Death and Taxes? What about Interchange Rate Changes?

Benjamin Franklin wrote “Nothing can be said to be certain, except death and taxes”, in a letter to Jean-Baptiste Le Roy in 1789. His quote is traced to the book The Cobbler of Preston by Christopher Bullock. Bullock wrote in 1716 “Tis impossible to be sure of anything but Death and Taxes”. U.S. merchants face another certainty. This certainty is the steady change in the interchange fees they pay for accepting credit cards.

Interchange Rates

Visa and MasterCard adjust interchange rates and other fees every April and October. These seasonal announcements usually raise little notice outside the industry. The incremental increases in interchange costs, along with the processor fee changes that often accompany the changes, can cause “a gradual death by paper cuts” as payment costs grow and operating margins shrink.

The most recent announcement by Visa regarding changes for April 17, 2020 got significant attention after Bloomberg News received a copy of the letter Visa sent to banks and processors and published an article about the changes that are coming. Bloomberg referenced Visa’s letter and offered this eye-catching quote: “the biggest changes in a decade”.

The article states interchange fees for some card swipe transactions are changing. Service category merchants like real estate and education will see card present interchange fee declines. Supermarkets will also see adjustments to their fees, with some categories like CPS Small Ticket and Rewards 1 being lowered, while the core CPS Supermarket Credit rate will increase. Rates for card present Visa Business Card transactions will also decrease in April 2020.

The interchange rates for many types of ecommerce transactions will be increasing in April 2020, along with small adjustments to other interchange rates. Merchants seeing a shift to more online ecommerce will see higher rates for these cards. Some categories like Visa Business Card transactions will see increases. Some interchange categories are being eliminated. Interchange costs are expected to increase for most merchants in the fast-growing ecommerce industry segment.

Interchange cost increases can impact industry segments that are not thought of as an ecommerce business. For example, Quick Service Restaurants (QSRs) now offer food delivery. These orders are assessed ecommerce-based interchange rates which are more expensive than in-store transactions. Merchants rolling out mobile payments will see increases in payment costs as card not present transactions change their payment mix. Increasing card not present transaction volumes, coupled with higher interchange rates, will increase payment costs for many merchants.

Interchange Rates Associated with Downgraded Transactions

Big changes are also coming to interchange rates associated with downgraded transactions. Effective April 2020, Visa will eliminate the current consumer credit EIRF and the Standard interchange programs and introduce a new Non-Qualified interchange program. This change means that transactions that do not meet Visa CPS qualification criteria and downgrade to EIRF or Standard will shift to the new Non-Qualified program and bear higher costs. While many merchants may not have a significant volume of these transactions, many industry segments have transactions falling into these categories. MasterCard is also adjusting fees for downgraded transactions.

The change in interchange costs for these transactions is significant. The following table outlines the current and future interchange rates for the impacted Visa interchange categories:

Current Interchange Rates Proposed Rates April 17, 2020
Category Rate Category Rate
EIRF 2.30% + $0.10 Non-Qualified Consumer Credit 3.15% + $0.10
Standard 2.70% + $0.10
Signature Preferred Standard 2.95% + $0.10
Infinite Standard 2.95% + $0.10

Changes for similar MasterCard Interchange rate changes include:

Current Interchange Rates Proposed Rates April 17, 2020
Category Rate Category Rate
Merit 1 1.89% +$0.10 Merit 1 1.95% + $0.10
Merit 1 World 2.05% +$0.10 Merit 1 World 2.20% + $0.10
Standard 2.95% +$0.10 Standard 3.15% + $0.10
Standard World 2.95% +$0.10 Standard 3.15% + $0.10
Note: Rates for Standard World High Value and Elite will decrease to 3.15% + $0.10.

Merit I categories most likely apply to eCommerce transactions.

