OF LITIGATION IN
(AND HOW TO MITIGATE RISK)
By Theresa A. Vitello, Edward A. Marshall, and Theresa Y. Kananen The acquiring side of the payments industry —
comprised of the banks, payment processors, and independent sales organizations (ISOs) that recruit and
service merchants wishing to accept credit and debit cards — remains relatively obscure in the public
consciousness. These players facilitate trillions of dollars in transactions and provide the rails on which the
modern consumer economy operates, but they do so quietly. When all goes as planned, they merely reside
in the background of every payment card transaction, whether it takes place at a traditional brick-and-mortar establishment or an online retailer.
■ ■ Impending operations. There has been a notable increase in initiatives
set forth by the US Federal Trade Commission and the US Consumer
Financial Protection to cut off “bad merchants” from the payment
system. This trend is sometimes referred to as “Operation Choke Point.”
■ ■ Preventative measures. There are many steps that processors and
ISOs can take to mitigate the risk of litigation, including: ( 1) carefully
monitoring chargeback ratios, ( 2) being wary of multilayered or
complicated merchant structures, ( 3) documenting departures from credit
policies, and ( 4) reviewing online complaints and chargeback narratives.
■ ■ The merchant class action. In recent years, the plaintiffs’ class action
bar has become fixated on the complex pricing models that processors
and ISOs use to deliver services to merchant customers. When faced
with a merchant class action suit, in-house counsel should review the
processing agreement, reevaluate sales training, and consider arbitration.
■ ■ Chip tech. The transition to EMV or “chip” cards in the
United States was a hasty process that left many merchants
without the certified equipment. As a result, the merchant
that accepts the card bears the risk of the chargeback.