The lawsuit filed by Genesco, a Nashville retailer, against credit card giant Visa could have far-reaching financial consequences for the card industry, merchants and consumers. The suit in federal court is the first to directly challenge card companies’ authority to fine merchants and their banks for data breaches. The result in the case could alter how security standards are enforced and has the potential to make it more expensive both for consumers to use credit and debit cards and for merchants to accept them.
Genesco’s suit, filed in March, stems from a 2010 data breach of its computer system. Genesco operates nearly 2,500 retail footwear and apparel stores under the Johnston & Murphy, Lids Locker Room, Journeys and other brand names. Visa and MasterCard said the breach resulted from Genesco’s failure to comply with the Payment Card Industry Data Security Standards, also known as PCI-DSS. Card companies require merchants and their banks to follow the standards, which were implemented in 2004. MasterCard and Visa then levied $15.5 million in fines and costs against the two banks that processed card transactions for Genesco. The banks took the money from Genesco’s merchant bank accounts.
Genesco contends it was compliant with the standards and that Visa’s $13.3 million fine was arbitrary because there was no evidence that hackers actually stole card data. So far Genesco has not filed suit against MasterCard over its $2.2 million fine. Merchants have long complained about the system’s set-up, saying card companies have financially benefitted by having unilateral power to determine non-compliance and punish violators. A National Retail Federation spokesman called the system a “near-scam,” trade publication Wired reported. Experts say non-compliance fines are a significant revenue source for card companies, but how much they generate isn’t known.
Another potential result of the suit would be the creation of an independent entity to oversee the system. It should be noted that although the PCI Security Standards Council develops the standards, it has no power to enforce them. It’s widely believed that this lawsuit has the potential to bring about fundamental changes to the system. As a result, many interested parties are keeping a close watch on it. Lots of interested parties have a potential stake in the outcome of this case, which is seen as an “important case nationally.” We will continue to monitor the progress in this case.
Source: USA Today
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