A small, but popular, restaurant in Utah is taking on the credit card industry for its less than perfect security efforts. Does it stand a chance?
Stephen McComb and his wife Theodora are owners of Cisero’s Ristorante and Nightclub in Park City, Utah. The thriving restaurant caters to many celebrities and its reputation is flawless. Now, they’ve filed a lawsuit against U.S. Bank claiming that the financial institution -and their former credit card and debit card processing company – wrongfully seized money from the McCombs’ merchant bank account.
How it Happened
U.S. Bank seized around $10,000 from the McCombs’ account to pay more than $90,000 in fines that Visa and MasterCard imposed after saying the couple’s restaurant had failed to secure its network and then was hit with a data breach that resulted in fraudulent charges on customer bank cards. The bank sued the McCombs to obtain the remaining balance on the fines and claimed a contract the McCombs signed with the bank makes them liable for such fines.
The McCombs’ filed a countersuit and they say the industry as a whole forces businesses to sign what they call a “one sided contract” and then the industry changes those contracts arbitrarily. This, they say, allows the industry to charge
random fines on merchants without providing proof of a breach or of fraudulent losses and without allowing merchants a meaningful opportunity to dispute claims before money is seized.
First of its Kind
This is the first known lawsuit that gets to the heart of the security standards, which is generally a self regulated sector. It’s no secret the entire sector is controversial; it’s one area lawmakers rarely tread through. In fact, the controversial system, imposed on merchants by credit card companies like Visa and MasterCard, has been called a “near scam” by a spokesman for the National Retail Federation and other groups. They say it’s designed less to
secure card data than to profit credit card companies while giving them executive powers of punishment through a mandated compliance system that has no oversight.
The attorney for the McCombs, in a presser, said,
It’s just like Visa and MasterCard are governments… where do they get the authority to execute a system of fines and penalties against merchants?
Legal Experts Weigh In
Lawyers say there are definite broad questions that could impact the way new contracts are entered into, depending on the outcome of the case. Further, it could also result in millions of contracts being revised. The implications are many and could easily affect credit card companies, banks and businesses of all sizes.
The process as a whole only becomes more convoluted and the lawsuit is sure to bring to light many problems in payment processors. The case continues and is sure to take many months, if not years, to resolve.
