Saying MasterCard has set up "monopolistic" rules giving it "unreasonable discretion" to dominate Internet merchants and impose "illegal" fines and penalties in the millions including a $1.5 million "excessive chargeback" fine MasterCard slapped last week, Paycom Billing Services has hit back with a multimillion dollar antitrust and fraud lawsuit against the credit giant.
"We are in compliance with MasterCard's rules as a merchant, yet they fine us millions of dollars," said Paycom chief executive officer Christopher Mallick in a statement. "Paycom has been directed to change its entire business structure, indeed to change the way in which e-commerce works, to comply with additional rules from MasterCard; rules that MasterCard cannot or will not articulate or explain."
Mallick also said, however, that Paycom would continue accepting MasterCard "during and after" the litigation.
A pair of former federal prosecutors, William McD. Miller and Richard P. Crane, Jr. of Musick, Peeler & Garrett in Los Angeles, filed the action in U.S. District Court. Crane said in his own statement that a federal court has already ruled MasterCard a monopoly.
"A monopoly like MasterCard has a duty and an obligation to treat us fairly as a class of merchants," Mallick said. "We are going to try and make sure it lives up to that duty. Wal-Mart did. Home Depot will. We know we are not Wal-Mart or Home Depot, but we are entitled to insist on fair treatment just like they are."
Paycom charges MasterCard with violating federal and state antitrust laws plus denial of fair procedure, unfair competition, fraud, breach of contract, and breach of implied covenants, not to mention "intentional interference" in Paycom contract relationships and "intentional and negligent interference" with the company's business growth potential. "MasterCard's continued unfair dealings and the imposition of baseless fines, penalties and fees on Internet merchants, such as Paycom, simply prove the abusive control that one finds in a monopoly," Crane said.
Mallick said MasterCard's rules show the credit giant as looking to continue "bullying" Internet merchants, and the lawsuit aims at getting them to treat Net merchants fairly. "(We have) a responsibility to our employees and our clients," he continued. "The intent of this lawsuit is to force MasterCard to treat us and other Internet merchants fairly and to permit us to operate as any other merchant class. This is a business that we built on our ability to accept MasterCard, one of the only currencies available for online shoppers."
He said the only way to guarantee Paycom's long-term ability to do business as well as the ability of "other high risk Internet merchants" as major credit companies have come to consider the adult Internet was to file suit. "We tried everything to avoid this," he said. "But MasterCard has simply become too unreasonable to deal with in our marketplace."
According to Paycom, MasterCard has counted credits as chargebacks when credits have exceeded chargebacks, "in effect (making) a rule that the combined chargeback and credit ratio must be below one percent." Meaning that, if Paycom or any "high risk" cyber merchant goes over the one percent threshold for two months consecutively, MasterCard can hit them with fines up to $100 per chargeback and credit, and a $100,000 per month charge, Paycom says.
"MasterCard is now penalizing us for following its rules by issuing credits," Mallick said. "But if we refuse to issue credits, MasterCard will punish us anyway, since those cardholders will charge back. It is simply an unacceptable situation."
MasterCard also counts stolen cards against "high risk" merchants in calculating those ratios, Mallick added, saying MasterCard "knows which cards (are) compromised" in the event of a cyber attack, for example, but "has not cancelled those cards" or given Paycom and maybe other billers a list of the compromised accounts so the billers could block them.
"The result is that criminals can buy the card numbers from the hackers, sign up as resellers, run the cards through our system; and MasterCard places the full liability for that fraud on our clients' and our shoulders," he said.