For the Visa EIRF interchange category, the increase in costs is 0.85%. For a low volume of EIRF transactions, this might not seem like a big issue, but as payment volume increases, the costs can be significant. The following table outlines the impact of the EIRF increase:

EIRF Transactions Ave. Amount Dollar Volume Increase in Costs
5 $50 $250 $2.13
50 $75 $5,000 $42.50
300 $150 $45,000 $382.50
1,200 $75 $90,000 $765.00
2,500 $100 $250,000 $2,125.00

Common reasons for downgrading to Visa EIRF or Standard Interchange categories include:

  • Failure to capture or provide all the required data. For example, this issue is common for key entered transactions that do not collect the cardholder zip code. Examples include:
    • Customer billing address (AVS) information
    • Transaction ID
    • Lack of industry specific addendum information (e.g., check-in/out dates).
  • Point of Sale equipment setup issues can cause downgrades if static or industry specific data required to qualify for optimal interchange is not supplied.
  • Failure to process the transaction within a timely manner. Transactions must settle within specific timeframes following authorization.
  • Failure to process transaction within tolerance limits. The authorization amount and the settled amount do not match and a higher cost interchange rate is applied.
  • Other reasons depending on card type, processing environment, etc.

Interchange is very complex and ongoing changes to fee categories and costs have created frustration for many merchants. The changes in interchange rates announced by Visa and MasterCard appear to be taking advantage of the shift in consumer shopping preferences. Higher interchange fees for card not present transactions allow card issuers to profit from the surge in ecommerce and mobile commerce transactions. Visa would not discuss the fee increases in greater detail and and turned down requests for interviews about the changes from payment related news sources such as Digital Transactions and Payment News.

Visa and MasterCard have asserted that the higher costs for card not present transactions is because of the higher fraud risk of these transactions. The change to EMV-based cards is changing the fraud mix for transactions and has led to more ecommerce-based fraud. Chargebacks associated with these transactions is significant, but network chargeback rules place the burden of these costs on the merchant, not the card issuer. Boosting revenues for card issuers through card not present interchange fee increases is not a compelling argument for many merchants facing not only the fraud losses but higher interchange costs. As merchants face increasing payment costs, discontent with network fees will continue to grow.

Next Steps for Merchants

Regular changes in interchange rates require merchants to review their processing costs and determine if network fee increases will impact their operating margins. Transactions that receive downgrade rates can be examined to learn why these transactions do not qualify for better interchange rates. Merchants can change their processing systems or card acceptance procedures to eliminate many types of interchange downgrades. Merchants that want to review the potential impact of these changes on their present processing results costs can engage BlackLine Advisory Group to review their processing and determine if the changes will be significant. For retailers growing their online business segments, incorporating these costs into your forecasts can be important, and BlackLine Advisory Group can assist with a strategic review of your payment program.

April 2022 Card Network Fee Changes

Businesses accepting card payments should prepare for extensive changes in Credit and Debit Card Interchange Rates and Card Network Fees coming in April 2022. Many changes were announced by Visa, MasterCard, American Express, and Discover covering most industry segments. BlackLine Advisory Group (“BlackLine”), a payments business consulting organization, has been working with clients to review the impact of these network cost changes and has compiled a summary of the changes to allow businesses to review the impact.

Although most of the changes result in higher interchange costs, there is a reduction in costs by Visa for Small Merchants. Small merchants, those with less than $250,000 in volume for a tax ID between October 1, 2020 and September 30, 2021, will generally see a reduction in Interchange Rates. The reductions impact Card Not Present and Card Present transactions depending on the industry segments defined in the program. These reductions are good for small merchants qualifying for the new Small Merchant program.

Most other merchants not falling into the Small Merchant program will face higher card payment acceptance costs due to these changes. The annual industry expense impact is estimated to be at least $3+ billion. Based on our early analyses for clients, businesses above the $250,000 Small Merchant threshold could encounter cost increases from .03% to .25% of their card volume, depending on industry classification and mix of payment cards being used by their customers. While this rate may not seem significant, it is one of the largest overall cost increases in the last 10 years. For example, a business with $1 million in card payments would incur cost increases of $3,000-$25,000+ per year.

Given the effects on the economy and operating costs from COVID-19 and recent world events, BlackLine recommends businesses assess the effect of these rate changes carefully. With inflationary cost pressures impacting margins, the impact of these card acceptance costs should be taken into consideration when reviewing client pricing.

First Data And Exec To Pay $40M To Settle FTC Fraud Case

Payments processing giant First Data Merchant Services and one of its executives will pay $40.3 million to settle allegations that they laundered credit card transactions for scams targeting hundreds of thousands of consumers, the Federal Trade Commission (FTC) said on Tuesday (May 19).

