Practice Area

Electronic Payment Processing Litigation

Electronic Payments Processing Litigation

Rome LLP’s attorneys have a deep understanding of the payments industry. Eugene Rome and Bradley O. Cebeci alone have more than 30 years of combined experience litigating payment processing disputes, which means they know this area of the law inside and out. Rome LLP represents “high-risk” merchants, sales agents, ISOs, payfacs, platforms, marketplaces, and acquirers, and routinely handles litigation and transactional matters on their behalf which traverse all aspects of payments law.

High-Risk Merchants Reserves Recovery

Each and every year, Rome LLP represents dozens of high-volume “high-risk” merchants to challenge unfair and unlawful billing practices by their merchant service providers, and recover millions of dollars in improperly held reserves from their acquiring banks. How do we do this? Working in tandem with our preeminent expert consultants, we begin by scrutinizing the merchant application and fee disclosures, the merchant terms, the monthly merchant statements, the chargeback reporting, and the reserves ledgers to expose inconsistencies, improprieties, and errors.


What do we find? We commonly encounter instances of improperly bundled reporting, double and triple billing (e.g. for the same chargeback), inflated billing of disclosed fees (e.g. $35 per chargeback instead of the $25 per chargeback stated in the merchant application), systematic billing of undisclosed fees (e.g. pre-arbitration fees), improper assessment of ACH reject fees, and arbitrary “penalty” charges (e.g. for excessive chargebacks), along with other examples of dirty bookkeeping.

Early Termination Fees

Many ISOs and payfacs depend on undisclosed “Early Termination Fees” – commonly calculated as the merchant’s average monthly fees over the preceding three months multiplied by the remaining number of months in the contract – as a money grab to zero out a merchant’s reserves at the end of the relationship. Often buried in the agreement and disguised as “liquidated damages,” we routinely challenge these ETFs as unconscionable and unenforceable penalty clauses. Other unscrupulous ISOs and payfacs like to claim that Card Brand assessments consumed the merchant reserves while refusing to produce the underlying fine correspondence on the grounds that they are prohibited from doing so by the Card Brands. Of course, we don’t take “no” for an answer and, in many cases, have conclusively demonstrated that the alleged fine assessments never took place and simply did not exist.

MATCH Removal

Rome LLP has also helped countless merchants and their principals to get off the Mastercard Alert To Control High-risk Merchants (MATCH) list (formerly known as the Terminated Merchant File), which is a payments industry blacklist maintained by Mastercard. Member banks are required to consult MATCH before approving a merchant account and to add a merchant and its principal to MATCH upon the termination of the merchant relationship for any number of enumerated reasons, including excessive chargebacks, excessive fraud, violation of standards, and transaction laundering. Once a merchant and its principal are added to MATCH, they will stay there for a period of five years and be generally barred from participating in the payments system unless they are willing to pay exorbitant rates to a small handful of “high-risk” processors that may still be willing to take their business notwithstanding their presence on MATCH. Generally speaking, the only way to get off MATCH is for the acquiring bank that added the merchant to MATCH to request Mastercard to remove the merchant from the list as having been added “in error.” Rome LLP has worked directly with Mastercard to get some merchants off of MATCH and has also successfully convinced Amex, Stripe, PayPal, PaySafe, Priority, and Elavon (among others) to admit their error in adding our clients to MATCH and formally request Mastercard to remove our clients from the list.

Payment Litigation

Rome LLP has achieved these results through informal advocacy, where possible, and aggressive litigation, where necessary. We have sued countless ISOs, payfacs, and acquiring banks in state and federal courts, and handled commercial arbitrations on behalf of our merchant clients, throughout the United States, including California, Nevada, Arizona, Utah, Washington, Texas, Illinois, Georgia, Ohio, Pennsylvania, New York, Massachusetts and Florida.

Negative Option Billing

“High-risk” merchants also depend on Rome LLP to audit their billing practices and advertising claims for compliance with the Card Brand Rules and applicable law, including the Restore Online Shopper’s Confidence Act (ROSCA), the California Automatic Renewal Law, the Federal Trade Commission Act and related FTC regulations.

For example, online marketers who use negative option continuity billing models are subject to strict disclosure requirements under both federal and state consumer protection laws, and are favorite targets of the FTC and state attorneys general. Further complicating this landscape, Visa and Mastercard have in recent years introduced their own distinct sets of rules for negative option/subscription merchants and their acquirers. While there are many similarities between federal law, state law, and these Card Brand Rules, there are also many key differences and competing requirements involving issues of express consent, enhanced notification, explicit transaction receipts, easy cancellation, statement descriptors, expanded dispute rights, MCC codes, and high-risk registration.

We have an intimate familiarity with these laws and requirements and apply this specialized knowledge to enable our high-risk merchant clients to fearlessly navigate this potential minefield.

Residual Disputes

Rome LLP routinely represents ISOs and sales agents in residual disputes.

