They are already doing it, every time a new business opens an account with them.
No law requires banks to require personal credit checks for merchant accounts.
I'm not talking about credit checks, I'm talking about a personal guarantee, of the "taking your house" variety.
Are you sure about that?
That suggests one of two things:
No, there are other possibilities. One is that the merchants assume that you're right and everyone is going to screw them the same way. Another is that they simply don't understand the profound legal implications of a couple of lines of small print and one more signature because, like most start-ups, they're trying to build a company and not paying lawyers thousands to review dozens of pages of terms sent by every financial service provider they've contacted.
The personal guarantees go away once your business is a going concern.
And if the personal guarantees are going to go away once the business is a going concern, there's no problem with writing a shut-off date into the contract to make this explicit from the beginning, is there?
If you are a real business, you will almost certainly change credit card processors anyway to get better payment terms as your volume increases. The last startup I worked for changed at least three times as our volume grew.
It's reasonable to ascertain the identities of those running the company. While I'm no expert on US law, certainly here in the UK company directors have some basic responsibilities for acting responsibly and so forth and could be on the hook if they've been severely negligent, so you have that the moment you're dealing with the company itself.
But the point of a piercing agreement seems to be to put the company's controlling people on the hook personally even if they aren't grossly negligent and the business just doesn't work out. The fundamental point of setting up an independent legal entity is to sever that connection, and I personally believe that everyone should treat negotiations accordingly.
As far as I can see, those providers who require personal guarantees usually do so as a standard condition for almost any new business. Effectively, they consider everyone's financials to be inadequate.
You want that to be illegal? It's better than those companies not be able to obtain merchant accounts?
Someone would still offer the merchant account services to businesses who could demonstrate a reasonable business plan, because on balance they would make money from doing so. Most new businesses are not, in fact, going to experience a 30% chargeback rate four months after the original sale.
The banks obviously know that, they just want (as usual) to privatise the profits but externalise the risks/losses. I have no problem with prohibiting that kind of predatory behaviour. It's a potentially significant barrier to starting a new business, and with the global economy in its current state, allowing absurdly risk-averse banks to inhibit new businesses is exactly what we shouldn't be doing.
If the banking industry had a track record of assessing its clients responsibly and lending (or not lending) based on the results of those assessments and reasonable assumptions, I would be happy to cut them some slack. But we all know damn well that they aren't doing that. And if governments are going to pressure them just to lend to small businesses, they should certainly pressure them to provide basic services to businesses that are viable without relying on loans as well.