The FTC alleged that First Data ignored repeated warnings from employees, lenders and others that Chi “Vincent” Ko, who ran an independent sales organization affiliated with the company, was laundering payments for clients that were breaking the law.

“First Data is paying $40 million because it repeatedly looked the other way while its payment processing services were being used to commit fraud,” Daniel Kaufman, deputy director of the FTC’s Bureau of Consumer Protection said in a statement. “When companies fail to screen out fraudsters exploiting the payment processing system to steal people’s money, they’re breaking the law and injuring consumers.”

The FTC said that Ko operated First Pay Solutions LLC, an independent sales organization (ISO) affiliated with First Data, from 2012 to 2014. During that time, the ISO allegedly opened accounts under false names, provided Wells Fargo with deceptive information to open accounts and ignored evidence that some clients were engaged in fraud. Ko later joined First Data directly as a senior vice president of strategic partnerships, the agency said.

In 2014, Visa required First Data to return $18.7 million in charges processed by Ko’s ISO and temporarily banned First Data from working with high-risk merchants, according to the FTC’s complaint.

First Data will pay some $40 million of the settlement, while Ko will cover about $270,000. The FTC said it will use the money to provide refunds to consumers allegedly harmed in the case.

First Data, which was acquired by Fiserv Inc. last year for $22 billion, also agreed to screen high-risk clients in the future and implement an oversight program. The company said in a statement that “we remain committed to ensuring that our business partners and merchants operate with integrity, and our enhanced practices will enable us to continue to lead the industry in fraud prevention and business and consumer protection.”

Ko’s attorneys said in a statement that First Pay Solutions “allowed a small number of rogue independent agents to sign up fraudster merchants for credit card processing. …  These bad actors operated without Mr. Ko’s knowledge, and many of these agents were convicted based upon the cooperation of Mr. Ko, himself described by the government as a victim in those government cases.”

Ko’s lawyers further said that he “agreed to turn over his entire $100 million First Pay portfolio to First Data in 2014 so that the income could be used to repay consumers harmed by the dishonest activities of these fraudulent agents and merchants.”

Heartland Payment Systems Lawsuit -Dirty Secret?

Well it seems some interesting information has been put out by a former employee about exactly what Heartland Payment Systems (bought out by Global Payments) was doing, some of which may not have been public knowledge.

I will paste it here in case the link is taken down:

Heartland Payment Systems Customers have filed a class action suit in New Jersey Courts against the processor for consumer fraud possibly 2.6 billion in unjust enrichment!

Heartland Payment Systems merchant’s filed a class action suit claiming that in 2014 Heartland implemented a scheme committing consumer fraud resulting in unjust enrichment. The class action complaint was filed in the United States District Court District of New Jersey,
the Plaintiff Rudel Corporation Civil No: Squitieri & Fearon, LLP NY, NY

The 29 paged suit exposes Heartland’s plot in detail of how they used an American Express Program called OptBlue to bait and switch customers into thinking Heartland was acting in the customers best interest with transparency. According to the documents it appears at first Heartland was indeed giving the New American Express Opt Blue savings to the customers as they claimed they were. However, the merchants claim this was smoke and mirrors. Instead of passing on the savings to the customer Heartland kept the savings for themselves.

American Express lowered their fees. Heartland decided not to pass those savings onto their customer as they claimed. Instead they added a new American Express Discount fee for their customers to pay. So the customer paid less to American Express but more to Heartland for the exact same services Heartland had already been providing for the lower fee the month before. The customer was saving money, as I am sure we will hear Heartland rebuttal, but not what they should have been saving apparently. Here is where it gets sticky. Four months after the initial supposed scheme was implemented they increased their fee again.

The suit states the increase was fifteen times the initial amount. It also states that Heartland sent a notice on their statement to the customer’s stating they miscalculated their rate they needed to charge. But the fees were just part of the issue, apparently this notice Heartland sent was a breach of the customer’s contract as it violated a 15 days notice which Heartland did not honor. Heartland better be prepared to explain to these customers how they miscalculated pure profit. That would be my question. Especially profit that needed increased in 4 months and back billed as well which apparently Heartland billed to customers on their October 2014 statements.

