They’re Here: EMV Lawsuits

Emily VuittonChargebacks3 Comments

EMV Lawsuits

Another week, another hurdle in the road to EMV technology adoption. Last week, we talked about the continued struggles experienced by merchants in terminal certification. While the card networks announced chargeback policy adjustments to help ease merchant pain, the real issue in certification remained unaddressed.

Merchants have had enough. Two separate sets of lawsuits have been filed against credit card companies and issuing banks by merchants, both large and small. The lawsuits will be heard in federal court, as they allege violation of the Sherman Antitrust Act and the Clayton Antitrust Act.

Large Retailers Want PINs

The first lawsuit includes large retailers like Walmart, Home Depot, and Kroger suing credit card companies and issuing banks. Credit card companies determined that merchants could no longer require the use of PINs, but instead needed to require signatures for chip-enabled cards. These large retailers biggest issue lies in the credit card companies and issuing banks not letting them require PINs for payment cards, which until now was the standard.

EMV cards don’t use the PIN network, instead using a new authentication network run by Visa and MasterCard. In addition to the complications inherent with abandoning a standard system, processing signatures is more expensive than the PIN processing costs.

Small Merchants Stuck in a Chargeback Trap

The class action lawsuit filed on behalf of a number of plaintiffs also focuses on PINs, but on terminal certification and chargebacks as well. These merchants claim the credit card companies were unfairly forcing chargebacks upon them with the arduous terminal certification process. Just as with large retailers, merchants were not able to insist on PIN use for chip-enabled cards.

Thus resulting in the merchant being held responsible for fraudulent transactions instead of the issuing bank. As a result, merchants saw a large increase in chargebacks relating to EMV technology. Visa, MasterCard, and American Express each made chargeback policy adjustments in an attempt to help band-aid the losses merchants suddenly had to face from chargebacks.

In Defense of the Defendants

In an article published on Eweek, it’s suggested that the credit card companies and banks have shown little interest in helping merchants. This isn’t entirely true, as evident by the policy changes we just referenced.

Visa’s chargeback policy changes that will remain in effect until April 2018:

  • All U.S. counterfeit fraud chargebacks under $25 are blocked. (Effective 7/22/16)
  • Issuers must limit merchants to 10 fraudulent counterfeit transactions per account and assume all liability for subsequent fraudulent transaction. (Effective 10/1/16)

MasterCard’s temporary policy changes aren’t as specific as Visa’s changes, but attempt to address chargebacks nonetheless:

  • Checks and blocks are in place to ensure that chargebacks follow liability shift guidelines.
  • Policies are now in place that limit merchant exposure to excessive chargebacks on fraudulent accounts.

The chargeback policy changes made by American Express were on the level of Visa’s specificity and also remain in effect until April 2018:

  • Merchants are not liable for counterfeit fraud chargebacks under $25. (Effective 8/31/16)
  • The number of counterfeit fraud chargebacks to 10 per card account. (Effective 12/31/16)

When Visa announced these policy changes, they assured that they would “significantly reduce the number chargebacks that merchants are seeing. Following these changes, merchants can expect to see 40 percent fewer counterfeit chargebacks, and a 15 percent reduction in U.S. counterfeit fraud dollars being charged back.” Unfortunately, it doesn’t appear to be doing enough for merchants, if these lawsuits are any indication.

3 Comments on “They’re Here: EMV Lawsuits”

  1. Us small businesses are being ripped off by the large CC companies. It doesn’t matter if a transaction is fraud or not, if a customer disputes a charge, small businesses pay the bill. This reversal is automatic and deducted from our bank accounts upon the request of a credit card user. Most “disputes” are not fraud (not in my business anyway), as a customer can change their mind, be mistaken or simply forget (most common if the bar business) , etc…. this charge is automatically charged back to the small business, regardless what proof the business has that a charge is legitimate. The Credit Card companies will not listen or consider any proof, if the business does not have a Chip reader system. (today 70% of all small businesses in the U.S. do not have a Chip Card accepting system). Many customers are causing a fraud, they claim a charge is fraudulent when it is not, just to get money back. And they will get their money refunded, no questions asked by the Credit Card company. The small business pays the funds back, with no opportunity to PROVE a charge is legitimate .

    I paid a fortune for my brand new POS system (which integrates with my Security Camera system). What the Credit Card companies REQUIRE me to do is throw out my perfectly working POS system, and buy a brand new “chip card compatible” POS system. My current system has only been depreciated for 4 years now, before the end of it’s useful life, before the end of it’s depreciation. The Credit Card companies require me to throw it in the garbage, and purchase a new system, before they will consider any proof to show a transaction is legitimate.

    The chip card system was pushed through too quickly, and us small businesses are getting killed with charges from disputed legitimate transactions. Hopefully these class action lawsuits will recover the billions of dollars the small businesses are losing because of a system that was put into place too quickly.

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