PSW Files Antitrust Suit Against Credit Card Firms

Rhett Pardon
CRANSTON, R.I. — A defunct online credit-card processor Monday filed suit against MasterCard and Visa, claiming the companies broke state and federal antitrust laws.

The suit by PSW Billing names the two major cards, as well as First Financial Bank and First Data Merchant Services, claiming that it was forced to pay higher prices for network services, pay excessive fees, fines and penalties, and comply with unknown, continuously changing and commercially unreasonable rules.

PSW Inc., as a consequence, says the defendants usurped most of its profits and forced it out of business. The suit asks for $240 million in damages.

“As PSW’s case illustrates, MasterCard and Visa have not changed their ways,” attorney Richard A. Sinapi, who represents PSW, told XBiz.

Sinapi said Monday’s filing in U.S. District Court follows a $3.5 billion settlement against MasterCard and Visa in an antitrust suit filed by Wal-Mart.

“The story will not change until either the Justice Department seeks and obtains appropriate injunctive relied to reign in such conduct or some judge or jury issues an award of punitive damages in an amount sufficient to make MasterCard and Visa sit up and take notice,” Sinapi said. “Until then, small businesses like PSW and the average consumer will suffer."

Specifically, PSW says the companies engaged in horizontal concerted refusals to deal, price-fixing, geographic market divisions, and price discrimination.

The 12-count complaint also alleges claims for interference with contractual relations, breach of the covenant of good faith and fair dealing, conversion, embezzlement and breach of contract.

Calls to Visa and MasterCard were not returned to XBiz by posting time.

Cranston, R.I.-based PSW closed shop in October, saying that "due to circumstances beyond our control, PSW Billing has been forced to cease processing."

PSW opened for business in 1996 and at one time had four offices located in Michigan, Virginia, Rhode Island and Florida. Much of its business was international, owner and CEO John Lombardi told XBiz.

But the payment processor struggled after Visa and MasterCard announced new chargeback ratio policies last year.

Lombardi said that the companies held back more than $1.6 million for chargebacks.

The suit said that the credit-card companies continuously increased individual chargebacks, from $25 to $100, and fines per month, from $25,000 to $100,000. It also said the companies continued to holdback ever-increasing sums from payments due PSW.

PSW played the role of "aggregator" or middleman, between website clients and First Financial Bank, which acquired or accepted payments from consumer credit cards. The role of defendant First Data Merchant Services was to assist First Financial with the processing of credit card transactions.

"Knowing that this lawsuit is coming, it is obvious at this point that they are holding these funds as 'leverage,' although I could probably use a stronger word to describe this tactic," Lombardi said. “I will fight this to the bitter end.

“I don’t see how the credit-card companies can live with their terms, and I don’t know why there hasn’t been more of a stink.”

The complaint filed is PSW Inc. vs. Visa U.S.A., Mastercard International, First Financial Bank and First Data Merchant Services Corp, No. 04-347-T.