According to the suit there is approximately 2.6 billion dollars over the last two years in question. This will be an interesting one to follow. What will this mean for Global?

What I can’t believe is how I saw this on the docket and think this is bigger news than the stockholders class action suit when Heartland announced the sell to Global, yet you haven’t reported this yet at all. Heartland has built its reputation on honesty and transparency. If they are found guilty, this means not only do we have a lying Ted, we have a lying Bob who pulled a fast one on the consumer, then knowingly sold his sour lemon off. Time will tell but its worth investigating further in my opinion.

MC/V Class Action Lawsuit

Details on the MC/V Class Action Lawsuit  Settlement and MCAG’s Service

It’s your money. We want to help you get it back!

In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation | MDL No. 1720

Settlement Fund: $6.2 billion
Eligibility Period: January 1, 2004 – January 25, 2019
Claim Filing Deadline: TBD

The lawsuit claims that merchants paid excessive interchange fees for accepting Visa and MasterCard because of an alleged conspiracy among the Defendants.

If your business accepted Visa or MasterCard payments any time from January 1, 2004 to January 25, 2019, you may be eligible to recover significant funds from the V/MC Class Action Law Suit Settlement.

Settlement Recovery Service Details

If you choose to engage MCAG for their Settlement Recovery Services, MCAG will:

  • Gather relevant business and payment information that may be available from our payment card processing partners.
  • Triangulate this data with the Settlement database(s) and other available sources.
  • File a complete and accurate claim into the Settlement in an effort to maximize your return.
  • Reconcile with the Settlement Administrator to help ensure that you receive a proper and timely recovery

The Settlement covers transactions dating back to 2004. Therefore, to compile as complete of a claim as possible, MCAG’s Enrollment Form gives merchants the opportunity to provide all of their past and present merchant IDs, business names, locations and processor names dating back to 2004.

Providing as much of your historical information as possible will help MCAG to attempt to access all available data and file a comprehensive claim. If historical information is missing, and if the Settlement allows, MCAG will also work with the Settlement Administrator to create an estimate that is supported by data.

Enroll with MCAG

If you have not enrolled in MCAG’s service, join over 150,000 businesses of all types that trust MCAG to manage settlement recoveries on their behalf. MCAG’s clients enjoy the following benefits:

  • MCAG uses merchant transaction data when negotiating a claim. They have a proven history of increasing recoveries by utilizing supporting data to optimize claims.
  • Via partnerships with dozens of payment processing companies, MCAG has unsurpassed access to transaction data to supplement claims on behalf of their clients whenever possible. This includes current and historical data for millions of merchants.
  • Relieves the potential burden of having to gather historical data pertaining to multiple locations across multiple processors, and submitting multiple claims.
  • Has experience working with the Settlement Administrator that is handling this Settlement so MCAG is familiar with the process to submit, track, and reconcile claims for all of your locations with the Settlement Administrator.

Contact Us


What is the MC/V Class Action Lawsuit? / Why is there a Settlement?

What is an Interchange Fee?

Why should I enroll with MCAG?

What happens if I do not complete the Enrollment Form and do not return it to MCAG?

How much does this service cost?

What if I had multiple credit card processors dating back to 2004?

What if I want to submit a claim for the settlement on my own?

How much money can I expect to receive from this Settlement?

*Payment Card Settlement Disclaimer: On December 13, 2019 the Court granted final approval of the settlement filed on September 18, 2018 for the Rule 23(b)(3) Class Plaintiffs in this action. No claim forms are available at this time, and no claim-filing deadline exists. No-cost assistance will be available from the Class Administrator and Class Counsel during any claims-filing period. No one is required to sign up with any third-party service in order to participate in any settlement. For additional information regarding the status of the litigation, interested persons may visit, the Court-approved website for this case.

WorldPay Facing More Class Action Litigation Over Alleged Merchant Overbilling ‘Scheme’

Three companies have filed a proposed class action lawsuit in Georgia in which they allege defendant WorldPay US, Inc. operates a “multi-part scheme” by which merchants are fraudulently induced into using the company’s card payment processing systems. The scheme, the 73-page lawsuit claims, utilizes “uniform misrepresentations and omissions” concerning the nature and amount of fees companies like the plaintiffs will fork over to WorldPay, with the defendant’s customers supposedly blindsided with “numerous unanticipated and excessive fees” once they’re locked into long-term contracts. According to the plaintiffs, Worldpay “deliberately obscures” many of its out-of-nowhere upcharges in intricately worded statements that leave merchants unable to reasonably detect they’ve been overbilled.

