Visa Violated EMV Rules, Fed, Retail Groups Say

Card networks 'woefully mismanaged' technology rollout; FTC looking at routing practices

WASHINGTON -- Retail associations, including NACS and PMAA, sent a letter to Visa executives in response to a Federal Reserve declaration that the technical specifications and rules provided to merchants as part of the Europay, MasterCard and Visa (EMV) migration violate federal law.

The letter addresses the Nov. 2 declaration made by the Fed that no payment-card network can directly or indirectly force retailers to deploy a technology or enforce a rule that inhibits merchant routing choice.

Leaders of NACS, Petroleum Marketers Association of America (PMAA), Retail Industry Leaders Association (RILA), Food Marketing Institute (FMI), National Grocers Association (NGA), National Retail Federation (NRF) and other groups signed the letter.

This week, in a filing with the U.S. Securities and Exchange Commission (SEC), Visa disclosed that the Federal Trade Commission (FTC) was investigating Visa’s rules related to routing.

“The rollout of EMV technology has been woefully mismanaged by the card networks,” the letter (attached below) says. “On behalf of millions of merchants and their customers across the United States, we urge you to present a clear and speedy process for resolving this issue that ensures merchants face no additional costs while they remove these non-compliant, confusing customer checkout screens.”

“The free-market principle of merchants choosing network services and providers is critical to ensuring competition in the debit market,” it says. “Visa used its overwhelming market share to impose their proprietary EMV chip technology that stifles competition.”

The letter says that the Fed declaration came in response to “willful steps taken by Visa to circumvent merchants’ legal right” to choose the network over which a debit transaction will be routed.

“Visa charges more and offers less security while the competition charges less and does a better job of keeping consumers’ debit cards safe,” NRF Senior Vice President and General Counsel Mallory Duncan said. “We think retailers should be allowed to choose the processor who provides the best value and offers their customers the best protection, and so did Congress when it passed the law giving retailers that right. We want Visa to obey the law.”

Many card readers installed since the card industry began implementing new EMV technology last year present debit-card users with a screen that asks them to choose between “Visa Debit” and “U.S. Debit.” For those who choose Visa Debit, the transaction is routed over a Visa-owned network and usually requires the consumer to use an easily forged signature to approve the transaction. When the user choses U.S. Debit, the transaction goes over the retailer’s choice from about a dozen competing networks that charge merchants less but provide more protection by allowing the use of a secret, secure personal identification number (PIN). Other alternatives Visa offers can lead to the same results even without the screen.

NRF contends that the practice steers transactions toward the Visa network, and that the retailer must build the higher fees Visa charges into the cost of merchandise, contributing to higher prices paid by consumers.

The Fed ruled earlier this month that the practice violates a 2010 debit card reform law that says retailers must be allowed to choose between at least two unaffiliated networks to process debit transactions.

“Such a requirement is not compliant with (the law) because it prevents the merchant from directing the routing of electronic debit transactions,” the Fed said. The Fed confirmed that the choice of networks is up to retailers and said any action that “inhibits” that choice violates the law.

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