Year 2000 Suit
While there have been a lot of out-of-court settlements regarding the Year 2000 problem recently, no case has as yet gone to court, but this may change soon.
A Michigan produce supplier is suing a cash register manufacturer and a vendor because their cash registers can't recognize a credit card expiration date of 2000 as valid. The owners of Produce Palace International report that their registers crashed 105 times between April 30, 1996 and May 6, 1997 and they are suing TEC America Corp., and All American Cash Register Inc. The suit asks for $10,000 for the costs of the computers and lost business.
The
attorney for the merchants say they are losing 30-40% of their
business. According to Produce Palace, since purchasing the registers
in 1995, Produce Palace has called TEC America and All American 150
times for service for problems such as crashed computers, inaccurate
records, and problems with modems.
The owners are upset because the vendor and manufacturer won't change the system. Instead they try to fix it but can't. Therefore, the owners are forced to shut down, which loses money and inhibits good customer service. According to a TEC America spokesperson, the problem is with the cards, not the equipment. According to a TEC America statement, "The `Year 2000' problem argued in this lawsuit is not one of restricted storage capacity or any other deficiency in the TEC computer systems. Rather, the `problem' has been one of credit card authorization methodology belonging to the credit card industry."
TEC America says they have been compliant with the POS vendor guidelines since March and states, "TEC America helped lead the way with software that deals successfully with this Year 2000 use. After successful beta testing, a software update was released in May, 1997, to approximately 30 sites. TEC America received no report of malfunction from any of the users of this updated software and was quite surprised when this issue was raised in litigation."
According to Dean Morehous, a San Francisco attorney who follows the millennium bug as chair of his firm's Year 2000 legal team, "This is likely to be the first of several lawsuits that have something to do with 2000." Morehous believes that other cases may allege that a company didn't disclose the cost of fixing a Year 2000 problem and therefore a business may find it too expensive to fix and will consider suing the vendor. In particular he believes that many POS system suits will be occurring in the near future, like the case above.
As a Green Sheet reader, you may be wondering about the upgrades which deal with the Year 2000 problem. According to Morehous, this case ".involves relatively recent hardware and software, and that debunks the myth that the Year 2000 problem applies only to legacy and mainframe systems." He continued, ".there's an allegation that there was a misrepresentation [about] whether their system could be made Year 2000 compliant. That's a serious claim to make, and other vendors may have to deal with those types of claims."
Recently, to calm the Year 2000 speculation, Visa International and MasterCard International have announced that beginning October 1, 1997, their member banks can issue cards that expire after 1999. This action lifts a restriction the card companies imposed in 1996 when cards with post 1999 expiration dates caused transaction problems. (Cards used to expire in five years, now they expire in two years or less, which has increased banks' issuing costs.) It is also an aggressive effort by the companies to prevent cases similar to the Produce Palace International suit.
While both Visa and MasterCard state that their internal authorization systems have been Year 2000 compliant since 1994, the steps between the POS and authorization had to be ironed out. "We're in this together," says John McCarthy, VP for the Year 2000 Project at Visa. "Our transactions flow through each other's payment systems."
Visa says that by the end of 1997, 100% of POS systems, ATMs, and anywhere else Visa is accepted will be able to handle a post 1999 card. MasterCard leaves room for error, stating that "99.9% is very likely by the end of the year." To be safe, MasterCard is suggesting that it's 23,000 financial institutions first test "Post 1999" cards regionally before beginning wide-scale issuance.
AMEX has yet to issue cards which expire later than 1999 stating that, "Not all merchants are Year 2000 compliant yet. Discover reps say they expect to be able to issue post 1999 cards later this year.
While the Year 2000 problem is being addressed today by terminal manufactures, Visa/MasterCard and ISOs, the problem does not end at the point-of-sale. Some people, including politicians, believe consumers will rush to withdraw their money from ATMs at the end of 1999, due to a belief that they won't be able to get the money in 2000. The alarmist on Capitol Hill is the Republican Senator from Utah, Robert Bennett, who says he's been informed that no ATM in the country is equipped with Year 2000 capability. He concludes that there will be a rash of withdrawals at the end of 1999. Federal Reserve Governor Edward Kelley attempted to assuage Bennett, chair of the Senate Banking subcommittee, by saying, "We will have plenty of cash available to the system" to cover a wave of withdrawals.
But, Arthur Levitt Jr., chair of the SEC, is encouraging consumer activism. So, either way, the Federal Reserve will have to be prepared for a mass of withdrawal of funds and/or a mass of inquiries regarding the issue. It might also be safe to say in closing, that some attorneys are also waiting.
