Kroger Takes On Visa’s Debit Card Policies

     CINCINNATI (CN) — The nation’s largest grocery chain says Visa cannot require it to alter point-of-sale software for debit card transactions that complies with federal law.
     The Kroger Co. says Visa Inc. changed its mind about the verification process used for debit card purchases only after the grocer installed over 54,000 point-of-sale, or POS, terminals at its stores.
     The terminals, which allow transactions to be routed to several different payment networks, were installed in 2015 and “require cardholders to input their personal identification numbers (PIN) in the terminal to verify the card,” according to a lawsuit filed Monday by Kroger in Southern Ohio Federal Court.
     Kroger says that, “before [it] implemented these specifications, it sought and obtained Visa’s approval.”
     “[But] in a sudden and drastic change of direction seemingly motivated by an intention to restrain competition, after Kroger rolled out its new chip-enabled POS terminals nationwide, Visa informed Kroger that its terminal configuration did not comply with Visa’s ‘rules,'” the 47-page complaint states. (Emphasis in original.)
     Visa then fined Kroger over $7 million — of which the grocer has paid over $3.1 million — and “threatened to cut off Kroger’s ability to accept all Visa debit cards, even those that are not chip cards,” according to the lawsuit.
     “There is no rational basis for Visa to cut off Kroger’s ability to accept any or all Visa debit cards unless Visa intended to punish Kroger. Doing so threatened catastrophic consequences for Kroger’s business, including turmoil at the check stand as Kroger customers were unable to pay, and the loss of Kroger customers who insisted on using a Visa debit card to pay and thus went elsewhere to shop,” the complaint states. “Even for a company of Kroger’s scale, Visa’s fines, its threats to continue fining Kroger, and its threats to cut off Kroger’s ability to accept Visa debit cards were significant to Kroger, and Visa knew this.”
     Because of the pressure exerted by Visa, Kroger says it gave in to the merchant’s demands and made changes to its POS system, only to have the company change its mind again.
     “Visa [said] that it would remove the fines and limited acceptance threat if, in addition to the POS changes that Kroger was rolling out, Kroger stopped using third party debit networks to process Visa signature debit transactions and used only Visa to process these transactions,” the lawsuit states.
     Kroger says it complied with this demand as well, shortly before filing its lawsuit, which seeks a declaratory judgment that Visa cannot block its PIN verification requirements.
     The complaint says the Durbin Amendment — part of the Dodd-Frank financial reform legislation passed in 2010 — prohibits Visa from “inhibiting merchants’ routing of debit transactions among debit networks,” and that Visa’s “rules” do not trump federal law.
     “The Federal Reserve Board has already rejected Visa’s position that [it] can…force Kroger to accept signature debit transactions on Visa chip cards…[when it ruled that] ‘merchants may not be inhibited from encouraging the use of PIN debit by, for example, setting PIN debit as a default payment method or blocking the use of signature debit altogether,'” Kroger says. (Emphasis in original).
     Kroger is represented by David Blessing of the Blessing Law Firm in Cincinnati.
     Neither party responded to requests for comment Tuesday.

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