FIs, card brands benefit from EMV certification delays, lawsuit alleges

Bet you didn't see this coming.

According to a press release from two law firms representing the retailers — Robbins Geller Rudman & Dowd LLP and Devine Goodman Rasco & Watts-FitzGerald LLP — the case represents a "first-of-its-kind" federal class action lawsuit, and ultimately could affect millions of merchants.

B&R Supermarket Inc., et al v. Visa Inc., et al, Case No. 3:16-cv-01150-WHA, was filed March 8 and is proceeding before United States District Court Judge William H. Alsup in the Northern District of California.

Questions about EMV certification are at the heart of the suit, the release explains:

Several years ago, the credit card companies decreed that, as of October 1, 2015, every merchant who accepted their Visa, MasterCard, American Express and Discover cards had to be able to process the new chip cards if they wanted to ensure that they would not be liable for certain fraud charges that had never before been charged to merchants. …

The only way for a merchant to avoid such chargebacks is for the merchant to obtain specialized, costly equipment to read the card and to have that equipment — along with every connection from the consumer, to the merchant, to the merchant's card servicing company (called an acquirer), to the credit card networks, to the banks that issue the cards — "certified." …

But "certification" is a murky, nebulous process that is controlled by the defendants, who actually benefit from the existence of uncertified merchants who they can subject to the "liability shift." Even for merchants who did everything they could to be ready on time … the certification process is lagging months — and maybe years — behind, with no relief in sight.

The lawsuit alleges that the defendants knew in advance that certification would be delayed or impossible for millions of merchants, but imposed liability shift deadlines anyway "precisely because they would benefit by shifting the billions of dollars in chargebacks from themselves to the merchants."

The plaintiffs allege that in the five months following the liability shift, they were assessed more than $10,000 in chargebacks, compared with virtually none for the same period the year before.

"What you have is a massively unfair and intentional Catch 22, where the very people who benefit from making these merchants pay under the liability shift are the people who imposed it and now control when, if ever, the merchants can get out from under it," said plaintiffs counsel Patrick J. Coughlin of Robbins Geller Rudman & Dowd.

Defendants named in the lawsuit include: Visa Inc. and Visa USA Inc.; MasterCard International Inc.; American Express Co.; Discover Financial Services; Bank of America; Barclays Bank Delaware; Capital One Financial Corp.; Chase Bank USA; Citibank (South Dakota) and Citibank N.A.; PNC Bank; USAA Savings Bank; U.S. Bancorp; Wells Fargo Bank; EMVCo LLC; JCB Co. Ltd; and UnionPay.

Read the full complaint.