PSW Billing has sent letters of representation outlining charges against Visa, Visa International, MasterCard, Inc., and MasterCard International. The billing company is threatening to sue to have the credit companies fined and disciplined otherwise, accusing them of deceptive and unfair business practices over tightened chargeback policies and arbitrary retroactive fines against "high risk" businesses like the adult Internet.
PSW charges Visa and MasterCard with non-protection of "friendly fraud," meaning they admit about 85 percent of all chargebacks equal "friendly fraud" – customers claiming never to have made the transaction in the first place – but still fining high-risk businesses $100 chargeback fees retroactively on such transactions, "which is unfair and unjustified, there seems no logical reason for it except greed," PSW says.
The preliminary move comes four months after another third-party biller, Paycom Billing Services, sued only MasterCard, charging them with what Paycom called "illegally impos(ing) fines and penalties in the millions of dollars."
"They lowered us back to a 1 percent chargeback threshold (starting in October 2003), and I don't know where it's going to stop," said PSW Billing chief executive officer John Lombardi when reached for comment by AVN.com. "The banks keep increasing required reserves. The chargeback policy is ludicrous. And to what purpose do the fines serve? Nobody can answer," Lombardi said, "except for use as a revenue stream for Visa and MasterCard."
Visa did not return a query for comment from AVN.com this story went to press, and MasterCard's media spokesman was unavailable for comment.
"I will pull no punches," he said firmly, about the court action. "If they don't reply in two weeks, on the morning of the fifteenth day we'll be standing there," meaning ready to file a full lawsuit in Federal court.
Lombardi said he didn't know whether Visa, Visa International, MasterCard, or MasterCard International would reply other than possibly "to slow down the process. But as for negotiating with these guys, I have no idea what they’ll do," he said.
Visa announced the coming chargeback rate drop in July, making the rate 1 percent down from 2.5 percent for domestic transactions and 2 percent down from 2.5 percent for foreign transactions. PSW at the time suggested adult site owners review their processors' acceptable use policies and terms and stay compliant to "current and updated" regulations.
"Visa's never been at any liability for chargebacks," Lombardi said. "We pay them, yet then they go back four months or more and fine webmasters for a chargeback? I don't know if they just think, 'well, you're in the pornography business, and if you take us to court you're not going to get any sympathy'."
He said PSW decided to challenge Visa and MasterCard at once because they were "all identical, doing the same thing. So, here we go.
"I honestly think the adult Internet industry should rally behind us," he continued, "because it's not about PSW. In the present environment, any billing company or webmaster can step out of this business or be forced to shut down. The fact is, if we don't stop them, what will happen if they drop the rate another half point? With friendly fraud so rampant, who will be able to stay in compliance, or in business for that matter? We have said ‘enough is enough’ and are ready to go to bat for our entire industry."
