Merchants accuse credit card companies of consumer fraud

A dispute is emerging between merchants around the country and credit card companies that have implemented the new chip readers that are intended to cut down on identity fraud. The conflict is evidenced in California by a recent class action filed in federal court by three merchants against big credit card companies. The lawsuit generally raises issues of consumer fraud against defendant companies that include Visa, Mastercard, Discover, American Express and others.

The merchants claim that the card companies are using the new chips to shift the risk of liability for identity fraud back to the merchants. That means that where a case of identity fraud comes up, the defendants are refusing to compensate the victimized consumers and are telling them to complain to the merchants who processed the card transaction. This is a sea change in procedure from the most recent practice in which the card companies generally service and compensate the victims of identity fraud.

The merchants also complain that they have had to carry the financial burden of transitioning over to the new cards, including having to purchase new chip readers. They are also called upon to bear the cost of a strident certification process imposed as a prerequisite to the card companies agreeing to reassume financial liability to their cardholders. The card companies have been accelerating the pace of implementing the new system, making the timing for the class action to be particularly appropriate right now.

This federal class action filed in California, and others that may be expected to follow, could be crucial in defining the ultimate burden of financial responsibility for identity theft in this area of commerce. The merchants are claiming consumer fraud by the credit companies in that the companies allegedly knew from the beginning that the necessary certification would take years to satisfy. In that knowledge, they deceived the merchants into taking on obligations that have turned out to be financially burdensome and unjustified under the circumstances.