Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Visa and MasterCard allegedly conspired to shift chargeback liability to merchants, (Mar 9, 2016)

By Linda O’Brien, J.D., LL.M.

Visa, MasterCard, American Express, and Discover have engaged in a conspiracy to shift the liability of fraudulent credit and charge card transactions from the card-issuing banks to small merchants, even though the merchants have purchased EMV microchip compliant point-of-sale equipment directed by the payment card networks, according to a complaint filed in the federal district court in San Francisco (B & R Supermarket, Inc. v. Visa, Inc., March 8, 2016).

B & R Supermarket, Inc., doing business as Milam’s Market, and Grove Liquors LLC are merchants that operate four retail grocery stores and a retail liquor store, respectively, in Miami-Dade County, Florida.

Visa and MasterCard are associations of independently owned member banks and financial institutions, each of which operate as an issuing bank or acquiring bank of credit or charge cards used by consumers. Cardholders can dispute their payment card transactions for various reasons, such as fraud. Cardholders are generally not responsible for these losses, called chargebacks, which are historically borne by the issuing banks.

Beginning in 1993, in addition to having a magnetic stripe on the back, credit and charge cards began to be manufactured with an electronic chip—or “EMV chip”—which creates a unique electronic signature for each transaction. Visa and MasterCard, along with Europay, have developed standards for using EMV cards. The standard is managed by EMVCo, a joint venture owned by Visa, MasterCard, JCB, American Express, China UnionPay, and Discover.

The complaint states that, in October 2015, American Express, Discover, Visa, MasterCard, and their issuing banks decided to shift the liability for card present chargebacks (called the “liability shift”) from the issuing banks to the merchants, unless the merchants could satisfy certain conditions. The cost of the transition to EMV chip cards is paid by merchants that accept the cards and must purchase new point-of-sale (POS) equipment at a cost of $100 to $600 per machine to process chip card transactions. After purchasing the new POS equipment and training staff, a merchant’s equipment must be “certified” by EMVCo as condition to avoid the liability shift.

Very large retailers had their EMV processing systems certified very quickly. However, small merchants, such as the plaintiffs, allegedly had no control over the certification process and may have to wait for years for it to occur. According to the plaintiffs, retail trade associations warned that small retailers did not have the resources to get certified prior to the implementation of the liability shift. Despite the obstacles that the defendants knew would be difficult for small merchants, the liability shift occurred in October 2015 with no grace period.

The merchants were not consulted about the change, not permitted to opt out, and not offered any reduction in the interchange fee, merchant discount fee, or swipe fee, the plaintiffs claim. Having the right POS equipment is insufficient for small merchants to avoid the liability shift. The damages to small merchants are substantial. The plaintiffs are being charged back for purportedly fraudulent transactions that in the past would have borne by the issuing banks, the complaint alleges.

The plaintiffs assert claims for unjust enrichment and conspiracy in unreasonable restraint of trade in violation of Section 1 of the Sherman Act and California’s Cartwright Act. The action seeks declaratory and injunctive relief, treble damages, interest, costs of suit, attorney fees, and any other just and proper relief.

The case is No. 3:16-cv-01150.

Attorneys: Patrick J. Coughlin (Robbins Geller Rudman & Dowd LLP) and John W. Devine (Devine Goodman Rasco & Watts-Fitzgerald, LLP) for B & R Supermarket, Inc. and Grove Liquors LLC.

Companies: B & R Supermarket, Inc.; Grove Liquors LLC; Visa, Inc.; MasterCard International Incorporated; American Express Company; Discover Financial Services; Bank of America, N.A.; Barclays Bank Delaware; One Financial Corporation; Citibank, N.A.; USAA Savings Bank; Wells Fargo Bank, N.A.; EMVCo., LLC; JCB Co. Ltd.; China UnionPay

News: Antitrust CaliforniaNews