Paycom Will Appeal MasterCard Ruling

Payment processor Paycom will appeal the March 29 dismissal of its $23 million antitrust and fraud lawsuit against MasterCard (Paycom Billing Services, Inc. v. MasterCard International Inc.), the company said.

Paycom originally filed suit against the credit card giant in May 2003, based on what the company called monopolistic rules that gave MasterCard unreasonable discretion to levy fines on chargebacks. The action came after MasterCard hit Paycom with a $1.5 million chargeback fine.

The suit was dismissed, with U.S. District Court, Eastern District of New York, judge David Trager ruling that Paycom suffered no antitrust harm as a result of MasterCard’s rules or policies. The court ruling said that Paycom is free to stop accepting MasterCard on behalf of its clients or to urge its customers to pay with other payment cards. Additionally, the decision noted that other credit card companies offered more favorable terms to Paycom.

“We strongly believe this case should not have been dismissed. MasterCard and its members clearly have market power over merchants, including Internet and other so-called card-not-present (CNP) merchants such as Paycom and have exploited that power in violation of federal antitrust laws,” said the company’s lawyer, Jeffrey I. Shinder, of Constantine Cannon, in a statement.

Shinder pointed out that the violations stem primarily from MasterCard’s chargeback system, which was created by the card association and its 25,000-plus member banks to handle disputed card transactions.

“Every CNP merchant is exploited by these anti-competitive rules and programs and their effect is to increase the cost, reduce the volume, and lower the quality of the credit card services that these merchants receive.”

Paycom is also challenging several additional MasterCard rules and programs, which the company claims have a similar adverse effect on competition.

At the time of the dismissal Eileen Simon, MasterCard associate general counsel, held the company line, explaining why MasterCard is not in violation of antitrust laws.

“MasterCard is pleased that the court agreed that the plaintiff, an aggregator of payment services, failed to demonstrate that the policies at issue in this case harm competition. The judge also recognized that the plaintiff has multiple options for accepting payment, and could choose not to participate in our network,” she said.