Merchants such as the plaintiffs rely on companies like WorldPay to not only provide crucial payment processing services—which are likely to be a business’s third-highest expense after labor and production—but to be transparent when it comes to its terms and conditions, the suit says. In relationships between merchants and payment processors, the lawsuit continues, the former relies on the later to disclose from the get-go the nature and amount of fees for processing credit and debit card payments, in part because the agreements between the parties tend to be long term and cancellable for steep early termination fees. According to the case, WorldPay’s modus operandi has “long been to exploit its position of knowledge and power” in a manner aimed to defraud merchants:

“[The defendant] aggressively perpetrates this scheme. Its standardized contracts intentionally misrepresent, omit, and/or conceal key facts concerning the fees and rates it knows it will eventually charge merchants if they sign on the dotted line.

[The defendant] engages in this fraud to induce merchants to do business with [the defendant.] Indeed, [the defendant] knows full well that if merchants knew the true nature and extent of the fees they would eventually be charged, they would not agree to do business with [the defendant.]”

The lawsuit is directly related to a similar action—Alghadeer Bakery & Market, Inc. v. WorldPay US, Inc.—concerning similar allegations of overbilling. According to the complaint, the plaintiffs’ counsel has been “contacted by dozens of WorldPay customers” supposedly aggrieved by the defendant’s conduct.

Vantiv could settle class-action lawsuit for $52M

Vantiv Integrated Payments could pay $52 million to settle a class-action lawsuit that claims the company charged customers unauthorized and marked-up fees.

Businesses in Ohio, California and Tennessee claim that Mercury Payment Systems, a company founded in Durango, and a company it contracted with, Global Payments Direct, overcharged customers for the fees that major credit card companies require and imposed unauthorized fees.

The lawsuit, filed in 2016, claims that Mercury committed fraud, breach of contract, unjust enrichment and violated the state Racketeer Influenced and Corrupt Organizations Act. Vantiv bought Mercury in 2014, making it part of the case.

“Mercury (with the knowledge and assistance of Global) has for years carried out a widespread and systematic fraud on its customers. Without notice to merchants, Mercury has been surreptitiously and gradually inflating certain small, per-transaction fees,” court documents claimed.

The overcharged fees may add up to hundreds or thousands of dollars per merchant and tens or hundreds of millions of dollars in fraudulent profits, the claim states.

Mercury does not admit fault, but it agreed to settle the case to avoid the expense, risk, inconvenience and distraction of continuing the case, court documents state.

“We firmly believe that all of Mercury’s business practices were both legal and transparent,” said Adam Kiefaber, a spokesman for the company, in an email.

Those who used Mercury or were referred by Mercury to Global for payment processing from Oct. 9, 2009, through May 16, 2017, and paid certain fees could receive money or credit in the settlement, according to information provided by the settlement administrator.

A hearing scheduled for Aug. 26 will likely determine the amount owed to businesses in the settlement.

Prosecuting attorney Adam Levitt said in an email the settlement is an example of the positive effect of class-action litigation.

Several months after the lawsuit was filed, Mercury changed the worst of its practices and saved customers millions, he said.

“We believe that it is a well-thought-out, well-researched, well-documented and strongly and effectively litigated settlement that does a lot of good for a lot of hardworking, American small business owners and other merchants. We hope that the court agrees and grants final approval to this settlement at the end of the month,” he said in an email.

PNC, Small Businesses Reach $14.5M Class Action in Merchant Fee Class Action

PNC Merchant Fee Class Action Settlement Overview:

  • Why: PNC was accused of overcharging its merchant customers, adding fees that were not agreed upon.
  • Who: PNC Merchant Services and three small businesses reached a class action settlement.
  • Where: The class action settlement is pending in New York federal court.

PNC Merchant Services and several small businesses, after four years of “hard-fought litigation,” reached a $14.5 million settlement ending two class action lawsuits alleging it overbilled clients with credit card processing fees.

