HOUSTON, Texas (6/2/10)--Credit unions and other financial institutions that re-issued MasterCard payment cards compromised by the 2008 Heartland Payment Systems data breach--the largest in history--are being urged by three attorneys to "carefully review" the proposed $41.4 million settlement between Heartland and MasterCard. "The proposed MasterCard settlement has many of the same weaknesses as the Visa settlement offered a few months ago," said Richard L. Coffman, The Coffman Law Firm, Beaumont, Texas; Michael A. Caddell, Caddell & Chapman, Houston; and Joseph G. Sauder, Chimicles & Tikellis LLP, Haverford, Pa. The three are Interim Co-lead counsels for a class action lawsuit against Heartland Payment Systems. Among the settlement's weaknesses, they said:
* It is not based on the actual damages incurred by the affected financial institutions and therefore may offer them little compensation; * It gives financial institutions little time to decide whether to participate; and * It requires financial institutions to release all their legal claims against Heartland, its two acquiring banks--KeyBank and Heartland Bank--and other parties that may be liable.
MasterCard said individual settlement proposals were communicated to the financial institutions affected on May 27. Credit unions and banks have until June 25 to accept or reject the settlement. "Financial institutions that accepted the previous Visa settlement were surprised to learn a few weeks later that had they refused the settlement, they would have automatically received about half of their settlement offer without
releasing any of their legal claims under the Visa ADCR Program," the attorneys said. "It is certainly something to consider," said Sauder, one of the court-appointed lawyers representing the proposed class of MasterCard issuers against Heartland, KeyBank and Heartland Bank in a pending class action lawsuit in a Houston federal court. The proposed settlement is not as generous as the parties want financial institutions to believe, said Caddell. "There were over 40 million MasterCard payment cards compromised by the data breach. Once a financial institution factors in the costs it incurred to cancel and reissue the payment cards and the unauthorized charges it was forced to absorb, its share of the settlement most likely will be pennies on the dollar." Coffman noted KeyBank and Heartland Bank, which are defendants in a coordinated lawsuit--are also potentially liable for the breach damages and would receive a complete release of liability in the settlement. Most of the settlement funds are provided by Heartland Payment Systems. KeyBank has $95 billion in assets and Heartland Bank has more than $900 million in assets, "which suggest that there are additional sources of money to compensate the issuers for their damages," he said. Sauder advised each financial institution to perform its own cost/benefit analysis to determine whether to accept or reject the settlement. He emphasized the firms will pursue the cases but added "there are no guarantees that our class action lawsuit will be successful. We simply want to ensure that the financial institutions are making this important decision based on all of the pertinent information." In early May, Heartland agreed to pay MasterCard Worldwide $41.4 million to resolve claims from MasterCard and its issuers related to the 2008 breach of Heartland's payment system environment. Five months earlier Heartland reached a $60 million settlement with Visa related to Visa credit and debit cards (News Now
Jan. 11). Ten months ago, it entered settlements of $3.6 million with American Express and $2.4 million in a consumer cardholder class action lawsuit (News Now
Dec. 21 and Dec. 29). Like the Visa settlement, the MasterCard settlement is contingent upon financial institutions representing 80% of the claimed-on MasterCard accounts accepting the alternative recovery offers.