Is Visa Making Up Compensation, Fine Calculations? Court Filings Raise Questions

Written by Frank Hayes
January 12th, 2012

No 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?


2 Comments | Read Is Visa Making Up Compensation, Fine Calculations? Court Filings Raise Questions

  1. Jay Gould Says:

    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.

  2. Anonymous Says:

    Jay, the incidents in this case unfolded over a period from 2000 – 2008, long before Dodd-Frank and the Durbin Amendment legislation.


StorefrontBacktalk delivers the latest retail technology news & analysis. Join more than 60,000 retail IT leaders who subscribe to our free weekly email. Sign up today!

Most Recent Comments

Why Did Gonzales Hackers Like European Cards So Much Better?

I am still unclear about the core point here-- why higher value of European cards. Supply and demand, yes, makes sense. But the fact that the cards were chip and pin (EMV) should make them less valuable because that demonstrably reduces the ability to use them fraudulently. Did the author mean that the chip and pin cards could be used in a country where EMV is not implemented--the US--and this mis-match make it easier to us them since the issuing banks may not have as robust anti-fraud controls as non-EMV banks because they assumed EMV would do the fraud prevention for them Read more...
Two possible reasons that I can think of and have seen in the past - 1) Cards issued by European banks when used online cross border don't usually support AVS checks. So, when a European card is used with a billing address that's in the US, an ecom merchant wouldn't necessarily know that the shipping zip code doesn't match the billing code. 2) Also, in offline chip countries the card determines whether or not a transaction is approved, not the issuer. In my experience, European issuers haven't developed the same checks on authorization requests as US issuers. So, these cards might be more valuable because they are more likely to get approved. Read more...
A smart card slot in terminals doesn't mean there is a reader or that the reader is activated. Then, activated reader or not, the U.S. processors don't have apps certified or ready to load into those terminals to accept and process smart card transactions just yet. Don't get your card(t) before the terminal (horse). Read more...
The marketplace does speak. More fraud capacity translates to higher value for the stolen data. Because nearly 100% of all US transactions are authorized online in real time, we have less fraud regardless of whether the card is Magstripe only or chip and PIn. Hence, $10 prices for US cards vs $25 for the European counterparts. Read more...
@David True. The European cards have both an EMV chip AND a mag stripe. Europeans may generally use the chip for their transactions, but the insecure stripe remains vulnerable to skimming, whether it be from a false front on an ATM or a dishonest waiter with a handheld skimmer. If their stripe is skimmed, the track data can still be cloned and used fraudulently in the United States. If European banks only detect fraud from 9-5 GMT, that might explain why American criminals prefer them over American bank issued cards, who have fraud detection in place 24x7. Read more...

Our apologies. Due to legal and security copyright issues, we can't facilitate the printing of Premium Content. If you absolutely need a hard copy, please contact customer service.