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NRF General Counsel’s NRF General Counsel’s ForumForum

The Continuing Challenge The Continuing Challenge Posed by Visa and MasterCardPosed by Visa and MasterCard

Presented by Jeffrey I. ShinderPresented by Jeffrey I. Shinder

Constantine Cannon LLPConstantine Cannon LLP

Managing Partner, NY OfficeManaging Partner, NY Office

January 13, 2010January 13, 2010

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The Continuing Challenge The Continuing Challenge Posed by Visa and MasterCard –Posed by Visa and MasterCard –

Interchange FeesInterchange Fees

Across the board credit card Across the board credit card interchange increasesinterchange increases– New tiers for premium and rewards New tiers for premium and rewards

cardscards– Card issuers upgraded or reclassified Card issuers upgraded or reclassified

cards as premium cardscards as premium cards Increases in signature debit and Increases in signature debit and

PIN debit ratesPIN debit rates

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The Continuing Challenge The Continuing Challenge Posed by Visa and MasterCard –Posed by Visa and MasterCard –

Interchange FeesInterchange Fees

Current Merchant InitiativesCurrent Merchant Initiatives

– LegislativeLegislative

– RegulatoryRegulatory

– LitigationLitigation

Class decision upcomingClass decision upcoming

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The Continuing Challenge Posed The Continuing Challenge Posed by Visa and MasterCard – Other by Visa and MasterCard – Other

FeesFees

Network Access FeesNetwork Access Fees

Cross Border FeesCross Border Fees

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The Continuing Challenge The Continuing Challenge Posed by Visa and MasterCard Posed by Visa and MasterCard

– PIN Debit– PIN Debit

Suppression of PIN DebitSuppression of PIN Debit ContactlessContactless

– 20 million contactless debit cards20 million contactless debit cards– Banks subsidizing deployment of Banks subsidizing deployment of

terminalsterminals– Chase and other debit issuers have Chase and other debit issuers have

disabled PIN Debit featuredisabled PIN Debit feature Over the InternetOver the Internet

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The Continuing Challenge The Continuing Challenge Posed by Visa and MasterCard Posed by Visa and MasterCard

– Rules– Rules Acceptance RulesAcceptance Rules

– Merchants can’t steer to other card Merchants can’t steer to other card typestypes

– Merchants can’t surchargeMerchants can’t surcharge

Merchants can’t steer to PIN Merchants can’t steer to PIN debit, debit, cash or checkscash or checks

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The Continuing Challenge The Continuing Challenge Posed by Visa and MasterCard – Posed by Visa and MasterCard –

PCICPCIC Payment Card Data SecurityPayment Card Data Security

– Merchants can be held liable for Merchants can be held liable for breachesbreaches Even if merchant has been certified as Even if merchant has been certified as

compliantcompliant

– Network assesses fines that are Network assesses fines that are passed on to the merchantpassed on to the merchant

– Acquirers have authority via merchant Acquirers have authority via merchant agreements to seize merchant funds agreements to seize merchant funds before penalties are assessedbefore penalties are assessed

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The Continuing Challenge Posed The Continuing Challenge Posed by Visa and MasterCard–by Visa and MasterCard–

Merchant AgreementsMerchant Agreements Agreements are often one-sided and Agreements are often one-sided and

favor acquirerfavor acquirer

Merchants are required to comply with Merchants are required to comply with network operating rules that network operating rules that merchants usually don’t seemerchants usually don’t see

Merchants are responsible for ensuring Merchants are responsible for ensuring that all suppliers and vendors are PCI that all suppliers and vendors are PCI compliantcompliant

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More on Merchant More on Merchant Agreements…Agreements…

Acquirers can change the merchants’ Acquirers can change the merchants’ pricing with limited or no noticepricing with limited or no notice

Acquirers can add new fees to be Acquirers can add new fees to be charged with limited or no noticecharged with limited or no notice

Allow acquirer to declare a breach of Allow acquirer to declare a breach of the agreement with no cure periodthe agreement with no cure period

Acquirers can unilaterally establish Acquirers can unilaterally establish reserve accounts, seize merchant reserve accounts, seize merchant funds, and retain merchant fundsfunds, and retain merchant funds

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More on Merchant More on Merchant Agreements…Agreements…

Grant acquirer a security interest in Grant acquirer a security interest in merchants’ funds and other assets, merchants’ funds and other assets, which may violate other lending which may violate other lending covenants the merchant has agreed tocovenants the merchant has agreed to

Have one-way liquidated damages and Have one-way liquidated damages and indemnification and no-warranty indemnification and no-warranty clausesclauses

In event of dispute, waive the right to In event of dispute, waive the right to a jury triala jury trial

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Jeffrey I. ShinderJeffrey I. ShinderConstantine Cannon LLPConstantine Cannon LLP

450 Lexington Avenue450 Lexington AvenueNew York, NY 10017New York, NY 10017

jshinder@constantinecannon.comjshinder@constantinecannon.com212-350-2709212-350-2709