Merchant Lawsuit over Fraud Liability Shift Moves Forward
A federal judge has ruled that a lawsuit alleging payment networks colluded over fraud liability can go forward, denying the networks’ motion to dismiss the lawsuit. Filed in March 2016 in U.S. District Court for the Northern District of California by two Florida retailers, the lawsuit accuses American Express, Discover, Mastercard and Visa of engaging in “a conspiracy” when shifting liability for transaction fraud to merchants that failed to upgrade their POS systems to accept EMV chip technology by Oct. 1, 2015.
The plaintiffs—a supermarket and a liquor store—are seeking class-action status on behalf of merchants nationwide. The merchants claim the four networks’ policies around the fraud liability shift violated antitrust laws. The networks engaged in a form of price-fixing, the suit alleges, by implementing the same fraud liability rules on the same day—so as to preclude merchants from steering customers toward using cards with more lenient fraud liability terms.
In his Sept. 30 ruling denying the motion to dismiss, U.S. District Judge William Alsup wrote that the “plaintiffs plausibly allege an impermissible conspiracy,” by the networks. The merchants’ complaint “sufficiently alleges a context that raises a plausible and reasonable suggestion of collusion ‘in a room’ rather than parallel conduct,” he added.
A number of major card-issuing banks, along with chip card specification organization EMVCo, also were named in the original lawsuit, but were dismissed from the case in the ruling by Judge Alsup. However, those parties could be added back to the case if the plaintiffs present more evidence, the ruling said.
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