Is There a Merchant Revolt Brewing Against the Credit Card Companies? Part 1

As credit cards increasingly take the place of hard cash businesses find themselves increasingly at the mercy of the credit card companies. Accordingly, the card companies have more leverage over merchants than ever before. When the life or death of your business is dependent on keeping Visa happy, if Visa institutes 'Slap A Merchant Fridays' then on Friday you line up to get slapped.

That's been the case until recently, when their have been a couple of signs that businesses have had enough. One such business is a Park City, Utah restaurant called Cisero's.

Visa and MasterCard both claimed that Cisero's allowed fraudulent credit card charges and broke the card companies security rules by keeping information on too many card accounts in the restaurant's computers.

When a business owner signs the contract with a credit card processing company, almost all of the fine print in the contract deals with the relationship between the business, the processing company (the processing company is a middleman who's job is to move the money around between all the parties involved in a credit or debit transaction) and the banks. Your agreement with the credit card companies, known as an operating contract, usually arrives one to three weeks later in the form of a Processing Terms and Conditions, Funds Transfer Instructions and Association Rules. It is 30 dense pages of illegible fine print and is unreadable by anyone except for top notch contract  attorneys.

This treatise, that a business owner either agrees to follow sight unseen by signing the processing contract or 'agrees by deed' when he processes his first credit card, is the source of grief for Cisero's. MasterCard and Visa used arcane provisions buried in the operating contract to fine the restaurant enormous sums of money and debit the funds from it's bank account with no warning, notice, or explanation. The credit card companies never proved their allegations nor gave the business an opportunity to answer the charges.

At first Visa said the amount of the 'actual fraud' was $1.26 million and Cisero's total liability was $1.33 million. The liability changed to $511, 513 when court papers were filed, and finally Visa said the restaurant owed $55,000. For their part, MasterCard said they could assess charges totaling $100,000 but was only imposing $15,000. They later added another $13,823 in 'loss claims'.

In Cisero's law suit against Visa and MasterCard it's lawyers point out that these shifting dollar amounts imply that the card companies were simply making the numbers up as they went along and contend that the whole mess is less about fraud than randomly taking money from small business owners that they don't expect to fight back:

"These various shifting numbers based on unexplained calculations” show that the “process is little more than a scheme to extract steep financial penalties from small merchants,” reads the suit.

The suit also brings up the operating contract:
"When the restaurant entered their first contract arcane operating rules- over 1000 pages in length- were not publicly available to merchants and didn't contain  provisions on data security."

Observers expect the card companies to settle rather than to expose and try to explain their operating procedures in open court and possibly providing more ammunition to interested trial attorneys.

Later in the week in Part 2 will be the story of a merchant based class action suit that caused MasterCard to cry 'Uncle".