We’re Americans, hear us yell: “baa, baa, baa”

Americans are wolves on the world stage, boldly invading 3rd world nations.  But we are sheep at home, cowering before our government.  Its power expands quietly like a moving cat.  Slowly and relentlessly, like the incoming tide.  This is the second in a series giving a different perspective on what we have become (see chapter one here).

On 30 July 2008 President Bush signed into law HR 3221:  Foreclosure Prevention Act of 2008.  Here are some details of the bill that your favorite media source might not have mentioned.  It greatly — massively — expands reporting of credit card and payment transactions to the federal government.  The full text of the new law appears at the end of this post.

Press release from Freedomworks, 19 June 2008

Hidden deep in Senator Christopher Dodd’s 630-page Senate housing legislation is a sweeping provision that affects the privacy and operation of nearly all of America’s small businesses. The provision, which was added by the bill’s managers without debate this week, would require the nation’s payment systems to track, aggregate, and report information on nearly every electronic transaction to the federal government.

FreedomWorks Chairman Dick Armey commented: “This is a provision with astonishing reach, and it was slipped into the bill just this week. Not only does it affect nearly every credit card transaction in America, such as Visa, MasterCard, Discover, and American Express, but the bill specifically targets payment systems like eBay’s PayPal, Amazon, and Google Checkout that are used by many small online businesses. The privacy implications for America’s small businesses are breathtaking.”

“Privacy groups like the Center for Democracy and Technology and small business organizations like the NFIB sharply criticized this idea when it first appeared earlier this year. What is the federal government’s purpose with this kind of detailed data? How will this database be secured, and who will have access? Many small proprietors use their Social Security number as their tax ID. How will their privacy be protected? What compliance costs will this impose on businesses? Why is Sen. Chris Dodd putting this provision in a housing bailout bill? The bill also includes the creation of a new national fingerprint registry for mortgage brokers.

“At a time when concerns about both identity theft and government spying are paramount, Congress wants to create a new honey pot of private data that includes Social Security numbers. This bill reduces privacy across America’s payment processing systems and treats every American small business or eBay power seller like a criminal on parole by requiring an unprecedented level of reporting to the federal government. This outrageous idea is another reason to delay the housing bailout legislation so that Senators and the public at large have time to examine its full implications.”

“Critics Decry a Costly Merchant-Reporting Rule, But It’s Now the Law“, Digital Transaction, 5 August 2008 — Excerpt:

Under the merchant-reporting requirement, any organization that processes credit or debit cards or third-party network transactions must report to the Internal Revenue Service the total number of credit and debit card transactions for each merchant that has more than $20,000 in transaction volume and more than 200 transactions per year. Reporting will be done by taxpayer identification number (TIN).

Reportable transactions include any payment card transaction, regardless of whether the card is physically present, and any third-party network transactions, including automated clearing house, PayPal, and Google Checkout transactions. The merchant-reporting requirement has been criticized by everyone from privacy advocates to small businesses and merchant processors worried about implementation costs and penalties for mistakes.

“It’s going to cost the industry upwards of hundreds of millions of dollars,” says Larry Seyfried, senior tax legislative representative for the American Bankers Association. “This is not a simple industry, this is not something that can be done by adding a column to an Excel spreadsheet. This is going to require a lot of time and effort by acquirers across the country taking important personnel away profit-generating ideas and forcing them to work on this.”

Legislative Notice, Senate Republican Policy Committee, 18 June 2008

H.R. 3221 – Foreclosure Prevention Act of 2008:  Payment Card and Third Party Network Information Reporting

The proposal requires information reporting on payment card and third party network transactions. Payment settlement entities, including merchant acquiring banks and third party settlement organizations, or third party payment facilitators acting on their behalf, will be required to report the annual gross amount of reportable transactions to the IRS and to the participating payee. Reportable transactions include any payment card transaction and any third party network transaction.

Participating payees include persons who accept a payment card as payment and third party networks who accept payment from a third party settlement organization in settlement of transactions. A payment card means any card issued pursuant to an agreement or arrangement which provides for standards and mechanisms for settling the transactions. Use of an account number or other indicia associated with a payment card will be treated in the same manner as a payment card. A de minimis exception for transactions of $10,000 or less and 200 transactions or less applies to payments by third party settlement organizations. The proposal applies to returns for calendar years beginning after December 31, 2010.

Please share your comments by posting below (brief and relevant, please), or email me at fabmaximus at hotmail dot com (note the spam-protected spelling).

Other posts in this series about America, how we got here and how we can recover it

1. Forecast: Death of the American Constitution, 4 July 2006
2. Diagnosing the Eagle, Chapter III – reclaiming the Constitution, 3 January 2008
3. A report card for the Republic: are we still capable of self-government?, 3 July 2008
4. Americans, now a subservient people (listen to the Founders sigh in disappointment), 20 July 2008
5. de Tocqueville warns us not to become weak and servile, 21 July 2008
6. A soft despotism for America?, 22 July 2008
7. The American spirit speaks: “Baa, Baa, Baa”, 5 August 2008
8. We’re Americans, hear us yell: “baa, baa, baa”, 6 August 2008
9. Obama describes the first step to America’s renewal, 8 August 2008
10. Let’s look at America in the mirror, the first step to reform, 14 August 2008
11. Fixing America: elections, revolt, or passivity?, 16 August 2008
12. Fixing American: taking responsibility is the first step, 17 August 2008
13. Fixing America: solutions — elections, revolt, passivity, 18 August 2008
14. The intelligentsia takes easy steps to abandoning America, 19 August 2008 

For all posts on this subject see America – how can we reform it?.

