“For years, Visa and MasterCard have been more concerned with protecting their own inflated profits and their dominant market positions than with the security of the payment cards used by American consumers and the health of the United States economy,” the June 13 lawsuit begins.
The complaint, which is the Top Download today for Courthouse News, says Visa and MasterCard deserve blame for why “United States consumers experience the highest rates of payment card fraud in the world, and United States businesses are subject to the highest payment card related fees in the world.”
“For decades, the technology has existed to make credit and debit card transactions safer and less prone to fraud,” the complaint states.
Home Depot says Visa and MasterCard spent years repelling this technology — a combination of personal identification numbers and EMV chips — even as credit card fraud and debit card fraud “drain billions of dollars” from the U.S. economy every year.
In addition to blowing off security measures that have been standard in Europe since the 1990s, the credit card companies “actually do not require that signatures are verified and even discourage merchants from verifying signatures for fear that consumers will be less likely to use their payment cards,” the complaint states.
Home Depot notes that Visa and MasterCard finally embraced the technological upgrade four or five years ago as part of en effort to shift fraud liability to the party least compliant with EMV technology — whether the merchant, issuing bank or credit card company.
October 2015 was the deadline for the liability shift, but adoption of the technology has been slower than expected.
Only 50 percent of U.S. retailers were expected to be able to handle EMV chip technology as of June, according to data from consulting firm The Strawhecker Group.
Alleging 20 counts of state and federal antitrust violations in a 138-page complaint, Home Depot is not the first merchant to take on the credit card companies in court.
Wal-Mart filed a similar lawsuit last month, saying Visa has been blocking customers from using PINs.
Another federal class action, filed in March in San Francisco, accuses Visa, MasterCard, American Express and others of having saddled merchants that implement the new EMV chip technology with impossible-to-meet liability-shifting conditions.
Before that, Champs Sports Bar & Grill and others brought a federal complaint in Georgia that accused credit card vendors of inflating fees without notice.
Seth Eisen, senior business leader at MasterCard, said MasterCard lets merchants decide whether to rely on PIN or signature for verification. “Regardless of how the cardholder’s identity is confirmed, the chip makes data much more secure, rendering it almost useless to create fraudulent cards or transactions,” Eisen said in a statement.
Visa had little to say about the case. “We are aware of the lawsuit and have filed a notice to transfer the action to the pending multidistrict litigation,” Visa spokesperson Connie Kim said in a statement.
The lawsuit doesn’t stop at making anti-fraud allegations. It also lays price-fixing allegations at the feet of Visa and MasterCard, which Home Depot claims have colluded to impose a system of high interchange fees on merchants for every transaction beyond a certain limit.
The allegations are similar to those made in a 2005 class action lawsuit merchants brought against Visa and MasterCard, which alleged that interchange fees were set at artificially high levels. Several merchants settled that lawsuit in 2012, though Home Depot was not among them.
“Visa and MasterCard enforce their price-fixing agreements by mandating that all banks adhere to their network rules,” the lawsuit states.
Home Depot says banks that don’t charge high interchange fees are subject to fines and expulsion from the credit card networks. Those networks allegedly limit each credit card from participating in a single network in order to further pressure banks.
“These banks profit from Visa and MasterCard’s market power by charging supracompetitive interchange fees on signature transactions,” the complaint states.
Home Depot says the interchange fees are some of its highest costs — in 2015 the company estimated bank-card acceptance fees reached nearly $750 million — and yet the fees are totally out of the company’s control and totally up to Visa and MasterCard. Further, the fees are the same for Visa or MasterCard because, the company claims, they have colluded with issuing banks to set the price.
“There is no competition,” the lawsuit alleges. “These banks typically compete for cardholders, but they do not compete for merchant acceptance or over the interchange fees that merchants must pay to accept their Visa and MasterCard cards.”
Contending that interchange fees are unlawful under price-fixing laws, Home Depot says they discriminate against online merchants that rely almost completely on credit and debit cards for transactions.
Merchants also typically have to honor all branded credit cards — accept one Visa credit card, and you must accept them all, according to the complaint.
The high interchange fees may have been the unintended result of the sweeping Dodd-Frank financial reform bill in 2010. The final bill included an amendment by Sen. Richard Durbin that attempted to curb credit card processing fees. At the time, many retailers and banks opposed the rule, claiming it would impose greater costs on consumers.
The rule passed and was upheld in federal court. In response, however, Visa imposed a new fee of five basis points that would punish banks for changing their network affiliation. MasterCard also responded with a new “volume assessment fee” that would penalize card issuers when large amounts of transactions were processed over PIN debit networks, the lawsuit claims.
“These fees are nothing other than blatant efforts to prevent competition,” Home Depot alleges, “and Visa and MasterCard announced them in lockstep to make sure issuing banks know they face retribution for supporting PIN debit options.”
Eisen said Home Depot’s allegation of price-fixing is “not a surprise,” noting that the merchant was one of the many that opted out of the 2012 settlement. “We expected this procedural step.”
- Ex-Clinton Aide’s Immunity Deal Kept Sealed
- Law360 Will Stop Using Noncompete Clauses