If your credit union issues credit cards or allows members to utilize peer-to-peer (P2P) payments, then you most likely interact with merchant category codes (MCCs). These four-digit codes denote the type of business involved in a transaction and are important to certain aspects of the financial services industry. For example, if a credit union offers cashback on purchases at gas stations, the credit union would use the MCC to tell which purchases were made at a gas station so the cashback reward can be properly applied. Additionally, MCCs can be used to determine the interchange rates for transactions.
The roots of these codes might surprise you. A non-governmental organization based in Geneva, Switzerland known as the International Organization for Standardization (ISO) publishes standards, including the standards that set the MCCs for retail financial services. These standards are then typically adopted by the major credit card networks, such as Visa, MasterCard and American Express, as well as P2P platforms.
In recent years the ISO has sparked an intense partisan battle in the United States. In September 2022, the ISO issued standards that created a MCC for firearms retailers. This move, however, was met with resistance from conservative politicians and firearms advocates in the United States, who voiced concerns that use of the MCC would amount to tracking gun purchases or could result in financial institutions denying transactions because they involve a firearms retailer. On the other side of the political aisle, liberal leaning politicians and anti-gun violence advocates have argued that the MCC can be an important tool in flagging suspicious gun purchases which can help in curbing gun-related violence.
This partisan rift has boiled over to state legislatures. In September 2023, California passed a law that would require use of the firearms MCC by May 2025. On the other side of the spectrum, bills prohibiting the use of the firearms MCC have been introduced in conservative-leaning states. These bills generally prohibit use of the MCC, as well as prohibiting keeping data more broadly that tracks firearm purchases. Bills of this nature have passed in states such as Florida and Texas, among others. In March 2023, the major card networks to announced they were pausing implementation of the firearms MCC, citing the uncertainty caused by the varying state-level approaches to the issue.
Complicating this issue further is the fact that some P2P platforms – like Zelle, Paypal, Venmo and others – prohibit the use of their platform to purchase firearms or ammunition. Thus, credit unions’ websites may have “terms and conditions” documents that label firearms or ammunition purchases as “prohibited transactions” when using those platforms. While credit unions may have included that language because it accurately reflected the terms and conditions of the P2P platform, it could – depending on how its worded and presented on the website – give the impression that it is the credit union’s policy to prohibit such purchases. Unfortunately, that could result in the credit union be dragged into the partisan fight over this issue, creating reputation risk. For example, advocates for state-level legislation banning use of the firearms MCC have already taken to social media to claim that at least one credit union had a policy of prohibiting firearms purchases. In reality, the credit union had no such policy of banning those transactions and was merely providing the terms and conditions of a P2P platform, which was outside the credit union’s control.
Credit unions, therefore, may want to review their websites and any discussion of the terms and conditions of P2P services to ensure that the website is clear about the fact that those terms were set by the P2P service and not by the credit union itself.
If you would like more information on where this issue stands in your state, you may want to reach out to your credit union league.