CREDIT CARD COMPANIES BOMBARDED AGAIN WITH LAWSUITS

By Art Lieberman We have been reporting to our industry that credit card companies have been embattled for several years in class-action suits claiming that the companies have conspired to set prices on credit card rates in violation of antitrust laws. The suit, we noted recently, although thought to be settled, was overturned by the U.S. Court of Appeals and is, once again, still pending. But now, retailers are after the card companies for that horrendous roll-out of the chip card and the required EMV terminals that retailers need to process chip cards. The suits center on the “arbitrary” October 1, 2015, deadline that the companies set to complete the conversion to chip card technology. A suit, initially brought in Federal District Court by two small Florida businesses – B & R Supermarket and Grove Liquors – in March, has now been joined by Los Angeles gourmet food chain Monsieur Marcel and Fine Fare, a New York City food chain. U.S. District Court Judge William Alsup of the Northern District Court of Southern California has allowed the case to move forward against Visa, MasterCard, Discover Financial Services, and American Express. The suit alleges that there was a conspiracy by the card companies to create an artificial deadline to shift responsibility for fraudulent transactions to retailers who haven’t upgraded from the old magnetic strip reader to the newer chip card reader. Lawyers for the plaintiffs have said that a class action suit may well involve as many as 8 million retailers, mostly small businesses. The action seeks to recover costs of the upgrade to the new equipment and/or software which is estimated at $6 billion. But others estimate damages could be as much as $40 billion. The judge’s decision to proceed with the action against the credit card companies relies on the fact that the rollout of the chip card deviates from the rollout in Europe. The judge concluded that . . . “the deviation from prior rollouts points the finger at plausible suspicion and tends to show the lock-step rollout in the U.S. flowed from a conspiracy . . . .” Judge Alsup continued by explaining that in Europe the networks “offered certain accommodations to other countries by reducing interchange fees, implementing gradual rollouts, and providing additional time to install terminals.” Visa CEO Charlie Sharf told analysts that Visa had actually informed retailers, banks, and other credit card companies of the conversion in 2014. But the judge said that just because merchants were present on that occasion didn’t actually render the idea of a conspiracy implausible. Judge Alsup pointed out that “run-of-the-mill merchants like the plaintiffs did not take part in those discussions.” After the lawsuit was filed the credit card companies tried to make the transactions faster and have forgiven chargebacks of less than $25 as a result of the lack of pin non-compliance. Meanwhile, ironically, Walmart and Home Depot have brought a separate action against the credit card companies related to the contention that the new chip card transactions rely on “chip and signature’” rather than the more secure “chip and pin” for which they were designed. And the beat goes on… MCPS is a credit card processor sponsored by Woodforest Bank NA. Company President Art Lieberman has been in the industry for over 18 years and has been conducting free webinars online and seminars on credit cards in many State and Regional Association Conventions. He can be contacted at 877-858-9010 or at rvcreditcards@yahoo.com.)

NEW DEBIT CARD REWARDS PROGRAM HURTS MERCHANTS

By Art Lieberman For those readers of my many articles on the costs of processing credit cards, you are already aware of the penalties put on merchants by banks for accepting rewards cards. Banks that issue credit cards to consumers have been offering rewards on credit cards for years. It might have started with American Express, which offered its premiere cards with rewards for many years. Of course there were certain qualifications for a consumer to get these reward cards. First, their credit had to be outstanding and, perhaps even more important, they could not carry a balance. All transaction made during a month had to be paid for, in full, after they received their monthly invoice. In effect, as a cardholder you were getting 30 days’ worth of credit. But on the other end of that transaction, the merchant paid for those rewards because the rates for American Express Cards were almost double the rates of a Visa or MasterCard. Discover cards also offered rewards, but their cardholders could pay out the credit with interest over months. Their rates also were higher to merchants, but since Discover was making interest from cardholders, their rates weren’t that high. Like American Express, Discover also billed merchants separately for accepting their cards. Then, several years ago, it all started to change. American Express offered a BLUE Card, which didn’t require a very high credit standing from their cardholders and they could pay off the credit charges over several months. Discover changed from Novus to its present form and they became part of the standard package of credit cards offered by processors. They also reduced their rates to merchants and they are now compatible with Visa and MasterCard in Interchange rates. American Express also reduced their rates a few years ago and now, although just a little higher, their “Opt Blue” rates are very similar to the other card rates. Now let’s be clear. We have been discussing CREDIT CARDS. Debit cards have been a different matter since their inception. Unquestionably, when a merchant accepts a debit card WITH A PIN-PAD, the rates on the Interchange are the lowest rates available from the card companies. On the Interchange chart, the lists of different debit card transaction fees are very inexpensive. Of course, by the time the actual rate reaches the merchant, those rates have been increased by the banks and sales reps. But, nevertheless, pin debit transactions don’t make processing banks much money – and merchants can just accept a debit card like a credit card and pay higher rates. No pin-pad required. But now, perhaps because banks are starting to realize that the new chip cards transactions are eventually intended to be chip and pin, not chip and signature, they are offering debit card holders REWARDS if they do not use their pin number on a debit card transaction, but rather do a chip and signature transaction instead. That way, they can charge the merchant more – THAT’S YOU! Issuing banks have started to send out notices to debit card holder, which is basically almost all people who have a checking account, that they will receive rewards if they “…sign the receipt. Purchases made using your PIN number do NOT qualify” The notice goes on to say, “Make just 3 signature-based purchases totaling $500 or more on or before December 31, 2016 to earn your award” The rewards are monetary and listed in the notice. This is just wonderful for the banks, who can now charge the higher Interchange rates on the transactions, fabulous for the consumer who can earn cash rewards and terrible, of course for you, since YOU pay the reward. But there is one other implication that should bother you as it bothers me. Signature based transactions are LESS SECURE than PIN debit transactions. It is part of the reason for this entire chip – EMV terminal debacle which continues to baffle us all. Security was the name of this game. Greed is the name of the Debit Rewards program! MCPS is a credit card processor sponsored by Woodforest Bank NA. Company President, Art Lieberman has been in the industry for over 18 years and has been conducting free webinars online and seminars on credit cards in many State and Regional Association Conventions. He can be contacted at 877-858-9010 or at rvcreditcards@yahoo.com.)