Court sounds an alert to merchants to be clear on e-fraud protections



By Howard Fischer

Tucson, Arizona | Published: 11.23.2009



A new court ruling holds that merchants who accept credit card payments for orders they get online need to know exactly what the card company is promising or risk having the money taken back.  In a unanimous decision, the state Court of Appeals turned aside arguments by a Tucson firm that Visa acted improperly in charging back what turned out to be a fraudulent charge. The judges said the contract ANS Distributing signed with Visa made clear that kind of thing can happen.

ANS, which sells gasoline station supplies and equipment, signed an agreement with its bank allowing the company to accept its customers' Visa credit cards.  Under the terms of that agreement, when a customer charges an item, Visa forwards the money to an ANS account, minus a processing fee. But the contract also said if Visa discovered any charges that were fraudulent, it would institute a "charge-back," requiring ANS to reimburse the credit card company for the entire amount originally transferred in. In 2005, ANS received more than $150,000 worth of orders over the Internet from customers in Singapore. Visa pre-authorized the transactions and put the money into the company's account. But the credit card company later concluded the charges were fraudulent and took the money back.

ANS then sued. Among the arguments it presented was a claim that Visa had promised to engage in additional fraud transactions any times there were e-commerce transactions, deals in which the credit card is not physically present where the purchase is made but where the information is instead obtained over the computer.  A trial judge threw the case out, saying there was no question but that the contract allowed Visa to do what it did. That resulted in the appeal.



ANS said the trial judges should have let the case be heard because there were questions about Visa's "responsibilities and actions" under the contract. The company specifically said that contract "fails to reflect oral representations that Visa would undertake, for an additional charge, additional activities to discover fraudulent e-commerce transactions."



To back that up, ANS presented an affidavit of Thomas Spencer, its comptroller, who mentioned the fact that Visa charges a higher processing fee for e-commerce transactions than when a buyer actually comes to the merchant with a credit card. He said his company believed that the higher fee "paid for protection against the increased fraud risk inherent in e-commerce transactions."



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