IBA Compliance Connection

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We have a customer who wants to make loan payments over the phone using a debit card from another bank. Does Illinois law allow this type of transaction when the card is not present and the customer does not show ID or sign any cash advance slip?

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We are not aware of any limitations in Illinois law on accepting loan payments made with a debit card, but we recommend checking your operating agreements with debit card issuers regarding the acceptance of loan payments made by debit card.

For example, the publicly available Visa Product and Service Rules impose some limitations on the use of debit cards for collecting loan payments, including a prohibition on the use of debit cards to make payday loan payments. The MasterCard rules do not appear to impose the same limitations, at least with regard to debit cards.

Also note that the Visa and MasterCard rules are frequently revised, and you may wish to check with them directly as to whether loan payment made by using Visa or MasterCard debit cards are permissible.

For resources related to our guidance, please see:

Prohibitions:

  • Use of a credit Card or charge Card
  • Debt that exceeds the statute of limitations and is no longer collectible in a lawsuit, unless the Merchant obtains written Cardholder agreement to the charge and the amount

Restrictions:

  • For debt that has been charged-off and transferred from the original owner to a third party, the Merchant must be either: . . .
  • For payday lending, the Merchant must be . . . Located in the Europe Region. . . .”)
  • MasterCard Rules, Rule 5.11.5 (US Region), page 249 (December 2018) (download as a PDF) (“A Merchant must not submit to its Acquirer, and a Customer must not submit to the Interchange System, any Transaction that: 1. Is conducted with a credit Card and represents the refinancing or transfer of an existing Mastercard Cardholder obligation that has been deemed to be uncollectible . . . . A Transaction that represents the refinancing or transfer of an existing Cardholder obligation that has been deemed uncollectible may be effected with a Debit Mastercard or Maestro Card, including any prepaid Card.”)