WASHINGTON -- A House committee has endorsed a call from the credit card industry for a law to combat telemarketing fraud.

In a report released Sunday, the panel said it should be illegal for a merchant to process credit card transactions for other businesses without the express permission of its processing bank.

The report could mark the beginning of a legislative effort to attack a burgeoning problem that the MasterCard and Visa associations say costs their member banks about $200 million a year.

According to the report, financial institutions are being subjected to unreasonable risks by telemarketers and their co-conspirators - legitimate merchants who process their sales through the credit card networks.

In these crimes, marketing companies make illicit, high-pressure sales pitches to cardholders over the telephone, and cooperative with the so-called collusive merchants to obtain the funds.

"It is apparently not unusual for a merchant to process, or 'launder,' $100,000 in sales drafts in one day for a very active telemarketer, on which the merchant might earn $6,000 to $15,000," the House report noted.

Financial institutions have become reluctant to process credit card transactions for telemarketers because of the growing risk of fraud, the panel's study said.

The Visa organization, for example, allows chargebacks on transactions for up to 18 months, and the merchant bank often ends up taking a loss on transactions tied to telemarketers that have long since gone out of business.

Middleman in Jeopardy

A merchant that serves as middleman for clearing the fraudulent transactions could be bankrupted by such losses.

Visa U.S.A. officials told the House panel that at least one institution, Gateway National Bank of Phoenix, failed because of telemarketing losses. Other institutions, including Citizens Fidelity Bank and Trust Co., Louisville, Ky., and the failed CenTrust Bank of Miami were said to be seriously affected by losses from chargebacks on telemarketing transactions.

The report, which was prepared by the Government Operations subcommittee on commerce, consumer, and monetary affairs, also recommended that it be made a criminal offense to request a customer's credit or debit card number without a purchase order.

Task Force Suggested

The panel said that a task force of representatives from the bank regulatory agencies, credit card companies, and others should be establishes to address aspects of telemarketing fraud dealing with financial institutions.

Visa and its bank card competitor, MasterCard International, have repeatedly looked to the courts to help them battle telemarketing fraud. In April, they jointly sued the operators of a nationwide network, asserting that they used phony offers for low-rate credit cards to bilk consumers out of millions of dollars.

The organizations hoped that the suit -- the eighth of its kind -- would serve as a deterrent to con artists and focus Congress' attention on the telemarketing problem.

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