MasterCard Sued for Antitrust Violations & Fraud
 

May 12, 2003

MasterCard Sued for Antitrust Violations & Fraud

MARINA DEL REY, CA. Paycom Billing Services, Inc., an Internet Payment Service Provider, processing credit card and check transactions for Internet merchants, filed a multi-million dollar lawsuit today in Federal Court in Los Angeles against MasterCard International for antitrust violations, fraud and other issues.

Paycom's suit alleges that MasterCard has established monopolistic rules that allow it unreasonable discretion to dominate Internet merchants, and it has exercised this power to illegally impose fines and penalties in the millions of dollars.

Former Federal Prosecutors for the US Department of Justice, William McD. Miller and Richard P. Crane, Jr. of the Los Angeles law firm Musick, Peeler & Garrett LLP and Dennis M. P. Ehling, filed the lawsuit on behalf of the Plaintiff. Mr. Crane stated, "A United States Federal District Court has already determined that MasterCard is a monopoly. MasterCard's continued unfair dealings and the imposition of baseless fines, penalties and fees on Internet merchants, such as Paycom, simply prove the abusive control that one finds in a monopoly."

Paycom's Chief Executive Officer, Christopher Mallick, commented "We are in compliance with MasterCard's rules as a merchant, yet they fine us millions of dollars. Paycom has been directed to change its entire business structure, indeed to change the way in which E-commerce works, to comply with additional rules from MasterCard; rules that MasterCard cannot or will not articulate or explain." Mallick added, "These rules are unreasonable and demonstrate MasterCard's intent to continue to economically bully Internet merchants. Paycom has a responsibility to our employees and our clients. The intent of this lawsuit is to force MasterCard to treat us and other Internet merchants fairly and to permit us to operate as any other merchant class. This is a business that we built on our ability to accept MasterCard, one of the only currencies available for online shoppers."

The litigation alleges MasterCard violated several Federal and California State laws including violations of Federal and California State anti-trust laws, denial of fair procedures, unfair competition, fraud, breach of contract and breach of implied covenants of good faith and fair dealing, intentional interference with Paycom's contractual relationships, and intentional and negligent interference with Paycom's prospective business advantage, and seeks damages, declaratory and injunctive relief.

Paycom's lawsuit may be found at www.paycom.net/mastercard/lawsuit.pdf
All inquiries should be directed to:
Dennis M. P. Ehling, Esq.
Musick, Peeler & Garrett, LLP
Telephone: 213-629-7600 or by email: [email protected]

Paycom / EPOCH Sues MasterCard

Today Paycom / EPOCH sued MasterCard International in Federal Court in Los Angeles. Our suit alleges Anti Trust violations, Fraud and Unfair Trade Practices by MasterCard against Paycom / EPOCH and Internet merchants in the so-called "high-risk" space. The lawsuit may be found at: www.paycom.net/MasterCard/lawsuit.pdf. I suggest reading the entire lawsuit if you have time. If not, pages 21 - 44 tell the story of why we are suing.

We will continue to accept MasterCard during and after this lawsuit.

Paycom / EPOCH made a decision that the only way to ensure the long term ability of our business, that of our clients and that of the other high risk internet merchants to accept MasterCard was to file this lawsuit. We tried everything to avoid this, but MasterCard has simply become too unreasonable to deal with in our marketplace.

There is no simple way to explain this lawsuit. However, in an effort to give you the basics, here are the main issues:

MasterCard has set the chargeback ratio for high-risk Internet merchants at 1%. MasterCard has also said that when a Merchant's credits exceed its chargebacks, it will count credits as chargebacks. However, credits almost always exceed chargebacks, so MasterCard has in effect made a rule that the combined chargeback and credit ratio must be below 1%. If Paycom / EPOCH (or any high risk Internet merchant) goes over the 1% threshold for 2 consecutive months, then MasterCard can impose fines of up to $100 per chargeback and credit plus $100K per month. It has also said that it has the right to continue to impose these fines for at least 12 months even if we are under the 1% ratio during those months.

You can see why this is an impossible situation when you consider, for example, that because of MasterCard's "Zero Liability" policy, we must issue a credit whenever a card holder claims that he or she did not authorize a charge. MasterCard is now penalizing us for following its rules by issuing credits. But, if we refuse to issue credits, MasterCard will punish us anyway since those cardholders will charge back. It is simply an unacceptable situation.

To make this issue even more onerous, MasterCard counts known stolen cards against us in calculating the ratios. For example: DPI was hacked and hackers got 13 million card numbers (about 5 million or so were MasterCards). MasterCard knows which cards were compromised, but has not cancelled those cards nor will it give us a list of the compromised accounts numbers so we can block them in our system. The result is that criminals can buy the card numbers from the hackers, sign up as resellers, run the cards through our system; and MasterCard places the full liability for that fraud on our clients' and our shoulders.

Paycom / EPOCH was also fined late last week approximately $1.5 million for being in the "Excessive Chargeback Program." However, a fine should not have been imposed. MasterCard did not have right to fine us under its rules, and it will not even give us the courtesy of an explanation as to why it imposed the fine. We are not passing those fines to our clients at this time, even though we have the right to do so. Instead we are standing up for the industry and fighting for our collective rights in this litigation.

