A Tale Of The FDA, Banks, and Fines
Some vape shops have already found themselves with the floor pulled out from underneath their business, with no more than an email for warning.
Merchant Account Providers across the United States are methodically closing merchant accounts that are selling vaporizers, vape juice, and e-cigarettes.
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What can cause this kind of industry-wide adjustment?
Something that leaves hundreds of businesses being left high and dry?
The Food and Drug Administration.
What Does The FDA Have To Do With Merchant Accounts?
Beginning in October 2016, new restrictions governing the sale of tobacco were implemented by the FDA. These new regulations have far reaching implications for anyone in the vape and e-cig industry. (If you have an extra hour or three, you can read the nearly 500 page briefing here! – don’t worry, we did it for you 🙂 )
::SUMMARY of The FDA’s Final Ruling on Vape Shops::
:: (per the Tobacco Control Act) ::
21 CFR Parts 1100, 1140, and 1143 [Docket No. FDA-2014-N-0189] RIN 0910-AG38
The regulations have a number of intentions, from curbing the sale of tobacco products (Including vapes) to underage consumers, to laying the groundwork for controlling product manufacturing to ensure quality standards are maintained.
The increasing level of scrutiny these businesses are facing is also being directed at the bank’s processing these companies’ payments. In response to these changes, Mastercard has added the MCC code 5993 (the blanket code applied to Vape Shops, e-juice sellers, and e-Cig merchants) to their BRAM program.
Mastercard’s Business Risk And Mitigation program is used to control the risk of FDA fines by limiting exposure to businesses that pose “significant fraud, regulatory, or legal risk”. In this case, even if it is inadvertent, should MasterCard support the sale of restricted products to underage users, they could face financial penalties from the FDA, something they always try to avoid 🙂 . (Mastercard’s amazing website on BRAM)
So What Does BRAM Have To Do With ME?
As it turns out, quite a bit! ALL Processors will now be required by Mastercard to register their merchants that fall under this MCC. Failure to do so results in hefty fines based on the number of months the processor is noncompliant. Even if a processor only fails to register a single merchant, they face the following fines:
The fees that a business owner in the eCig, vape, tobacco industry face are not much better. A company found to be in violation of the BRAM program faces substantial fines, up to $2,500… PER DAY… that they remain in violation.
With the potential liabilities banks & processors now face, the majority have simply decided that servicing this industry is not worth the risk, and this has led to account closures across the country.
This Sucks! How Can My Vape Business Survive and Thrive Now?
The upside is that there are still a few options remaining for merchants, but as processors become more protective of these solutions, it has never been more important to be deliberate in who you work with.
If you have questions regarding your business, or if you have been shut down already, it is essential to start taking the correct steps NOW.
Schedule a 15 minute no-obligation consultation with a Certified Payment Specialists to make sure your business is on the path to success.
We’re here to make your life easier 🙂