There's a new legal brouhaha underway in the payments space; it is pitting small card-accepting businesses against industry heavyweights. A lawsuit filed in U.S. District Court for the Northern District of California, in San Francisco, against the card brands, EMVCo and major card issuers alleges the liability shift from issuing banks to merchants for fraudulent transactions, which took effect Oct. 1, 2015, violates federal anti-trust laws and other statutes.
Lawyers for the merchants want the court to stop enforcement of the liability shift until all EMV (Europay, MasterCard and Visa) terminals are certified by the card brands and processors. Under the EMV liability shift fraudulent transactions that traditionally had been a cost borne by issuers became a liability for merchants when initiated using devices that are not deemed EMV compliant.
The lawsuit asserts that the liability shift was implemented even though EMVCo, the card brands and issuing banks knew it was not possible for all merchants to be running devices certified as EMV compliant in the time frame allowed. As a result, merchants are getting slammed with fraud losses despite spending hundreds, if not thousands of dollars installing EMV terminals, while issuers and the card brands skirt financial responsibility for card fraud, the lawsuit contends.
Milam's Markets IGA and Grove Liquors, two Florida merchants named as complainants in the lawsuit, found themselves in precisely this predicament, according to court filings. Both, working with their acquirer, Worldpay, spent money on device upgrades and staff training for EMV card acceptance well ahead of the deadline imposed by the card brands. Both also are still waiting for the devices to be certified, and until then they are amassing significant new costs in the form of chargebacks and related fees for fraudulent transactions.
Between Oct. 1, 2015, and Feb. 15, 2016, Milam's and Grove, combined, were assessed responsibility for 88 chargebacks for Visa Inc. and MasterCard Worldwide transactions totaling over $9,000, plus they were assessed $5 fees on each of those 88 items. During the same period the preceding year, the two businesses saw only four chargebacks, according to the complaint.
"[W]hat defendants knew, but Milam's Market, Grove Liquors and the rest of the Class did not and could not know, was that purchasing new POS equipment and training staff was not going to be enough," the complaint states. "In addition, the equipment would have to be 'certified' after the fact in a murky, nebulous process that was utterly outside their control. Instead, the certification process is controlled by the very entities that benefit from the Liability Shift and it is the primary means through which defendants' illegal conduct has been able to flourish."
The merchants are claiming the liability shift violates the federal Sherman Antitrust Act prohibitions on agreements that restrain trade, as well as its California equivalent, the Cartwright Act, and the Clayton Antitrust Act. Lawyers said they are seeking to include in the class action any merchant that has invested in EMV terminals and is being assessed chargebacks while awaiting official certification of the devices.
The lawsuit seeks treble damages. The list of defendants in the case is long, and includes: American Express Co., Bank of America Corp., Capital One Financial Corp., Citigroup Inc., Discover Financial Services, EMVCo, JCB International Credit Card Co. Ltd., JPMorgan Chase & Co., MasterCard, PNC Bank, China UnionPay, U.S. Bancorp, United Services Automobile Association, Visa and Wells Fargo & Co. The merchants' motion for a preliminary injunction to halt imposition of the liability shift until all merchants with EMV-compliant terminals receive necessary certifications is scheduled to be presented in San Francisco on April 28. 
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