, Data processing and integrated Systems design services. Description of Restricted Activity Types Merchants that provide computer programming services, systems design, and data processing services on a contract or fee basis. They provide a variety of services such as computer software design and analysis, software or systems modifications, data entry or data processing, and training in the use of custom software. Cruise Lines To be underwritten by the Major Merchant Group 4411 Currency Exchanges Businesses offering currency conversion for foreign currency, travelers checks, drafts & 6051 wires, and precious metals Direct Marketing combination catalog and retail merchant Merchants that are catalog merchants who also operate one or more retail outlets, which offer a face-to-face environment for sales. 5965 Direct marketing other Direct marketers (not elsewhere classified) Door to Door Sales Merchants that sell products or services through a variety of direct response methods that include an order form or an address and/or telephone # the customer may use to place an order by mail, telephone or fax. These merchants often utilize mass-marketing techniques such as brochures, radio and television direct response ads, and TV infomercials. This also includes Direct Marketing of diet products, prize giveaways, and pay per call information services. Merchants that sell merchandise by means of house-to-house canvass. This mcc includes merchants that sell a variety of products door to door such as cosmetics, household items, bakery goods, dairy products, and magazine subscription sales Fulfillment Houses Businesses that fill subscriptions or orders on behalf of third parties 7399 Typical MCCs* Furniture Stores Sell home furnishings and typically offer a wide variety of finished furniture products and 5712 accessories for the home. Gambling Operations of gaming or betting establishments that may or may not be associated with hotels, restaurants, riverboats, and resorts Inbound Telemarketing Merchants that provide one or more audiotext/videotext services 5967 Jewelry stores Merchants that sell one or more types of fine jewelry or other precious stones mounted in 5944 precious metals and fashioned into rings, necklaces, bracelets, earrings and broaches. Does not include merchants that primarily sell china and/or crystal. Licensed/Certified Must have a copy of a massage therapist license or certification 8099 Massage Therapists Modeling 7399, 8299 Agencies/schools Oriental Rugs Retail sellers of floor coverings specializing in oriental rugs. 5713 Outbound telemarketing Merchants that contact prospective buyers by telephone, mail (other than catalog), 5966 company instructing the cardholder to call the merchants to generate sales. Examples of products include: cosmetics, health care products, vitamins, time-share realty, discount buying clubs, and membership clubs. Also includes up-sellers, merchants who solicit products of other Direct Marketing merchants when cardholders contact their call centers. Pawn Shops Merchants that lend money in exchange for personal property left with the merchants as 5933 security. The merchant may, upon default of the loan, sell the property to the general public. Pharmaceuticals via Internet Wholesale distributors of prescription and non prescription medicine, proprietary drugs, vitamins over the Internet 5122,5912 Precious Stones and Metals, watches and jewelry (wholesale) Prepaid phone cards, prepaid cell phone (stand alone seller) Seminar marketers/seminar planning services Sports forecasting/oddsmaking Telecommunication Services Merchants that are wholesale distributors of jewelry, precious stones and metals. Also 5094 includes wholesalers of costume jewelry, watches and watch parts, clocks, silverware, diamonds and gemstones, precious metals, gems and trophies. Merchants who primarily sells prepaid phone cards and prepaid cell phones 4814 Includes any merchant or web site that allows bets to be placed on the outcome of a game of change, race, sporting competition, etc. Includes lotteries. These merchants provide telecommunication services including local and long distance telephone calls 7372 5969 5963 7399 7995 4814 10

