Is Visa Making Up Compensation, Fine Calculations? Court Filings Raise Questions
Written by Frank HayesNo retailer likes being fined by Visa or MasterCard for letting thieves steal payment-card data, and most grumble privately about how that process is arbitrary and rigged against merchants. But a lawsuit now unfolding in Utah between a processor and a small restaurant has uncovered a remarkable level of detail about how arbitrary card brands can be—and with a Washington, D.C., lobbyist now backing the restaurant, it may also represent a real challenge to PCI fines.
The lawsuit is challenging everything from issuing banks’ contracts to Visa’s claims for counting up card fraud and pinpointing who’s to blame—in addition to $1.3 million in card fraud that Visa says the restaurant enabled via an alleged security breach for which there’s no concrete evidence.
By their nature, lawsuits are he-said/she-said affairs—that’s why they go to trial, which could be years away in this case. But what all the parties seem to agree on is that in March 2008, Visa notified acquirer U.S. Bank of a potential data breach at one of its customers, a restaurant named Cisero’s in the Utah ski resort town of Park City.
Over the next few months, Visa calculated that more $1.3 million in “actual fraud” was performed with card numbers stolen from Cisero’s, and then fined U.S. Bank $80,000, which the bank and its processor, Elavon, passed on to Cisero’s. MasterCard fined U.S. Bank $15,000, which it passed on, too—although only about $10,000 was removed from Cisero’s merchant account before the restaurant changed banks.
Meanwhile, Cisero’s went through two internal audits and two forensic investigations, which “revealed no concrete evidence that the POS server suffered a security breach” and “revealed no evidence of intrusive, malicious or unauthorized activity” on the hard drives of Cisero’s servers, according to a forensic investigation by Cybertrust, a company certified by Visa and MasterCard. A forensic investigation by another company, Cadence Assurance, came to the same conclusion.
Visa’s determination that fraudulently used card numbers came from Cisero’s appears to have been solely from Visa’s common point of purchase analysis. Cisero’s claims that Visa has never explained or documented the $1.3 million in actual loss that Visa said it identified.
But Cybertrust did find payment-card numbers on a Cisero’s hard drive, including 8,107 different Visa card numbers used in a total of 22,700 transactions. That’s a PCI violation, even though Cisero’s had been assured three years earlier that there were no card numbers stored on the drive when its POS vendor installed new software that was identified as PCI compliant.
Those 8,000-plus cards and 22,000-plus transactions matter, because according to Cisero’s lawsuit (technically, a counterclaim to the card processor’s lawsuit to collect the Visa and MasterCard fines on behalf of the bank), Visa’s own rules don’t allow recovery fines in cases where the number of card numbers involved in a breach is less than 10,000.
And how did Visa get from $1.3 million in “actual fraud” down to just an $80,000 fine?
-Marc
January 18th, 2012 at 6:41 pm
We now know what happens, although many of us predicted it before the debit interchange saga took place, when there is a fall in the issuers’ interchange revenues. That shortfall will be offset in one way or another, so that when it’s all said and done, the banks will have managed to get their overall revenues to pre-reform levels and it will be the consumer who will end up paying the bill. Only this time that bill would be much bigger, as banks’ losses from a potential credit interchange cut would be several times as large.
January 21st, 2012 at 11:33 am
Jay, the incidents in this case unfolded over a period from 2000 – 2008, long before Dodd-Frank and the Durbin Amendment legislation.