October 11, 2001 12:09pm
WebSiteBilling.com, Inc. Sues Visa
by: Company Press Release
WebSiteBilling.com, Inc., a major online credit card processor, said today it has filed a multimillion-dollar suit against Visa U.S.A. and VISA International Service Association, claiming "unlawful and malicious conduct" in connection with Internet chargebacks.
WebSiteBilling.com, based in Hollywood, Florida, claims Visa willfully miscalculated WebsiteBilling's chargeback ratios in order to trigger substantial penalties. Despite repeated requests Visa failed to take steps to prevent consumer fraud even when Website Billing.com developed an authentication program that virtually eliminates unlawful credit card use on the Internet.
The suit, filed late Thursday (Oct. 4) in the U.S. District Court, Southern District of Florida in Miami (Case No. 01-7563-CIV-Huck), asks for in excess of $3 million in its claim that Visa is using the "I didn't do it" excuse -- in which credit card users deny making Internet purchases -- as justification to levy excessive penalties that drive honest merchants out of business. The six-count lawsuit asks that over $1 million in fines levied against Website Billing be reversed immediately and that Visa pay the company appropriate damages. "WebsiteBilling is seeking a declaration of its rights as a merchant under Visa's rules and regulations governing credit card transactions as well as damages and injunctive relief resulting from Visa's unlawful and malicious conduct," according to the lawsuit.
Attorneys Abbey L. Kaplan and Michael B. Chesal of the Miami firm of Kluger, Peretz, Kaplan & Berlin said they also asked the Federal court to issue an injunction to prevent Visa from terminating the WebsiteBilling.com account and to "refrain from imposing additional unlawful fines and penalties against Website Billing."
Richard Kwiat, President of Website Billing, said his company brought the suit because "Visa has failed the online merchant in a major way and is profiting from the fallout. They advertise zero liability to their consumers while saddling the online merchant with total liability for the sale with no procedures in place for proper authentication and incredible fines that are ravaging online merchants and putting them out of business." Mr. Kwiat added that a top MasterCard executive reports more than 80% of online transaction disputes involve the "I didn't do it" ploy used by customers to avoid paying for Internet purchases. "Imagine the havoc that would be wreaked on Sears or Wal-Mart if a consumer could purchase anything he wanted and then claim 'I didn't do it' with no liability whatsoever," Mr. Kwiat said.
Mr. Kwiat said his company had complied with every security precaution recommended by Visa and even added its own Neural Technology System and hired the fraud protection firm Shared Global Systems. Nonetheless, he said, Visa did nothing to police the "friendly fraud" of customers who just refused to pay their online credit card charges.
"Actually," I think the situation has another sinister twist," said Mr. Kwiat. "Out of the $100 penalty collected from merchants who exceed Visa's chargeback threshold, $70 is given to the issuing banks that initiated the chargeback. Visa regulations offer no restrictions to prevent its issuing banks from initiating chargebacks even when full authentication matches are achieved during the authorization process. There is significant financial incentive to ignore the authentication procedures and rack up the chargebacks to place a merchant over thresholds that trigger penalties." He noted that processing a typical sale of $39.99 often ends up costing Website Billing $156.67 after the company paid a $1.68 processing fee to Visa, and Visa credited the customers' account with the full value of the sale, added the full cost of a chargeback from the card issuing bank, a $15 chargeback fee and a $100 Visa penalty.
Mr. Kwiat added, "Visa has an obligation to protect its e-commerce merchants with standards in the same way that retailers are protected. Countless U.S. businesses have been forced under because of Visa's failure to protect them from consumer fraud, and all the while Visa lines its pockets with outrageous penalties assessed against merchants. Visa claims it is starting a new system that will allow merchants to verify online sales with a secret password, although full protection to merchants will not be available until sometime in 2003. Merchant after merchant is succumbing to the growing problem of consumer fraud and draconian fines levied by the credit card associations that should be protecting them," he said. "Until then, the world wide web is more like the wild, wild west."