Text of the new bill

H.R. 3221: Foreclosure Prevention Act of 2008

SEC. 3091. RETURNS RELATING TO PAYMENTS MADE IN SETTLEMENT OF PAYMENT CARD AND THIRD PARTY NETWORK TRANSACTIONS.

(a) In General- Subpart B of part III of subchapter A of chapter 61 is amended by adding at the end the following new section:

‘SEC. 6050W. RETURNS RELATING TO PAYMENTS MADE IN SETTLEMENT OF PAYMENT CARD AND THIRD PARTY NETWORK TRANSACTIONS.

‘(a) In General- Each payment settlement entity shall make a return for each calendar year setting forth–

‘(1) the name, address, and TIN of each participating payee to whom one or more payments in settlement of reportable payment transactions are made, and

‘(2) the gross amount of the reportable payment transactions with respect to each such participating payee.

Such return shall be made at such time and in such form and manner as the Secretary may require by regulations.

‘(b) Payment Settlement Entity- For purposes of this section–

‘(1) IN GENERAL- The term ‘payment settlement entity’ means–

‘(A) in the case of a payment card transaction, the merchant acquiring entity, and

‘(B) in the case of a third party network transaction, the third party settlement organization.

‘(2) MERCHANT ACQUIRING ENTITY- The term ‘merchant acquiring entity’ means the bank or other organization which has the contractual obligation to make payment to participating payees in settlement of payment card transactions.

‘(3) THIRD PARTY SETTLEMENT ORGANIZATION- The term ‘third party settlement organization’ means the central organization which has the contractual obligation to make payment to participating payees of third party network transactions.

‘(4) SPECIAL RULES RELATED TO INTERMEDIARIES- For purposes of this section–

‘(A) AGGREGATED PAYEES- In any case where reportable payment transactions of more than one participating payee are settled through an intermediary–

• ‘(i) such intermediary shall be treated as the participating payee for purposes of determining the reporting obligations of the payment settlement entity with respect to such transactions, and
• ‘(ii) such intermediary shall be treated as the payment settlement entity with respect to the settlement of such transactions with the participating payees.

‘(B) ELECTRONIC PAYMENT FACILITATORS- In any case where an electronic payment facilitator or other third party makes payments in settlement of reportable payment transactions on behalf of the payment settlement entity, the return under subsection (a) shall be made by such electronic payment facilitator or other third party in lieu of the payment settlement entity.

‘(c) Reportable Payment Transaction- For purposes of this section–

‘(1) IN GENERAL- The term ‘reportable payment transaction’ means any payment card transaction and any third party network transaction.

‘(2) PAYMENT CARD TRANSACTION- The term ‘payment card transaction’ means any transaction in which a payment card is accepted as payment.

‘(3) THIRD PARTY NETWORK TRANSACTION- The term ‘third party network transaction’ means any transaction which is settled through a third party payment network.

‘(d) Other Definitions- For purposes of this section–

‘(1) PARTICIPATING PAYEE-

‘(A) IN GENERAL- The term ‘participating payee’ means–

• ‘(i) in the case of a payment card transaction, any person who accepts a payment card as payment, and
• ‘(ii) in the case of a third party network transaction, any person who accepts payment from a third party settlement organization in settlement of such transaction.

‘(B) EXCLUSION OF FOREIGN PERSONS- Except as provided by the Secretary in regulations or other guidance, such term shall not include any person with a foreign address.

‘(C) INCLUSION OF GOVERNMENTAL UNITS- The term ‘person’ includes any governmental unit (and any agency or instrumentality thereof).

‘(2) PAYMENT CARD- The term ‘payment card’ means any card which is issued pursuant to an agreement or arrangement which provides for–

‘(A) one or more issuers of such cards,

‘(B) a network of persons unrelated to each other, and to the issuer, who agree to accept such cards as payment, and

‘(C) standards and mechanisms for settling the transactions between the merchant acquiring entities and the persons who agree to accept such cards as payment.

The acceptance as payment of any account number or other indicia associated with a payment card shall be treated for purposes of this section in the same manner as accepting such payment card as payment.

‘(3) THIRD PARTY PAYMENT NETWORK- The term ‘third party payment network’ means any agreement or arrangement–

‘(A) which involves the establishment of accounts with a central organization by a substantial number of persons who–

• ‘(i) are unrelated to such organization,
• ‘(ii) provide goods or services, and
• ‘(iii) have agreed to settle transactions for the provision of such goods or services pursuant to such agreement or arrangement,

‘(B) which provides for standards and mechanisms for settling such transactions, and

‘(C) which guarantees persons providing goods or services pursuant to such agreement or arrangement that such persons will be paid for providing such goods or services.

Such term shall not include any agreement or arrangement which provides for the issuance of payment cards.