MasterCard Sued for Antitrust Violations & Fraud

[rand]

For Immediate Release

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 http://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: d.ehling@mpglaw.com

[rand]

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: http://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 rand@paycom.net. Rest assured, processing will not be interrupted and payments will not be affected.

[Mike AI]

This is a good strong move!!!

3 Cheers to Epoch!!

The best defense is a good offense!!

:okthumb: :okthumb: :okthumb:

[sarettah]

Go get em Epoch... It has been a long time coming !!

I made a pitch to a former employer a while back that was based on a new vision of the adult internet... But one of the things it was going to require was a "safe" transaction that mastercard and visa would automaticlly accept, knowing that it had gone through rigorous scrubs etc...

At the time, we determined that we would not be able to get Visa and MC to agree to what was needed and that the only way that it would ever happen was if someone took on Visa/MC in court and got some court ordered remedies to the prejudice against adult transactions that is being built into the card processors systems. The companies I was talking to did not have the means to go after them or the willingness at that time.

Win or Lose Epoch, it is about time that this matter was taken up by the courts....

:rokk:

[Forest]

go boyyyeeee

[Winetalk.com]

Rand, I have small question:
how does it feel to be a LEADER in the industry???

you guys ROCK!

:rokk:

[Torone]

It's about @#$%&*@# time! Now, if someone could just come down on Visa...

[swoit-steve]

That is very good news

Visa and MC have bullied everyone for too long. It's great to see someone finally standing up for the industry.

Good luck with it guys.. You have really distinguished yourselves.


Steve

[Rolo]

Wow :zoinks:

[Dianna Vesta]

Originally posted by Rolo@May 13 2003, 03:31 AM
Wow :zoinks:
You said it! Now if the other processors will jump on that band wagon and join them in a kick ass, "we're going to make you sweat" suit.

Unfortunately this could be in court for years to come but it is a good start and perhaps a chance for other types of credit card companies to start up.

Someone needs to offer a porn card for billing. Like Pay Pal but for porn sites/products. Webmaster can offer a discount to people who use it.

Dianna Vesta

[Mike AI]

Article on NY Times about it....

Company Sues MasterCard Over Fees for Online Sales
>
> May 13, 2003
> By JENNIFER BAYOT
>
>
>
>
>
>
> Paycom Billing Services, a company that processes credit
> card and check transactions for online merchants, sued
> MasterCard International yesterday, asserting that
> MasterCard violated antitrust laws and charged excessive
> fees.
>
> The suit, filed in Federal District Court in Los Angeles,
> seeks at least $23 million in damages. It signals that
> Internet vendors might pursue their own antitrust
> accusations against the card network. Last month,
> MasterCard settled a class-action case brought by
> retailers, agreeing to pay $1 billion and to reduce its
> debit card fees, among other concessions. Visa USA, a
> co-defendant in the case, reached its own settlement two
> days later.
>
> "The publicity from that lawsuit has caused Internet
> retailers to question how Visa and MasterCard treat them,"
> said Joseph Cohen, a partner at Beirne, Maynard & Parsons,
> a Houston law firm. "It's sort of like a shark who sees
> blood in the water."
>
> The lawsuit by Paycom, which is based in Marina del Ray,
> Calif., asserts that MasterCard uses its market power to
> charge Internet vendors excessive fees. Under MasterCard's
> rules, online merchants pay much more than traditional
> retailers to accept credit card transactions, as much as
> three or four times as much, according to The Nilson
> Report, which tracks payment systems.
>
> The higher fees apply whenever a customer cannot physically
> present a card to make a purchase.
>
> MasterCard has said the higher rate reflects the amount of
> fraud on the Web. According to Celent Communications, a
> research firm in Boston, fraudulent transactions account
> for more than 2 percent of online card spending, compared
> with 0.1 percent for in-store charges.
>
> Most of Paycom's billing clients are sex-related Web sites,
> which industry experts say are more prone to fraud and
> "chargebacks," the term for purchases that customers deny
> making. Paycom says it processes about two million
> transactions a month.
>
> David Robertson, publisher of The Nilson Report, said
> Internet companies were plagued by "friendly fraud," in
> which "your perfectly valid cardholder can deny a
> transaction he willingly made."
>
> MasterCard, based in Purchase, N.Y., said it could not
> comment on the lawsuit because it had not yet been served
> with Paycom's complaint.
>
> Paycom's lawsuit also includes a frequent grievance of
> online merchants: that they must pay for any losses on
> fraudulent transactions. In contrast, any fraud associated
> with in-person transactions is absorbed by the credit card
> issuers.
>
> Christopher Mallick, Paycom's chairman, predicted that
> other Internet companies would join the lawsuit or file
> their own.
>
> "I can see this - or something like this - turning into a
> class action," he said. "There are thousands and thousands
> of merchants being affected by this."
>
> Paycom said it had excluded Visa from its lawsuit because
> Visa had worked harder to reduce fraud, instead of leaving
> merchants to shoulder much of the cost. Mr. Mallick added
> that Visa's penalties for chargebacks were more reasonable.
> "Although restrictive, we think they're fair," he said.
>
> Over the last two years, both Visa and MasterCard have
> created products that authenticate online transactions.
> When online vendors use the new systems, called MasterCard
> SecureCode and Verified by Visa, their customers must type
> in passwords to make purchases, much as they use personal
> identification numbers at teller machines. The merchants
> are then no longer liable for fraud; instead, the card
> companies agree to pay for losses.
>
>
http://www.nytimes.com/2003/05/13/technolo...053841161&ei=1& (http://www.nytimes.com/2003/05/13/technology/13CARD.html?ex=1053841161&ei=1&)
en=f560a95861956d88
>

[kath]

Kickass news!!! Bold move guys - but I knew it would be Paycom to take the reins and GO!

:rokk: :rokk: :rokk:

[*KK*]

Originally posted by Dianna Vesta@May 13 2003, 06:47 AM
Someone needs to offer a porn card for billing. Like Pay Pal but for porn sites/products. Webmaster can offer a discount to people who use it.

Dianna Vesta
There's this little thing called http://epassporte.com ...

[gonzo]

Originally posted by Dianna Vesta+May 13 2003, 06:47 AM--></span><table border='0' align='center' width='95%' cellpadding='3' cellspacing='1'><tr><td>QUOTE (Dianna Vesta @ May 13 2003, 06:47 AM)</td></tr><tr><td id='QUOTE'><!--QuoteBegin--Rolo@May 13 2003, 03:31 AM
Wow :zoinks:
You said it! Now if the other processors will jump on that band wagon and join them in a kick ass, "we're going to make you sweat" suit.

Unfortunately this could be in court for years to come but it is a good start and perhaps a chance for other types of credit card companies to start up.

Someone needs to offer a porn card for billing. Like Pay Pal but for porn sites/products. Webmaster can offer a discount to people who use it.

Dianna Vesta[/b][/quote]
DOS Tip - never go into biz with mainstreamers that dont understand porn and billing....