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 more.
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.
The lawsuit may be found at www.paycom.net/MasterCard/lawsuit.pdf and you should read the entire lawsuit if you have time. If not, pages 21 - 44 tell the story of why Epoch is suing. Epoch 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, and while the lawsuit speaks for itself, 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@example.com. Rest assured, processing will not be interrupted and payments will not be affected.
Editor’s Note: This is yet another struggle in the ongoing battle between IPSPs (Internet Payment Service Providers) and the credit card companies that many of us rely upon to turn our hard earned traffic into cold hard cash. We will be following this developing story here at XBiz.com and will keep you appraised of the situation as it evolves. Stay tuned for an in-depth look at the details of this case, and some of the nuances of how it may affect you both today, and tomorrow ~ Stephen