Home Depot Sues Credit Card Companies Over Chips

Banks continue rolling out new microchip-embedded debit and credit cards, which are supposed to be more secure against fraud than cards that are authenticated with signatures only.

But Home Depot, in a recently filed lawsuit, says Visa and MasterCard aren’t making transactions as secure as they should–instead, they’re working with banks to create chip debit and credit cards that are expensive for retailers to accept, according to an article from the Consumerist.

Home Depot was one of the first retailers to begin accepting payments via the chip cards after a data breach in 2014 that exposed payment card information from more than 50 million customers.

The chips in the new credit cards make it more difficult to create fake cards and makes stolen data useless to the person who steals it, according to the Consumerist article. Requiring consumers to enter PINs when using payment cards would result in fewer usable stolen cards and would make online transactions with stolen cards more difficult, the Consumerist says.

“Visa and MasterCard know perfectly well that a signature alone, without the additional step of requiring a PIN, provides virtually no protection against many types of payment card fraud,” says The Home Depot lawsuit, which is 140 pages [PDF] long and was filed last week in a Georgia federal court.

Home Depot says Visa, MasterCard and the banks they work with have collaborated to prevent the requirement of a PIN number for many transactions, the article says.

Visa and MasterCard “have pushed consumers to use payment card technology that Visa and MasterCard know is defective and subject to fraud and have colluded with each other and with the banks that issue debit and credit cards to do so,” the lawsuit says.

Home Depot says the more secure PIN transactions are less profitable, because the PIN-authentication networks charge lower retailer fees than the credit card companies, according to the article. Retailers should be able to access those networks, but Visa and MasterCard have conditions in contracts with the banks they work with that say only the companies’ networks will be used, Home Depot says.

This means retailers have to pay more, because they can’t use any other networks.

“The issuing banks — the primary shareholders of Visa and MasterCard — have little reason to resist Visa and MasterCard’s attempts to limit the use of PIN technology,” the lawsuit says. “These banks profit from Visa and MasterCard’s market power by charging supracompetitive interchange fees on signature transactions.”

This isn’t the first lawsuit of its kind—Walmart made similar claims against Visa last month.

MasterCard defends the chip portion of the cards in a statement to the Associated Press, but doesn’t address the allegations.

“Regardless of how the cardholder’s identity is confirmed, the chip makes data much more secure, rendering it almost useless to create fraudulent cards or transactions,” a MasterCard representative says in the Associated Press article.