For starters, PNC will pay up to $10 million to over 200,000 Class Members and cover administration costs and attorneys’ expenses. The three lead plaintiffs, Anita’s Body & Skin Care, D.B. Kosie & Associates, and Choi’s Beer Shop, will also receive $10,000 each in service awards.

The small businesses filed the class action lawsuits after PNC allegedly charged annual fees and monthly paper statement fees that did not match with account agreements in violation of its contract.

PNC to Make Policy Changes to End Merchant Fee Class Action Lawsuit

Under the terms of the class action settlement, the financial company will also make changes to its small business financing practices.

PNC has agreed to provide customers with additional notice before imposing an annual fee, refrain from charging early termination fees, and obtain customers’ written consent before imposing monthly paper statement fees. PNC also agreed to allow customers to switch from a plan with an annual fee to one without an annual fee without penalty in future.

The settlement Class includes merchant customers that used PNC for payment card processing services and paid at least one of the fees (annual fees, early termination fees, and paper statement fees) between October 2011 and the date of the settlement’s approval.

Small businesses lodged a class action lawsuit against QuickBooks earlier this year after the accounting software provider allegedly ramped up fees on certain transactions without notice.

Credit card processing fees led to a historic class action settlement with Visa and MasterCard in 2013. Totalling more than $7.5 billion dollars, the deal benefited more than 12 million merchants who had allegedly been charged excessive credit card swipe fees.

Did you use PNC’s credit card services for your small business? Have you experienced something similar elsewhere? Let us know in the comments below!

The plaintiffs are represented by E. Adam Webb and Matthew C. Klase of Webb, Klase & Lemond LLC.

The PNC Merchants Fees Class Action Lawsuits are Kelwin Inkwell LLC, et al. v. PNC Merchant Services Co. LP, Case No. 1:17-cv-06255-FB-CLP, and Choi’s Beer Shop LLC v. PNC Merchant Services Co. LP, Case No. 1:19-cv-05768, both in the US District Court for the Eastern District of New York.

Wells Fargo Merchant Services Class Action Lawsuit

The settlement will benefit Any merchant in the United States who contracted to receive payment processing services from Wells Fargo Merchant Services and, between Aug. 4, 2011, and Feb. 8, 2021, processed sales through a fixed pricing plan, paid a statement billing fee, non-validation payment card industry (PCI) compliance fee, and/or monthly minimum processing fee, or processed sales through a pricing plan other than standard pricing (also known as “volume tier” or “simplified” pricing), and as of Feb. 8, 2021, is not account-managed (including the premier services team). You may be eligible for a potential award from the Wells Fargo Merchant Services Class Action Lawsuit!

According to the class action, lead plaintiff Patti’s Pitas LLC had alleged Wells Fargo Merchant Services overcharged businesses on their monthly invoices. Wells Fargo has agreed to pay $40 million to settle claims. So if you are eligible, file a claim by July 23, 2021 to receive your potential award!

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Wells Fargo Merchant Services CAL

  • Claim Form Deadline: July 23, 2021
  • Who’s Eligible: Any merchant in the United States who contracted to receive payment processing services from Wells Fargo Merchant Services and, between Aug. 4, 2011, and Feb. 8, 2021, processed sales through a fixed pricing plan, paid a statement billing fee, non-validation payment card industry (PCI) compliance fee, and/or monthly minimum processing fee, or processed sales through a pricing plan other than standard pricing (also known as “volume tier” or “simplified” pricing), and as of Feb. 8, 2021, is not account-managed (including the premier services team)
  • Estimated Amount: Varies
    • The actual amount of each Class Member’s payment will not be calculated until after the claims deadline passes.
    • Former customers filing a valid claim form and current customers will be divided into three payment groups.
      • Group 1 will consist of Class Members that processed sales through a fixed pricing plan at one time or another during the Class Period will receive 60 percent of the net settlement fund.
      • Group 2, made up of Class Members that paid a statement billing fee, non-validation PCI compliance fee, and/or monthly minimum processing fee during the Class Period will be allocated 10 percent of the net settlement amount. will be allocated to Settlement The Net Settlement Amount will be further allocated within this group as follows:
      • Group 3, Class Members that processed sales through a pricing plan other than the standard plan (also known as “volume tier” pricing) during the Class Period, and that as of the date of preliminary approval of the settlement are not account-managed (which includes the premier services team), will be allocated 30 percent of the net settlement amount
  • Proof of Purchase: No
  • Case Name & Number: Patti’s Pitas LLC, et al. v. Wells Fargo Merchant Services LLC, Case No. 1:17-cv-04583-GRB in the U.S. District Court for the Eastern District of New York