MasterCard is a monopoly, as a United States Federal District Court has already determined. As such, a monopoly like MasterCard has a duty and an obligation to treat us fairly as a class of merchants. We are going to try and make sure it lives up to that duty. Wal-Mart did. Home Depot will. We know we are not Wal-Mart or Home Depot, but we are entitled to insist on fair treatment just like they are.

We expect a great number of questions so we are staying late tonight to answer as many as we can. The lawsuit speaks for itself, but we know you will want and that you deserve direct answers. Paycom / EPOCH clients are encouraged to email questions as well, indicating your Master Code in the Subject line.

Please email any processing questions to [email protected]. Rest assured, processing will not be interrupted and payments will not be affected.

-- The Team at EPOCH

what's this got to do with us?

Good Stuff and Good Luck!:thumbsup :thumbsup

wow, I read your second post...that's kind of fucked up....

Go get em!

about time someone did this. i take my hat off to you

If you take Mastercard through an IPSP then it has alot to do with you.

Best of luck to you, its great to see one of the high risk IPSP taking on the credit card companies directly. I hope for your success and will hopefully lead to lower merchant / processing fees with your success. Let us know on your progress in the case as details emerge, this is definitely a case I would like to follow up on.

WG

it would be great to see other companies join in to fight mastercard and maybe go after visa as well if there's a favourable ruling. visa and mastercard have been ass fucking this industry for years. its time to take the strap on from them and stick it up their ass.

Kudos to Paycom.

Glad to have you as my primary processor as under 1% on credits and cb's is damn near impossible and seems like an attempt to milk as much money as they can from their merchants.

Good luck on this battle and keep us updated!

go EPOCH !!:)

yup,

credits due where its deserved.

paycom rocks here.

Whoah!

I wonder how this will affect their ability to do biz with Mastercard?

And yet another reason I'm looking forward to using Epoch.

Very nice.

It should have no effect on processing, this is a separate matter entirely.

Were Mastercard to do something so foolish as to interfere with that relationship in the midst of a lawsuit, then you would see a whole other round of lawsuits involving some MAJOR damages being filed.

Keep in mind that when Walmart was suing MC (and Visa I think as well), their stores did not stop accepting Mastercard as a method of payment.

nothing mastercard could do if the courts rule in paycom's favour. if they're a monopoly and they're abusing that power, i could see it being settled out of court. i highly doubt mastercard will want to have the floodgates opened.

Good luck Epoch! Kick-em in the nutz!

Paycom/Epoch has impressed me, standing up for our industry in this way is fantastic.

All the best of luck and good forces be with you!

Bravo I am glad you have both the budget and the cajones to do this. Good luck, what you are doing will effect all of us.

I wonder if some of the other major billers would consider joining this lawsuit. Its in everyone's best interest for Epoch to win on this one.

What I am wondering is when someone will take on Visa.

i would take on mastercard first. get a good ruling and use that against visa. at least you'll have some good ammunition.

I'm on the conference call right now that's covering the suit.

talk about taking one for the team... this affects all of us on some level; you go guys, and good luck..!

http://twash.com/temp/curly.gif http://twash.com/temp/curly.gif http://twash.com/temp/curly.gif http://twash.com/temp/curly.gif

Bravo EPOCH! :thumbsup

FUCK MASTERCARD. and visa too. its about time someone stood up to them. specially from this industry. i think any judge in his right mind can see that what mastercard and visa are doing is some scandalous bullshit.

It has Nothing to do with you, it only pertains to people that actually make money:1orglaugh

Wow. good luck:thumbsup

Thats so fucking funny

Go Epoch and let me know if i can help in any way

Cindy xx

:thumbsup :thumbsup

CUDOS, CUDOS, CUDOS to you. i am sure the entire adult internet industry is behind you in this endeavor.

Perhaps what will come of this is the partnership that should be.

Wow - Epoch just jumped up 100 points on my personal scale of billers. Maybe time to try them out for a couple of new projects coming up...

More than that though - fucking good job too. It's about time that somebody had the balls to do this. Mind you when the fines start to potentially exceed the court costs of such an action it's enevitable that somebody will say enough and take this step. :thumbsup for Epoch for being the 1st!

:thumbsup

How about you make this a class action? We have our own merchant account and could only contibute pennies toward the fees but I think the entire industry and others should join this suit?

Hmmm...here's a slightly different solution...Stop processing for all of the scamming adult sites with their deceptive free trials, cross sales, 3 day trials that need to be cancelled 24 hours prior to end of trial, and other scum tricks. Oh, but what am I saying... it's the big bad Mastercards fault for trying to stop consumers from being ripped off.

great work guys!

I can tell you we do none of the above and do not even do recurring billing. I can also assure you that we refund agressively and have almost no chargebacks. However if refunds plus chargebacks goes above 1% we get screwed. How do you deal with a problem if a refund does not help you but instead hurts you?

Don't try to reason with that moron, Lee, you're only wasting your breath.

go epoch!!

Ditto:thumbsup

Call Jeff Thaler in our offices, 888-627-3888. We are starting a list.

Thank you everyone for your support.

Chris, Clay, Joel