EMV’s Litigious Phase

We probably should have seen this coming. The ongoing transition of the U.S. payments system to the EMV chip card standard has provoked its first lawsuit. And chances are this won’t be the last.

Two Florida merchants, a small grocery chain and a liquor store, filed suit last month in U.S. District Court for the Northern District of California. The merchants accuse some 18 defendants—seven networks, 10 financial institutions, and EMVCo, the network-controlled entity that drew up the EMV specification—of using the EMV liability shift as a way to transfer counterfeit card losses and chargeback costs to merchants.

The defendants foisted EMV on merchants even though they knew the merchants couldn’t meet the Oct. 1, 2015, deadline by which merchants unprepared for EMV would assume responsibility for these losses, the suit argues. It cites certification delays and other factors it argues merchants have no control over.

The plaintiffs may be small, but there are some big names among the defendants—Visa, MasterCard, American Express, JPMorgan Chase, Capital One, Wells Fargo, even UnionPay and JCB, which are based in China and Japan, respectively. Also, as might be expected, the suit seeks class status, arguing the case affects hundreds of thousands of merchants that have incurred “billions of dollars” in chargebacks and fees since the liability shift took effect.

What to make of this? First, as noted, this should have been expected. Merchants in recent years have been entangled with banks and payments networks in a variety of lawsuits over issues ranging from interchange to surcharges to customer steering. Why should EMV’s liability shift be any exception? Merchants somewhere were bound to sue once it became clear they couldn’t meet the deadline and chargebacks rolled in that were formerly borne by issuers.

Second, it’s interesting to note the plaintiffs’ contention that, in EMV, merchants were confronted with a process over which they had little or no control and to which they never consented, yet they now face significant costs if they can’t accept EMV chip cards. Meanwhile, issuers are gleefully shipping chargebacks to the hapless merchants.

That contention sets up what may well be the suit’s bottom-line argument—that merchants were offered no compensation for costs incurred in making the transition. These costs are real—everything from equipment to software and personnel training. One form of such compensation could have been a reduction in interchange, something networks allowed for in other markets that adopted EMV, the suit says.

So does this case boil down to another suit over interchange? It’s more complicated than that, but don’t be surprised if the creaky old interchange system comes in for another assault from this latest litigation.

—John Stewart, Editor, john@digitaltransactions.net