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Going to Legal Bat(tle) Over EMV

March 17, 2016

We knew this was going to happen. It was just a matter of when a merchant or merchants would take legal action pertaining to the EMV liability shift, where it would happen, and what the claim would be.

 

Last week was the “when.” Now here’s the “who” and the “what” of the “this”: Two South Florida retailers—B&R Supermarket, Inc. (d/b/a Milam’s Market) and Grove Liquors, LLC have filed an antitrust lawsuit in U.S. District Court for the Northern District of California, seeking treble damages for what they allege to be chargebacks and chargeback fees that add up to more than $10,000. The damages pertain to 88 chargebacks that occurred between October 1, 2015, when the EMV liability shift went into force, and February 15, 2016. The merchants, which are not EMV-ready, say the entire class of merchants in the class-action suit totals several hundred thousand members that have incurred “billions of dollars” worth of chargebacks and fees beginning on the date the shift became effective.

 

Eighteen defendants are named in the suit, among them seven networks, 10 financial institutions, and EMVCo, the network-controlled standards body that created the EMV specification. In addition to Visa, Inc.; MasterCard, Inc.; American Express Co.; and Discover Financial Services, Inc., network defendants include two payment systems based abroad—UnionPay (China) and JCB Co. Ltd. (Japan). The plaintiffs claim these defendants, in a move to quickly transfer to them losses stemming from counterfeit and in some cases, lost-and-stolen card usage, participated in a “conspiracy” to set a liability shift deadline they were aware that merchants would be unable to meet. They also allege that a significant portion of their difficulty in meeting the deadline stemmed from EMV certification backlogs being experienced by vendors and other complications, all of which they say were beyond their control.

 

Moreover, Digital Transactions reported, “the lawsuit goes on to paint the EMV migration as a process imposed on merchants without their consent.” The plaintiffs say they were neither consulted about the liability shift, nor permitted to opt out of the process, and that they were offered no compensation by the card networks in return for costs incurred in migrating to an EMV-compliant payment acceptance platform. A reduction in interchange costs was cited in the lawsuit as one form of compensation that could have been offered, and was offered in other markets that shifted to EMV.

Few defendants in the case have commented publicly about the lawsuit. However,  a MasterCard spokesperson told Digital Transactions via email that there has been no pressure on merchants to board the EMV train. “We’re aware of the filing and are currently reviewing the claims,” the spokesperson said in the email. “There was never a requirement for any party—issuer or merchant—to move to EMV. Using insights from merchants, issuers, and others, our [EMV] roadmap and the related liability shift provided incentives to prompt for the most secure ways to pay. We have and continue to work with parties across the industry—merchants, issuers, processors, manufacturers—to assist in this migration.”

 

Just as we weren’t surprised about this initial lawsuit given the large numbers of merchants we hear have been inundated with chargeback losses following the liability, we won’t be shocked when there are more. In fact, we think this is the first of many trips to the legal well set off by EMV.

 

Why? The liability shift for ATMs doesn’t take hold until later this year, and petroleum retailers have until October of 2017 to get their acts in gear. Very few restaurants have deployed EMV-compliant pay-at-the-table solutions. Many players to which the 2016 or 2017 deadlines apply will not be ready in time for D-Day (or EMV Day, if you must) and will look to the lawsuit as a model for their own litigation. So, too, will other retailers that didn’t join the class formed by the B&R Supermarket and Grove Liquors.

 

 To those who thought the conversion process was going to be smooth, we don’t want to say we told you so, but we did. Lawsuits or not, there’s still a lot of bumpy road ahead.

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