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EMV Chargeback Controversy Culminates in a Lawsuit

  • By Andrew Deichler
  • Published: 3/16/2016

cardsimageSince the October 2015 EMV liability shift, retailers who are still not EMV-ready have seen a serious uptick in chargebacks. The situation finally came to a head recently in the form of a federal antitrust lawsuit seeking class action status.

B&R Supermarket Inc. and Grove Liquors LLC, two Florida retailers, filed a lawsuit last week against seven card networks, including Visa, MasterCard and American Express; 10 banks, including JPMorgan Chase, Capital One and Wells Fargo; and EMVCo. The merchants claim that despite converting to EMV prior to the liability shift and training their employees in the technology, they have been unable to get their EMV terminals certified by the card brands. As a result, they incurred 88 chargebacks totaling more than $10,000 in fraud-related expenses between Oct. 1 and Feb. 15. Over the same period a year earlier, these retailers reportedly only had four chargebacks.

The suit claims that merchants as a whole have incurred “billions of dollars” in chargebacks and fees since the liability shift took place.

The retailers allege that the card brands and the banks conspired to shift billions of fraud charges to merchants by enforcing a liability shift date that was unrealistic for merchants to meet. According to the plaintiffs, a key reason why meeting the liability shift date has been so difficult for merchants is because the process of certifying their EMV terminals is not within their control.

During the latest meeting of AFP’s Treasury Advisory Group, Liz Garner, vice president of the Merchant Advisory Group (MAG), noted that most of the retailers incurring chargebacks have indeed had EMV technology installed for months, but have been unable to get tested and certified through their acquirers. “So despite their efforts to be ready by the October 2015 liability shift date, there are some retailers who have been unable to deploy EMV, and they’re seeing a significant shift in these chargeback fraud losses, which are moving over to the merchant side,” she said.

Garner believes that the behavior and decisions of the card brands deserve heavy scrutiny. "The upmarket delays, which they are largely responsible for, caused significant challenges and kept several merchants from being able to deploy EMV by the October 1 liability shift date despite tremendous efforts to meet the deadline," she told AFP. "The biggest takeaway from the flubbed EMV transition is that  EMVCo, and the major card brands who govern it, have absolutely no business being in the drivers seat on anything related to the U.S. transition to mobile commerce."

The lawsuit is asking the court to order the card brands and banks to reimburse B&R Supermarket and Grove Liquors for fraud-related charges, as well as pay for the merchants’ perceived overpayment for fraud, since interchange fees paid to the card networks are intended to cover fraud losses.

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