General Merchant Types Ticket Brokers/Agencies Third Party payment service providers Timeshares Travel Agencies and Tour Operators Used car and truck dealers Wire transfer-money orders Description of Restricted Activity Types Although the ticket agencies may conduct much of their business in a non face-to-face 7922 manner, they are not considered direct marketing merchants because they do not directly solicit their business primarily through catalogs, telemarketing, etc. Payment service that allows cardholders to register all their debts with that service, make 8999 payment to that service, and that service forwards payment to the creditors. Example: netgiro.com Merchants that sell, lease and rent timeshares real estate and arrange timeshare 7012 condominium exchanges Businesses primarily providing travel information and booking services 4722 Sale of used automobiles and motor homes, only, with no sales of new automobiles and motor homes Merchants that allow customers to transfer funds via a wire transfer money order. The transaction may occur in either a face to face or non face to face manner Typical MCCs* 5521 4829 *Typical MCCs are generically assigned according to MC/VS general description of the merchant s product, service or nature of the merchant s business. The above merchant types do not have a unique MCC category codes specific to their business descriptor. Best practices is used to assign MCCs that is based on similar business environments by which other merchants might be referenced. Prohibited Merchant List Prohibited Merchants are defined as any merchant: That brings an unacceptable level of reputation, legal, or other risks to Nova Information Systems Inc (including but not limited to all illegal activities or pyramid schemes); and With any amount of sales volume associated with a merchant activity type on the Prohibited list. The Prohibited Merchant List is not meant to be all-inclusive. Be aware that applications for other business types not listed here may also be declined due to the type of business.. General Business Types Adoption Agencies for profit Adult Entertainment Description of Prohibited Activity Types Agencies that take payment for the placement of babies with adoptive parents. 7399 Includes adult video stores, adult book stores, exotic dancing establishments, peep shows, phone sex lines, strip bars, adult novelties, 900 # telephone services, etc. Typical MCCs* 5813 5942 5969,5967 8111 Bankruptcy lawyers Lawyers or legal firms whose principal business is counseling debtors through consumer bankruptcy Child Pornography Any merchant who provides products or services associated with actual or suggested child pornography. Includes any merchant or web site who uses the following terminology to market their product: lolita, pedo, preteen, or any other terminology that suggests child pornography. Collection Agencies, Cannot use credit card to pay existing debt Exception: Fees related to mortgage refinancing 7399 Refinancing Debt are accepted. Counseling Centers (nonlicensed) Merchants that provide a variety of counseling services such as debt and financial 7277 counseling, marriage and family counseling, alcohol and drug abuse counseling, and other personal counseling. Credit Restoration Any company that assists people with rebuilding their credit 7399 5969 Direct marketing Travel 5962 related arrangement services Merchants that typically offer their services via outbound telemarketing calls in which the merchant initiates direct contact with the consumer to generate a sale. The merchant may also use mailings, magazine or TV ads. Travel-related services may also consist of discount travel clubs and subscriptions to travel services and/or travel related newsletters. 11

