More internet merchants sueing credit card companies - GoFuckYourself.com

ThunderBalls · 05-22-2003, 07:22 PM

Another lawsuit against the credit card companies, this ones about the credit card companies profiting on internet fraud, something I've been saying for years.

http://www.msnbc.com/news/917088.asp?0cv=CB10

May 22 ? Three merchants have filed suit against Visa, MasterCard American Express and Discover, claiming the credit card companies profit from Internet fraud and do not do all they can to stop it. The suit, which seeks class action status, claims that ?merchants have paid virtually all of the costs associated with fraud and theft,? while credit card associations and issuing banks make millions on fraud-related charges. It also alleges the associations use monopoly power to force merchants to sign unfair contracts.

?WHAT WE?RE SEEKING is not only restitution of excessive penalties but also to cure tomorrow,? said attorney Mark W. Ishman, who filed the complaint in U.S. District Court in Raleigh, N.C. on Tuesday.
The named plaintiffs are North Carolina-based eGeneral, which runs a health Web site; New York-based Direct Foreign Exchange PLC, which runs an online currency exchange; and West Virginia-based Howell Automotive, which sells auto parts online.
The lawsuit seeks an undisclosed amount for damages, but assuming it is certified for class-action status, Ishman said the amount could be ?hundreds of millions of dollars.?
Credit card firms have information which could stop credit card fraud, but often don?t tell merchants, the lawsuit claims.
American Express spokeswoman Susan Korchak said the company had not seen the lawsuit and could not comment on it. A Visa spokesman said the company had not been served with the lawsuit and could not comment.
MasterCard issued a statement saying it had not seen the lawsuit either, but that it was ?confident that our practices with respect to our Internet merchants are lawful and appropriate and have served to benefit not only consumers, but these merchants as well. MasterCard has long been an industry leader in fraud protection and we will continue to innovate as part of our continuing efforts to combat fraud.?
Discover didn?t immediately respond to requests for comment.

WHO PAYS FOR FRAUD
Online merchants have long complained that they foot the bill for Internet fraud.
When a credit card is stolen and used to make a purchase, consumers can dispute the charge, and generally, have it removed from their bill. But the merchant who sold the item ends up paying for it, a process known as a ?chargeback.?
For example, if a $1,000 product is bought with a credit card that turns out to be stolen, the merchant?s bank takes back the $1,000 it had put into the merchant?s account. The merchant must also pay an additional chargeback fee, which can be $50 or more, for each instance of a fraudulent purchase. So, not only do none of the financial institutions along the way have to share the merchant?s loss, but they also collect a share of the fee.
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This is because most agreements between the merchants and the credit card associations say the merchant must pay for all instances of fraud in what?s known as ?card-not-present? transactions. A ?card-not-present? transaction is any one in which a card is used, but the merchant doesn?t collect the consumer?s signature on a sales slip ? or, in other words, virtually all online and telephone credit card transactions. That makes those merchants especially vulnerable to chargeback fees.
That?s not fair, Ishman says, and merchants would never agree to those terms if they had a choice.
?They are abusing their monopolistic powers because merchants cannot function online without being able to accept these credit cards,? Ishman said.
Four weeks ago, Mastercard and Visa settled a seven-year-old antitrust case brought against them by retailers regarding debit card practices. Merchants like Wal-Mart and Sears charged that the credit card associations were exercising monopoly power when they insisted retailers follow an ?honor all cards? policy, which included certain debit cards that charged high fees to the merchants. Visa and Mastercard agreed to pay $3 billion to settle the class-action case. They also agreed to lower debit card fees and to allow merchants to refuse the cards.

PROFITING OFF FRAUD?
Ishman said he specializes in Internet crime and filed the lawsuit after the three merchants approached him.
The suit also claims credit card firms and issuing banks actually profit from fraud because of revenue from chargeback fees. Ishman estimated $383 million in chargeback fees was collected from merchants in 2001, based on his estimate that 1.4 percent of all card-not-present transactions that year were fraudulent. In comparison, however, Visa has said that in 2001, only one-quarter of one percent of online transactions were fraudulent.