Predictably, these disputes often involve challenges to the truthfulness and completeness of the reporting, as well as the accuracy and methodology of the monthly calculation. Working closely with our industry consultants and forensic accountants, we quickly get to the bottom of these questions.

ISO Residual Disputes

Another common issue we must confront is whether and to what extent the ISO has the right to setoff losses arising from the merchant portfolio (such as chargebacks and Card Brand assessments) against the sales agent’s residuals when the merchant reserves are negative and the DDA contains insufficient funds. This can be a complicated question. While the sales agent agreement routinely provides for liability in situations where the sales agent negligently or knowingly misrepresents the nature of a merchant’s business or otherwise facilitates or participates in acts of fraud by the merchant, the ISO typically bears sole responsibility for underwriting and monitoring the merchant.

This makes sense because most ISOs have a range of risk tools at their disposal that are not available to the sales agent. For example, most ISOs have access to the member bank’s systems to run search queries regarding prospective and active merchants on the Mastercard Member Alert To Control High-risk (“MATCH”) database to determine whether the merchant or its principals have been added to the database by another member bank for a prior termination of the processing relationship within the last five years due to violations of the Card Brand Rules or applicable law. They have a contractual right to run background checks on each merchant’s principals pursuant to the merchant application. They have detailed risk policies in place and qualified risk departments that are specially trained to evaluate merchant applications for “red flags” or other indicators of fraud.

Risk Detection Tools

They often contract with third-party services such as G2 Web Services, which use sophisticated analytics to identify hidden risks and detect instances of transaction laundering across the merchant portfolio through persistent monitoring activities. They receive real-time alerts from the Card Brands for fraud and chargeback activity by their merchants. And many wholesale ISOs also have proprietary systems, which rely on complicated algorithms to evaluate and monitor risk. Thus, unlike most sales agents, ISOs are well equipped, contractually obligated, and financially motivated to diligently underwrite and monitor each-and-every merchant they board with a member bank.

Sales Agent Residual Disputes

Nonetheless, there are a number of unscrupulous ISOs out there that routinely setoff merchant losses against sales agent residuals even though a proper application of the underlying facts and circumstances to the contractual provisions of the sales agent agreement compel the conclusion that the ISO rather than the sales agent should bear those losses. We fight to vindicate the rights of our sales agent clients to their full share of residuals in these situations.

Other common issues include the ISO’s right to claw back residuals from the sales agent, whether due to merchant billing errors, residual calculation errors, or shared liability for merchant losses; and the ISO’s right to cut off the sales agent’s residual stream based on a material breach or event of default that precipitates the termination of the agent agreement, or an alleged act of solicitation or tortious interference with the merchant relationship that occurs after the agent agreement has already been terminated.

Rome LLP routinely represents ISOs and sales agents on both sides of these questions, in arbitration, and in state and federal court actions throughout the United States.

We have also successfully prosecuted a number of federal court actions against acquirers on behalf of our ISO clients. We obtained a $9 million verdict on behalf of a Dutch payment processing company against one of the largest banks in the Philippines and its payment processing division. After a two-week trial in which our attorneys presented evidence of sophisticated processing fraud involving a complex, multi-jurisdictional network of companies and individuals, the jury returned a unanimous verdict for our client on all counts (including conversion and fraud), awarding $1.5 million in actual damages and $7.5 million in punitive damages. In another case, we obtained an extremely favorable result for an ISO client on the eve of trial after months of aggressive litigation against an acquirer that terminated its ISO agreement with our client on a pretextual basis and misappropriated the merchant portfolio.

We represented a prominent businessman in a jury trial resulting from a failed referral relationship in the electronic payment processing space. We asserted claims on the businessman’s behalf relating to breach of an oral agreement and fraud and, following 2 hours of jury deliberations, obtained a $2.4 million judgment in our client’s favor for actual and punitive damages. Our lawyers subsequently defended the verdict before the Ninth Circuit Court of Appeals.

We have also successfully represented a number of payfacs, platforms, and marketplaces in disputes with the acquirer to recover platform reserves and merchant funds.


Transactional Matters and Compliance Issues

Of course, our extensive experience litigating these issues means that Rome LLP is uniquely qualified to draft, revise, review, interpret and offer guidance regarding how to enforce payments-related contracts on behalf of our ISO, payfac, and sales agent clients, including merchant and sub-merchant agreements, TPA/MSP agreements, sales agent (IC) agreements, deconversion agreements, and portfolio acquisition agreements. Our ISO, payfac, and sales agent clients turn to us for their contract needs in order to ensure compliance with the Card Brand Rules, and build in maximum protection of their interests with a trained eye toward reserves handling, security interests, indemnity, residual rights and portfolio portability.

Rome LLP also counsels acquiring banks on regulatory and Card Brand compliance issues, as well as transactional and litigation matters involving nuanced payments-related questions.

Whatever your role in the payments industry, Rome LLP is here to serve your needs.