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The Daily Signal
Firearms
Sellers Say They’re Being Choked Off From Payment Processors
Kelsey Harkness
January 12, 2015
Go to a gun show, and you won’t find many merchants using PayPal.
You’ll also find few vendors using popular payment processors such as
Square, Stripe and Spark Pay.
That’s because some payment processors explicitly prohibit the use of
their systems for online — and some in-store — sales of firearms,
ammunition and certain accessories.
Retailers in the gun industry say they’re being discriminated against.
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“Being shut out from mainstream payment processors makes us feel like
we are part of some type of shady business when, in fact, there is more
regulation and documentation required for federally licensed firearms
dealers than most businesses,” said Trevor Blandford of Terminal
Performance Associates in Caroline, Va.
Blandford, 21, has been working gun shows for his family’s business
since he was 14 years old. Recently, his parents named him general
manager of Terminal Performance, which is known for its custom-built
pistols and rifles and originally finished wraps. He and his family
sell their merchandise online and at local trade shows.
To process payments, most merchants use some sort of payment processor.
Payment processors are companies, often third-party outlets, which
handle credit card transactions between merchants and banks.
The concern some firearms sellers expressed to The Daily Signal is that
restricting their access to some of the largest payment processors in
the country — who offer the lowest transaction fees in the business —
puts them at an unfair disadvantage to other industries.
Add that to the long list of regulations firearms sellers already face,
and some say it’s not even worth attempting to start a business.
“In most of the states, especially California and New York, you’re a
lunatic if you start a gun business,” Cody Wilson, co-founder of
Defense Distributed told The Daily Signal.
Wilson had his bank account closed by Chase.
He was blocked from his PayPal account twice and shut out from Stripe.
Stripe is a San Francisco startup that provides an easy way for
websites and mobile apps to take payments using a range of payment
systems from credit cards to Apple Pay.
Wilson’s case is more murky than other gun merchants. Instead of
directly selling firearms and accessories, he provides blueprints on
the Internet to manufacture 3D-pistols at home. The government
classifies his business as the equivalent to distributing weapons
without a license.
Defense Distributed provides blueprints on the Internet to manufacture
3D-pistols. (Photo: Defense Distributed)
Defense Distributed provides blueprints on the Internet to manufacture
3D-pistols. (Photo: Defense Distributed)
Still, Wilson claims, the roadblock against gun dealers in the industry
is real and it hurts small businesses most.
Policy Play
Some payment processors publicly state their policy against gun
sellers. Square, for example, which is famous for its tiny white credit
card reader that plugs into iPhones and other cellular devices,
explicitly prohibits sellers from accepting payments in connection with
firearms.
It wasn’t always Square’s policy to box out firearms sellers. A handful
of vendors at “The Nation’s Gun Show” in Dulles, Va., told The Daily
Signal on Jan. 2 that they used to enjoy the many benefits of using
Square and similar payment processors.
But after Square updated its policies, merchants such as Blandford of
Terminal Performance are left using what they consider second-rate
payment processors.
On May 10, 2013, Terminal Performance received an email notification
regarding Square’s updated seller agreement.
In it, Blandford discovered that Square added firearms to its
“prohibited” seller list.
Under its "Seller Agreement," Square publicly prohibits customers from
accepting payments for the sale of firearms. (Photo: Square)
Under its “Seller Agreement,” Square publicly prohibits customers from
accepting payments for the sale of firearms. (Photo: Square)
Proactively, Blandford’s family business terminated its relationship
with Square because just a few years earlier, PayPal had frozen its
account with money still inside.
“The inability to utilize Square and Paypal has been detrimental to our
business both in monetary ways as well as inconvenience,” said
Blandford.
In a statement to The Daily Signal, PayPal said the company has
prohibited the use of its system for the online sale of “firearms,
ammunition and certain firearm parts and accessories” since 2003. It
does, however, allow “certain” merchants to sell these items in their
stores.
“As a leader in global payments, we have to comply with laws and
regulations around the world,” said a PayPal spokesperson.
Square did not return The Daily Signal’s request for comment.
The Outlier
With few options, Terminal Performance then turned to Transnational, a
payment processor located in Rosemont, Ill., that is not shy in
boasting its support for the Second Amendment.
Although it processes payments for a range of industries, Transnational
has capitalized on the trend of payment processors choking firearms
merchants from their customer lists.
“Our decision to provide services within the firearms industry mostly
is predicated by the fact that we believe through the obtaining of an
[federal firearms license] it’s one of the more heavily regulated
processes that has good governance and good oversight,” Jae Haas,
President of Transnational told The Daily Signal in a phone interview.
Having been in the payment processing business for 16 years, Haas said
he’s observed a growing trend of banks and payment processors adding
firearms dealers to their “prohibited” or “high-risk” lists.
Bank Role
It’s unclear what role — if any — banks play in how payment processors
go about setting their policies.
But the connection between payment processors and banks is inseparable:
In order to exchange money from a buyer to a merchant, a bank must
process and move that payment.
To do business, payment processors must enter agreements with banks to
sponsor its payments.
Square, for example, has a commercial entity agreement with JPMorgan
Chase and Wells Fargo.
A business owner using Square is essentially entering an agreement with
JPMorgan Chase and Wells Fargo as well.
Haas, president of Transnational, which is sponsored by several
different banks, said “there’s no secret” that banks have some
influence over payment processors in regards to who they can or cannot
do business with, although that influence varies depending on the
agreement.
‘Operation Choke Point’
The federal government also may have an outside role in the decision of
payment processors not to do business with firearms merchants.
The Daily Signal previously published a series of articles exploring
the relationship between banks and the Federal Deposit Insurance
Corporation, which is the governmental body responsible for regulating
and auditing more than 4,500 U.S. banks.
Republican members of Congress have accused the Federal Deposit
Insurance Corporation, among other government agencies, of having undue
influence when it comes to banks’ decision not to do business with
firearms merchants.
The program, initiated inside the Justice Department, is known as
“Operation Choke Point.”
Whether the implications of Operation Choke Point seeped into policy
decisions at third-party payment processors is unknown.
When asked by The Daily Signal whether it plays any role in advising
payment processors against doing business with gun sellers, an FDIC
spokeswoman would not respond, instead pointing to testimony given
before Congress in July 2014.
It is the FDIC’s policy that insured institutions
that properly manage customer relationships are neither prohibited nor
discouraged from providing services to any customer operating in
compliance with applicable law…The FDIC has a responsibility to
cooperate with other government agencies and to ensure that the banks
we supervise are adhering to laws, including those governing anti-money
laundering and terrorist financing.
No matter its origin, Blandford hopes the “blatant discrimination” that
exists against the firearms industry will come to an end so that in the
future, he can enjoy the freedom to utilize “any and all payment
processors” in the market.
Read this and other articles at The Daily Signal
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