Tuesday , August 20, 2019

How EMV-Related Chargebacks Drove Florida Merchant Duo to Sue Networks And Issuers

The Florida merchants that sued all the major card networks and eight of the 10 largest bank issuers last month saw no other way to deal with the flood of chargebacks they incurred after the EMV liability shift, according to a top executive with one of the merchants and an attorney who represents them.

“I knew the shift to EMV was occurring, but we were never advised that such a significant cost would shift to us, the merchants,” says Max Milam, chief executive of B&R Supermarket Inc., in an email message responding to questions from Digital Transactions News and sent to Milam through his attorney. B&R operates four grocery stores in Miami-Dade County under the Milam’s Market banner. The family also controls Grove Liquors LLC, which has one store in Coconut Grove and is a separately named plaintiff in the suit. The case was filed in U.S. District Court for the Northern District of California and seeks class action status.

According to the suit, the merchants incurred chargebacks and chargeback fees totaling more than $10,000 stemming from 88 chargebacks between the liability-shift date, Oct. 1, and Feb. 15. During the same period a year earlier, the stores received four chargebacks. “Ten thousand dollars really eats into their margins,” says Patrick Coughlin, of counsel at Robbins Geller Rudman & Dowd LLP, San Diego, one of two firms representing the merchants. “[Max] is just knocking his head against the wall.”

Milam says neither he nor anyone else in his company could have estimated what the volume of chargebacks would come to once responsibility moved to merchants that can’t process EMV transactions. “I had no idea of the volume of chargebacks incurred by the issuing banks…prior to the shift, as that’s not something that the issuing banks/card brands ever shared with us,” he says.

Milam’s Markets and Grove Liquors were ready for the transition, Milam says, with a total of 33 EMV-capable terminals. The merchants spent a total of $20,000 on the devices and had them installed eight months ahead of the liability-shift date. But long queues to get EMV equipment certified by processors have prevented the merchants from using the EMV function. “As of today, we are still waiting for them to be certified,” Milam says.

Seeing no alternative, Milam’s and Grove sought out Robbins Geller to bring suit, Coughlin says. The firm has experience suing the major card networks. It was co-lead counsel in a massive antitrust case against Visa Inc., MasterCard Inc., and more than a dozen banks that was settled in 2012 and resulted in interchange relief and some changes to network acceptance rules. The Milam’s case names Visa and MasterCard along with 16 other defendants and seeks treble damages for the chargebacks and chargeback costs the merchants have incurred.

Under the networks’ liability shifts for EMV, responsibility for counterfeit—and in some cases lost-and-stolen—card fraud moved from issuers to merchants if the merchants couldn’t accept EMV chip cards. Hence, it was in the banks’ interest to agree to a liability-shift date they knew most merchants couldn’t meet, Coughlin argues. “They knew it would take years to [certify], yet they all act like they’re all stunned,” he tells Digital Transactions News. A delay of one year to 18 months in the liability-shift date would be appropriate, he adds.

It also might have helped had the networks offered a break on interchange to compensate for the chargeback risk, Coughlin and Milam both argue. Instead, the move to EMV turned into “a one-way proposition that was a big loss to the merchants and a big win to the issuing banks,” says Milam.

The Electronic Payments Coalition, a Washington, D.C.-based lobbying group that represents card networks and issuers, counters that merchants have had plenty of time to get ready for EMV. “Merchant groups have known about the transition to EMV cards for five years but instead of getting their act together they have tried to delay, obfuscate, and reject this solution—all while leaving customers exposed to hackers and counterfeiters” says Molly Wilkinson, executive director, in an email to Digital Transactions News.

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