The transition to EMV chip card technology was intended to improve payment security, but it also created new tensions between retailers, banks, and card networks over who should bear the cost of fraud. Now that conflict has moved into the courtroom, as merchants have filed a lawsuit alleging that major financial institutions unfairly shifted liability for fraudulent transactions onto retailers through the EMV migration process. The case underscores the growing frustration among merchants facing rising chargebacks, expensive technology upgrades, and operational challenges tied to the nationwide rollout of chip-enabled payment systems.
The battle has been joined. Two Florida merchants, a grocery chain and a liquor store, have filed a suit again the major credit card companies and assorted banks, claiming that the financial institutions colluded and illegally shifted credit card transaction liability to the retailers.
An antitrust lawsuit has been filed this week in U.S. District Court for the Northern District of California against the largest credit card companies and banks, The Recorder reports. The suit claims the financial firms collaborated on shifting the liability for illegal credit card transactions from the credit card companies and banks to retailers.
The lawsuit alleges that moving to electronic chip cards (EMV chips) has been fraught with technical difficulties. The complaint also claims the change was used to hide the shift in paying for fraud protection. Retailers not making the October 1, 2015, deadline are now liable for illegal charges that used to be covered mostly by card issuers.
“Merchants were not consulted about the change, were not permitted to opt out, were not offered any reduction of the interchange fee, the merchant discount fee, the swipe fee—or any other cost of accepting defendants’ credit and charge cards,” according to the plaintiffs’ lawyers. “The liability shift was unilaterally imposed to the benefit of defendants, with no compensation, consultation or consideration of any kind made to the class members.”
The card issuers and banks “shifted $8 billion of liability to the merchants overnight,” said Patrick Coughlin with Robbins Geller Rudman & Dowd, one of the firms filing the suit. All four major credit card firms as well as close to 12 banks were named in the suit, which was made on behalf of a Florida liquor store and grocery store chain, which had experienced charge-backs related to false payments increase from $89 in the 12 months ending on October 15 to more than $10,000 since that deadline.
Perhaps the most surprising part about this lawsuit is that it took so long for the merchants to cry foul. Maybe this is because many retailers, especially small to medium sized, do not have the necessary POS terminals to enable EMV cards. Even large retailers have not come close to fully implementing the new system. And for the ones that do—the authorization process can be tedious for both cashiers and customers alike. Expect to hear from more unhappy merchants sooner than later, and possibly as well, the legal industry’s equivalent of a home run swing—a class-action lawsuit.
Overview by Raymond Pucci, Associate Director, Research Services at Mercator Advisory Group
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