Last month, Congressman Richard Hudson (R-NC), along with Congresswoman Elise Stefanik (R-NY) and Congressman Andy Barr (R-KY), introduced legislation—the Protecting Privacy in Purchases Act —banning the use of a Merchant Category Code to track the sales of guns and ammunition. In 2022, major credit card companies announced they would implement a Merchant Category Code approved by the International Organization for Standardization that specifically identified sales at gun and ammunition stores. Businesses that accept credit and debit cards are assigned Merchant Category Codes identifying the industry in which they operate. Historically, firearms dealers have been classified as “sporting goods stores.” The gun industry, consumers, lawmakers, and state attorneys general have all raised concerns that adopting the Merchant Category Code may violate privacy rights and consumer protection laws.  The Protecting Privacy in Purchases Act prohibits a payment card network from requiring a firearms retailer to use a Merchant Category Code that distinguishes firearms retailers from a general retailer or a sporting goods retailer. In addition, the legislation would preempt any state or local government regulations requiring merchant codes for firearm retailers.

Legislators contend that the legislation will prevent payment card providers from compiling purchase history on individuals purchasing guns or ammunition from businesses engaged in the lawful business of selling these items. At least seven states have passed legislation banning the use of firearms Merchant Category Codes, and approximately 12 more are in the process of passing such laws. Firearm industry groups laud the legislation as an important privacy protection for individuals lawfully purchasing firearms and ammunition.  California has already passed legislation requiring the use of a Merchant Category Code for firearms retailers that will go into effect in 2025. Colorado is drafting similar legislation now.

Mastercard and Visa have publicly stated that lawmakers misunderstand the purpose and effect of Merchant Category Codes, which is solely to identify the business category of a retailer and not provide any additional information related to any given transaction processed through the network.  These companies argued that the inconsistency in various state laws affects the ability of Merchant Category Codes to be applied uniformly, defeating the purpose of what is meant to be an international standard. Despite any claimed objections, Mastercard and Visa are complying with California’s new law.

There is one point on which both sides of this divisive issue agree: patchwork regulation makes compliance difficult for credit card companies, which vastly prefer uniformity. Brady Center to Prevent Gun Violence president Kris Brown stated, “We need to make sure these codes are being used in every state that they can be, and pass federal legislation to put public safety over gun industry profits.” On the other hand, Lawrence Keane of the National Sports Shooting Foundation argued that Congress should step in and impose a national standard, as these codes “will do nothing to stop crime.”

Congressional Republicans have long been concerned about Merchant Category Codes being used to compile data and track individuals who lawfully purchase firearms and ammunition. In September 2022, over 100 GOP House members sent a letter to the Chief Executive Officers of Visa, Mastercard, and American Express questioning the implementation of the Merchant Category Code and its legality. In addition, two dozen state attorneys general sent a separate letter expressing similar concerns. Notably, major credit card companies announced an implementation pause in March 2023.

Tension within the financial services industry and firearm industry is not a new phenomenon. In 2013, the Obama administration implemented Operation Choke Point, which pressured financial institutions to avoid lending to firearms dealers and other businesses it deemed “high risk.” This legislation is a strong signal that Congressional Republicans will continue to use their oversight and legislative authority to monitor state and federal laws and regulations that affect the firearm industry and gun owners.

Cranfill Sumner’s Administrative, Regulatory, and Government Law practice group regularly monitors legislation and regulations that affect the firearm and financial services industries and has knowledge and experience helping clients navigate the often-changing regulatory landscape. If your business has questions about changes in federal, state, and local law, you can learn more about our practice group here.