Credit Card Swiping Schemes – The Trade for Points, Is this Points Laundering?

Collecting Points for Charges Without Providing any Services or Items for those Charges

NATURE OF ACTION (Directly From the Complaint)

1. This action arises from certain of the defendants (hereinafter the “Merchant
Defendants”) fraudulent charging of the American Express, Visa, MasterCard and Discover branded credit and charge cards previously issued to the Plaintiffs (hereinafter the “Cards”) by American Express, Chase and certain other defendants (the “Card Issuer Defendants”), which  fraudulent payment card transactions (the “Card Transactions”) were electronically processed by other defendants (the “Card Processor Defendants”). The Merchant Defendants provided no goods, services or anything of value to the Plaintiffs with respect to the Card Transactions. Instead, the  Merchant Defendants fraudulently induced the Plaintiffs to allow the Merchant Defendants to utilize the Plaintiffs’ Cards to ostensibly purchase goods that the Merchant Defendants were planning to re-sell, with the promise that the Merchant Defendants were then going to use the proceeds from the sale of the goods to pay the full amount of the balances due to the Card Issuer Defendants for those Card Transactions prior to the payment due date.

2. The Plaintiffs understood the Card Transactions to be a proper use of their Cards
for the purchase of cash or cash equivalents from the Merchant Defendants, consistent with the  manner that the Merchant Defendants had been utilizing other cardholders’ cards for many years  (which prior transactions had significantly benefited the Card Issuer Defendants and the Card  Processor Defendants, who received substantial revenue in the form of processing fees for the prior
transactions). Indeed, virtually all of the Plaintiffs had previously engaged in virtually identical payment card transactions with the Merchant Defendants, for which previous card transactions the  Merchant Defendants had in fact paid cash or cash equivalents to the Plaintiffs themselves or on  behalf of the Plaintiffs to the Card Issuer Defendants.

3. Despite due demand therefor, the Merchant Defendants have failed and refused to provide the Plaintiffs with cash or cash equivalents for the Card Transactions. The Merchant  Defendants have also failed and refused to provide the Plaintiffs with the goods ostensibly bought for resale by the Merchant Defendants via the Card Transactions. Many of the Plaintiffs were assured by the Merchant Defendants that the use of their Cards for the Card Transactions by the Merchant Defendants were secured by those goods, which would be the property of the Plaintiffs
until resale and could be claimed (and resold for more than the amount of the Transactions) by the  Plaintiffs in the event that the Merchant Defendants failed to timely provide to Plaintiffs the cash or cash equivalents for the Card Transactions.

4. Accordingly, having not received anything of value from the Merchant Defendants  in connection with the Card Transactions, the Plaintiffs attempted to utilize the protections afforded them by and through the payment card networks and to dispute the charges for the Card  Transactions with the Card Issuer Defendants, protections extended to the Plaintiffs through their
agreements with the Card Issuer Defendants. The Plaintiffs expected that this chargeback process  would result in the Merchant Defendants – and/or those who aided or abetted the Merchant defendants’ fraud and/or guaranteed the Merchant Defendants’ compliance with the Visa, MasterCard, American Express and Discover rules, being held responsible for the Card  Transactions. The Merchant Defendants have instead resisted the Plaintiffs’ attempts to dispute the charges, at times misrepresenting to the payment card networks the nature of the relationship
between the Plaintiffs and the Merchant Defendants and at other times misrepresenting the nature of the Card Transactions. Even when accurate information regarding the Plaintiffs and the Card Transactions have been conveyed to the Card Issuer Defendants, the chargebacks have usually been reversed, and the charges to the Plaintiffs for the Card Transactions have been reinstated on
the Plaintiffs’ account statements for the Cards.

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