The lawsuit also alleges the companies are operating in violation of federal and state anti-racketeering laws because they don?t do enough to stop credit card fraud.
?We have strong beliefs that will be supported through discovery that [the credit card associations] have knowledge that certain cards have been stolen or compromised, but they don?t ... share such knowledge,? Ishman said. ?Throughout these transactions, they had many opportunities in which they could have stopped (the fraud) or minimized damages.?
As an example, Ishman said that when a Web site?s database of credit card numbers is compromised, credit card firms don?t immediately cancel the cards or inform consumers; they simply watch the list of potentially stolen cards and look for signs of actual fraud. That happened earlier this year when systems at Data Processors International in Omaha, Neb., were compromised, and 8 million card holders were put at risk.
?We estimated that it would have cost them $2 million to replace the 8 million cards, but if they wait for just one chargeback of $45 on each card, they make $360 million,? Ishman said.
Last year, a federal court threw out an Internet-related racketeering lawsuit against the credit card companies. Consumers who lost money on Internet gambling sites had tried to sue Visa, Mastercard and a host of issuing banks under racketeering laws. The suit was dismissed, and last December, the U.S. Court of Appeals for the Fifth Circuit in New Orleans upheld the earlier ruling.

The credit card associations ?have made profits from merchants on almost every element of fraud that runs through their hands,? Ishman said, and indeed, the 89-page complaint has a laundry list of charges.
Another of them is the claim that credit card firms make it impossible for merchants to fight what Ishman calls ?cybershoplifting? ? consumers who get what they ordered, but simply call their credit card firm and dispute the charge anyway.
?At that point the credit card company simply reverses the charges. That means the merchant is out the sales price, the shipping costs, the product, a client and is charged a chargeback fee,? he said.
The credit card associations have 30 days to respond to the lawsuit, Ishman said.

tony286 · 05-22-2003, 07:27 PM

Man this starting to get really good .

ThunderBalls · 05-22-2003, 07:30 PM

Quote:

Originally posted by tony404
Man this starting to get really good .

No shit. It irritates the hell out of me that Visa/MC has this 'we are God' attitude and can get away with anything they want. I hope this suit sticks 'em hard.

HairToStay · 05-23-2003, 04:19 AM

Quote:

Originally posted by ThunderBalls

PROFITING OFF FRAUD?
Ishman said he specializes in Internet crime and filed the lawsuit after the three merchants approached him.
The suit also claims credit card firms and issuing banks actually profit from fraud because of revenue from chargeback fees. Ishman estimated $383 million in chargeback fees was collected from merchants in 2001, based on his estimate that 1.4 percent of all card-not-present transactions that year were fraudulent. In comparison, however, Visa has said that in 2001, only one-quarter of one percent of online transactions were fraudulent.
.

I've been saying all along that they profit from chargeback fees.

What's interesting however is Visa claiming 1/4 of one percent of online transactions were fraudulent -- what percentage of those were adult oriented? If the percentage is SO low, why are they being so anal about their 1% threshhold?

slavdogg · 05-23-2003, 04:33 AM

it all sounds great, these law suits
but it doesnt help the short term,
VISA and MC will drag this out for years and year...

