Suit: U.S. Bank Hid Data Breach, Charged Merchants

An Arizona company alleges that U.S. Bank was aware of a breach of its data but concealed the matter-which resulted in losses for merchants from across the country. The bank disputes the allegations.

E-Shops Corporation, which does business as Paintball Punks, filed a lawsuit last month in Hennepin County District Court alleging that it lost money as a result of U.S. Bank concealing a breach of its data.

Lake Havasu City, Arizona-based Paintball Punks-which sells paintball equipment online and bills itself as a “small, family-owned” operation-states in its suit that Minneapolis-based U.S. Bank was aware of a data breach but allowed “compromised” credit card accounts to remain active.

The company said that it uses standard methods for avoiding fraudulent transactions on its Web site, but when cardholders receive a bill containing purchases that they did not authorize, they can object to the transaction. The issuing bank then initiates a “chargeback,” which requires the merchant's bank to return to the issuing bank any funds that it had received for the transaction.

From August to December 2009, Paintball Punks allegedly received nine fraudulent orders-totaling roughly $11,260 in merchandise-from customers using U.S. Bank credit cards. Paintball Punks ran multiple security checks by which U.S. Bank allegedly confirmed that the billing address and shipping addresses for the credit card orders matched. They also verified the three-digit code on the individual cards-meaning the “only way that these transactions could be fraudulent is if the purchaser either had seen the back of the credit card or had obtained the code from the records of the credit-card issuer,” according to the suit.

The company said that it learned through conversations with two U.S. Bank employees that the bank's system had been compromised and the problem had “been going on for a while.”

Paintball Punks seeks class action status for its suit, and it claims that countless others from across the country may have lost money as a result of U.S. Bank's actions.

The bank disputes the allegations. “It is our strong view that this case is totally without merit and we look forward to vigorously defending the case in court,” Peter Carter, an attorney from Minneapolis-based Dorsey & Whitney, LLP, wrote in an e-mailed statement to Twin Cities Business on Wednesday.

Following a request filed by U.S. Bank, the lawsuit was moved this week to U.S. District Court in Minneapolis. Court documents filed by the bank's attorney state that U.S. Bank has about 5.7 million active Visa and MasterCard credit card accounts, as well as about 3.8 million active Visa and MasterCard debit card accounts.

It states that, based on the allegations in Paintball Punks' complaint, the class action suit seeks damages “well in excess of $5 million,” warranting a move to federal court.