General Business Types Description of Prohibited Activity Types Drug Paraphernalia Any business whose products are solely intended for aiding the consumption of illegal drugs 5122 Fortune tellers Includes fortunetellers, tarot card readers, and mystics. 7996 Gun Sales on the Internet Any sales of firearms over the internet 5941 Internet Gambling Operations of gaming or betting establishments that occur on the internet. 7995 Typical MCCs* Investor Merchants that buy sell and broker securities, stocks, bonds, commodities and mutual funds. 7399,6211 services/investment clubs, Sales of Stocks, Securities, Options and Other Investments Protection Services Any company that sells protection, insurance, or registration service against things such as 7299,5966 identity theft, Internet fraud, credit card theft or fraud, etc. Sexual Encounter Firms Includes massage parlors, spas, etc., where sexual encounters are permitted 7297 *Typical MCCs are generically assigned according to MC/VS general description of the merchant s product, service or nature of the merchant s business. The above merchant types do not have a unique MCC category codes specific to their business descriptor. Best practices is used to assign MCCs that is based on similar business environments by which other merchants might be referenced. Electronic Check Service (ECS) Electronic Check Service (ECS) is defined as a process in which the merchant uses a point-ofsale system to convert a customer s paper check into an electronic transaction that is submitted for authorization and settlement to the Nova Network. Merchant must be operating in an environment where the credit card is present 80% or more of the time; The merchant must not be on the prohibited list; and Merchant s applying for the ECS with guarantee product must not be on the Prohibited Guarantee product list (Encircle Prohibited MCC list is found below). Existing Nova merchants must be in good standing with Nova Information Systems Inc ECS product types: ECS with Guarantee- Offers conversion of the paper check to an electronic transaction and guarantee of the check by either the participating bank or Encircle (formerly BankServ). The guarantor retains the risk for all transactions processed. ECS with Verification- Offers conversion of the paper check to an electronic transaction and verification of the check by either the participating bank or by 3 rd party check services. The merchant retains the risk for all the transactions processed. ECS conversion only- Offers conversion of the paper check to an electronic transaction. It is like a merchant selecting this option will use their own proprietary negative file or simply wishes to deposit checks electronically. The merchant retains the risk for all transactions processed. Encircle Prohibited MCC list 9223 BAIL AND BOND PAYMENTS PROHIBITED MCC 5813 BARS AND DRINKING ESTABLISHMENTS PROHIBITED MCC 5813 BARS, COCKTAIL LOUNGE, DISCO, CLUB ETC PROHIBITED MCC 7995 BETTING/GAMBLING/CASINOS PROHIBITED MCC 7273 DATING AND ESCORT SERVICES PROHIBITED MCC 5964 DIRECT MARKETING, CATALOG PROHIBITED MCC 12

5965 DIRECT MARKETING, CATALOG & RETAIL PROHIBITED MCC 5968 DIRECT MARKETING, CONTINUITY PROHIBITED MCC 5967 DIRECT MARKETING, INBOUND TELEMARK PROHIBITED MCC 5969 DIRECT MARKETING, OTHER PROHIBITED MCC 5966 DIRECT MARKETING, OUTBOUND TELEMARK PROHIBITED MCC 5960 DIRECT MARKETING, SUBSCRIPTION PROHIBITED MCC 5962 DIRECT MARKETING, TRAVEL PROHIBITED MCC 5964 DIRECT MARKETING-CATALOG MERCHANTS PROHIBITED MCC 5965 DIRECT MARKETING-COMB. CATALOG/RETAIL PROHIBITED MCC 5968 DIRECT MARKETING-CONTINUITY/SUBSCRIP. PROHIBITED MCC 5967 DIRECT MARKETING-INBOUND TELEMARKET PROHIBITED MCC 5960 DIRECT MARKETING-INSURANCE SERVICES PROHIBITED MCC 5969 DIRECT MARKETING-OTHR DIRECT MARKET PROHIBITED MCC 5966 DIRECT MARKETING-OUTBOUND TELEMARKET PROHIBITED MCC 5962 DIRECT MARKETING-TRAVEL-RELATED PROHIBITED MCC 5963 DOOR TO DOOR SALES PROHIBITED MCC 7361 EMPLOYMENT AGENCIES PROHIBITED MCC 7273 ESCORT SERVICES PROHIBITED MCC 6012 FINANCIAL INSTITUTIIONS, MERCHANDISE PROHIBITED MCC 6010 FINANCIAL INSTITUTIONS PROHIBITED MCC 6011 FINANCIAL INSTITUTIONS-AUTOMATED CASH PROHIBITED MCC 6010 FINANCIAL INSTITUTIONS-MANUAL CASH PROHIBITED MCC 6012 FINANCIAL INSTITUTIONS-MERCH. AND SERV PROHIBITED MCC 6300 INSURANCE SALES, UNDERWRITING PROHIBITED MCC 6300 INSURANCE SALES, UNDERWRITING, PREM PROHIBITED MCC 7297 MASSAGE PARLORS PROHIBITED MCC 5933 PAWN SHOPS PROHIBITED MCC 6211 SECURITIES BROKERS/DEALERS PROHIBITED MCC 5972 STAMP AND COIN DEALERS PROHIBITED MCC 5972 STAMP AND COIN STORES PROHIBITED MCC 4722 TRAVEL AGENCIES PROHIBITED MCC 4829 WIRE TRANSFER MONEY ORDERS PROHIBITED MCC 4829 WIRE TRANSFER MONEY ORDERS (WTMOS) PROHIBITED MCC 13