05-22-2003, 07:22 PM	#1
ThunderBalls So Fucking Banned Industry Role: Join Date: Oct 2002 Location: Mesosphere Posts: 2,926	More internet merchants sueing credit card companies Another lawsuit against the credit card companies, this ones about the credit card companies profiting on internet fraud, something I've been saying for years. http://www.msnbc.com/news/917088.asp?0cv=CB10 May 22 ? Three merchants have filed suit against Visa, MasterCard American Express and Discover, claiming the credit card companies profit from Internet fraud and do not do all they can to stop it. The suit, which seeks class action status, claims that ?merchants have paid virtually all of the costs associated with fraud and theft,? while credit card associations and issuing banks make millions on fraud-related charges. It also alleges the associations use monopoly power to force merchants to sign unfair contracts. ?WHAT WE?RE SEEKING is not only restitution of excessive penalties but also to cure tomorrow,? said attorney Mark W. Ishman, who filed the complaint in U.S. District Court in Raleigh, N.C. on Tuesday. The named plaintiffs are North Carolina-based eGeneral, which runs a health Web site; New York-based Direct Foreign Exchange PLC, which runs an online currency exchange; and West Virginia-based Howell Automotive, which sells auto parts online. The lawsuit seeks an undisclosed amount for damages, but assuming it is certified for class-action status, Ishman said the amount could be ?hundreds of millions of dollars.? Credit card firms have information which could stop credit card fraud, but often don?t tell merchants, the lawsuit claims. American Express spokeswoman Susan Korchak said the company had not seen the lawsuit and could not comment on it. A Visa spokesman said the company had not been served with the lawsuit and could not comment. MasterCard issued a statement saying it had not seen the lawsuit either, but that it was ?confident that our practices with respect to our Internet merchants are lawful and appropriate and have served to benefit not only consumers, but these merchants as well. MasterCard has long been an industry leader in fraud protection and we will continue to innovate as part of our continuing efforts to combat fraud.? Discover didn?t immediately respond to requests for comment. WHO PAYS FOR FRAUD Online merchants have long complained that they foot the bill for Internet fraud. When a credit card is stolen and used to make a purchase, consumers can dispute the charge, and generally, have it removed from their bill. But the merchant who sold the item ends up paying for it, a process known as a ?chargeback.? For example, if a $1,000 product is bought with a credit card that turns out to be stolen, the merchant?s bank takes back the $1,000 it had put into the merchant?s account. The merchant must also pay an additional chargeback fee, which can be $50 or more, for each instance of a fraudulent purchase. So, not only do none of the financial institutions along the way have to share the merchant?s loss, but they also collect a share of the fee. Advertisement This is because most agreements between the merchants and the credit card associations say the merchant must pay for all instances of fraud in what?s known as ?card-not-present? transactions. A ?card-not-present? transaction is any one in which a card is used, but the merchant doesn?t collect the consumer?s signature on a sales slip ? or, in other words, virtually all online and telephone credit card transactions. That makes those merchants especially vulnerable to chargeback fees. That?s not fair, Ishman says, and merchants would never agree to those terms if they had a choice. ?They are abusing their monopolistic powers because merchants cannot function online without being able to accept these credit cards,? Ishman said. Four weeks ago, Mastercard and Visa settled a seven-year-old antitrust case brought against them by retailers regarding debit card practices. Merchants like Wal-Mart and Sears charged that the credit card associations were exercising monopoly power when they insisted retailers follow an ?honor all cards? policy, which included certain debit cards that charged high fees to the merchants. Visa and Mastercard agreed to pay $3 billion to settle the class-action case. They also agreed to lower debit card fees and to allow merchants to refuse the cards. PROFITING OFF FRAUD? Ishman said he specializes in Internet crime and filed the lawsuit after the three merchants approached him. The suit also claims credit card firms and issuing banks actually profit from fraud because of revenue from chargeback fees. Ishman estimated $383 million in chargeback fees was collected from merchants in 2001, based on his estimate that 1.4 percent of all card-not-present transactions that year were fraudulent. In comparison, however, Visa has said that in 2001, only one-quarter of one percent of online transactions were fraudulent. The lawsuit also alleges the companies are operating in violation of federal and state anti-racketeering laws because they don?t do enough to stop credit card fraud. ?We have strong beliefs that will be supported through discovery that [the credit card associations] have knowledge that certain cards have been stolen or compromised, but they don?t ... share such knowledge,? Ishman said. ?Throughout these transactions, they had many opportunities in which they could have stopped (the fraud) or minimized damages.? As an example, Ishman said that when a Web site?s database of credit card numbers is compromised, credit card firms don?t immediately cancel the cards or inform consumers; they simply watch the list of potentially stolen cards and look for signs of actual fraud. That happened earlier this year when systems at Data Processors International in Omaha, Neb., were compromised, and 8 million card holders were put at risk. ?We estimated that it would have cost them $2 million to replace the 8 million cards, but if they wait for just one chargeback of $45 on each card, they make $360 million,? Ishman said. Last year, a federal court threw out an Internet-related racketeering lawsuit against the credit card companies. Consumers who lost money on Internet gambling sites had tried to sue Visa, Mastercard and a host of issuing banks under racketeering laws. The suit was dismissed, and last December, the U.S. Court of Appeals for the Fifth Circuit in New Orleans upheld the earlier ruling. The credit card associations ?have made profits from merchants on almost every element of fraud that runs through their hands,? Ishman said, and indeed, the 89-page complaint has a laundry list of charges. Another of them is the claim that credit card firms make it impossible for merchants to fight what Ishman calls ?cybershoplifting? ? consumers who get what they ordered, but simply call their credit card firm and dispute the charge anyway. ?At that point the credit card company simply reverses the charges. That means the merchant is out the sales price, the shipping costs, the product, a client and is charged a chargeback fee,? he said. The credit card associations have 30 days to respond to the lawsuit, Ishman said.

05-23-2003, 04:33 AM	#5
slavdogg Confirmed User Join Date: Jan 2001 Posts: 3,570	it all sounds great, these law suits but it doesnt help the short term, VISA and MC will drag this out for years and year... __________________ Adult Traffic for Sale

05-22-2003, 07:27 PM	#2
tony286 lurker Industry Role: Join Date: Aug 2002 Location: atlanta Posts: 57,021	Man this starting to get really good .