Class Action Alleges Banc of America Merchant Services Charged Unauthorized Data Security Fees

A proposed class action claims Banc of America Merchant Services, LLC (BAMS) and successor Fiserv, Inc. have charged merchants excessive fees not permitted by their contracts.

Filed July 27 in California’s Central District Court, the 20-page case more specifically alleges the companies have assessed both a monthly $19.95 “Clover Security Plus” fee to ensure customers’ business transactions were compliant with applicable security standards and a monthly $20 “Non Receipt of PCI validation fee” for non-compliance with the same security benchmarks.

Neither fee is permitted under the terms of merchants’ contracts with the defendants, according to the lawsuit. The suit claims many other small business customers such as the plaintiff, a San Bernardino County, California mobile spa, have been charged the same unauthorized costs and thus incurred “hundreds of dollars in onerous illegal monthly fees.”

Banc of America Merchant Services (BAMS), a joint venture between Bank of America and First Data, now Fiserv, offers merchant services that allow businesses to process customers’ credit and debit card payments, the lawsuit explains. As part of their services, the defendants provide a Clover point-of-sale credit and debit card reader with which merchants can accept payment through cards, checks and mobile wallets, the suit relays. Importantly, the defendants require every merchant customer to be compliant with PCI data security standards (PCIDSS), a set of rules developed by credit card companies with the intent to protect cardholder data from security breaches, according to the complaint.

BAMS’ merchant processing application and agreement requires merchant customers to submit validation of their PCIDSS compliance each year by August 1 or pay a $40 annual non-compliance fee, the lawsuit relays. The suit claims, however, that the defendants have instead charged a monthly $20 fee for each month after a merchant has failed to submit validation. The case contends that this monthly fee “serves no other purpose but to line Defendants’ pockets” and was never authorized by merchants’ contracts, which allow for only an annual $40 fee.

According to the suit, the unauthorized non-compliance fee is especially egregious given the defendants also charge an impermissible $19.95 “Clover Security Plus” fee for a security feature that purportedly “[r]educe[s] risk and liability from potential breaches while maintaining Payment Card Industry (PCI) compliance.” The lawsuit argues that the fee “does nothing of the sort” and fails to prevent merchants from being charged the non-compliance fee.

Despite their emphasis on maintaining data security, the defendants, the lawsuit goes on to allege, have provided “little to no guidance” on how to validate PCIDSS compliance.

“Instead, merchants—many of whom are small business proprietors like Plaintiff—are left confused by the PCIDSS validation process, which is a multi-step process that includes a lengthy questionnaire riddled with technological terms of art,” the complaint attests.

The plaintiff says her monthly merchant statements contained “no direction whatsoever” about how to become PCI compliant. Given the complex PCIDSS validation process and the defendants’ apparent lack of direction regarding PCI compliance, “it is clear that Defendants would rather profit off their plain breach of their contracts with their merchant customers than guide them to validating PCIDSS compliance,” the lawsuit scathes.

The defendants’ conduct, the suit says, is even more egregious in light of recent allegations that BAMS itself is not PCI-compliant. Cited in the complaint is a whisleblower lawsuit in which BAMS was accused of mishandling a certain type of customer data and misrepresenting its PCI-compliance. The proposed class action says a BAMS executive responded to the whistleblower’s concerns by remarking that becoming PCIDSS-compliant with respect to this type of customer data was “very costly and time consuming.”

The plaintiff, who first became a BAMS merchant customer in 2013, claims to have been charged at least $918 in unauthorized non-receipt and Clover Security Plus fees by the defendants.

The lawsuit looks to represent all merchant service customers who were charged a monthly PCI non-receipt fee and/or Clover Security Plus fee within the applicable statute of limitations period.