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Merchants Without EMV Now Facing Chargeback Fees and Lawsuits

Merchants Without EMV Now Facing Chargeback Fees and Lawsuits

The introduction of EMV chip cards into the U.S. payments landscape has led to a decline in counterfeit credit card fraud, but a sharp rise in chargebacks and legal costs for merchants. Since the liability shift in October 2015, a string of legal suits related to the EMV transition have been filed by customers, merchants, and even banks.

B&R Supermarket filed a 47-page lawsuit against several major card brands and financial institutions, accusing them of purposefully setting an unrealistic EMV migration deadline. According to the filed complaint, the EMV deadline was imposed to transfer the losses for fraud from counterfeit, lost, and stolen cards to merchants who couldn’t possibly become compliant before the deadline. B&R Supermarket alleges that, “the defendants engaged in a ‘conspiracy’ to fix a liability-shift date they knew merchants could not meet because of certification backlogs and other complications.”

In this case, B&R Supermarket upgraded their payment terminals to EMV-capable terminals, but were still “hit with $10,000 in liability for fraud, chargebacks, and chargebacks fees stemming from 88 chargebacks” while they waited to be EMV-certified. While in the lengthy EMV-certification queue, B&R noted that the liability shift date had passed, thus making them financially responsible for bearing the costs related to chargebacks.

The lawsuit also paints the EMV migration as a process merchants were forced comply with and that, “merchants were not consulted about the liability shift, nor were they permitted to opt out of the process. In addition, …the networks offered no compensation to merchants in exchange for costs they incurred in undergoing the transition to EMV.”

The EMV certification process can take months and, oftentimes, smaller merchants are jostled to the back of the queue as larger, more well-known merchants vie for positions at the front of the line. This queue, and subsequent waiting period, disproportionately affects smaller merchants who may not be able to financially shoulder the burden of increased chargebacks month after month and are told to “hurry up and wait.”

And now, unfortunately, merchants are being sued – in early 2016, Wendy’s disclosed that malware was found on some of their point-of-sale (POS) terminals and customer payment data was compromised. As a result, Wendy’s was sued by both customers and banks. The lawsuits claimed that Wendy’s did not have the most up to date payment security, which put customers’ card data at risk.

While there was advance notice regarding EMV and the liability shift, the complex certification process has taken payments players much longer than anticipated. And in a case of EMV déjà vu, gas stations across the U.S. are currently facing the same EMV-implementation issues that retailers, hoteliers, and other merchants faced in the months leading up to the 2015 shift. Upgrading (or replacing) terminals, certifying the EMV solution, and waiting for processors or acquirers to complete their part of the process is a very expensive and time-consuming process that does not ensure smaller, independent gas station operators will meet the deadline. The liability shift deadline for pay-at-the-pump gas terminals? October 2017.

Merchants need to maintain up-to-date payment systems that comply with industry and federal standards to avoid lawsuits, chargebacks, and any loss of revenue resulting from a data breach. And by becoming an early adopter, merchants can avoid some of the frustration and financial setbacks associated with being at the back of the EMV-certification line. Our EMV- and PCI-compliant payment solutions integrate seamlessly into existing POS systems like MICROS, POSitouch, and InfoGenesis. Contact us to ask about implementing EMV quickly and securely.

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