January 25, 2021

Mastercard faces UK’s largest ever £14bn class action lawsuit

Mastercard is facing a landmark £14 billion class action lawsuit brought against it by 46 million consumers. It marks the UK’s largest class action lawsuit in the High Court to date.

First reported by the Financial Times, a ruling by the Supreme Court on Friday cleared the way for former financial ombudsman chief Walter Merricks to bring the case to bear.

Merricks’ case is based on 2007 EU competition law, and marks the first mass claim made under the UK’s Consumer Rights Act – passed in 2015. The law reimburses consumers for illegal anti-competitive behaviour.

Mastercard brand

“Businesses and consumers simply cannot afford to continue paying sky-high rates,” says Yapily CCO

The claim argues that the card issuer reaped the rewards of interchange fees – charged to retailers – passed on to consumers at higher prices.

If Merrick wins the £14 billion case, each consumer over 16 which has used a Mastercard card to buy something from a UK business will recieve £300.

Opening the floodgates

Kate Pollock, competition litigation head at law firm Stewarts, calls the suit “a critical judgment in terms of unlocking the current logjam with the class action regime”.

“Potential class actions relating to trucks, railway tickets and [foreign exchange] should now be able to proceed.”

Merrick added in a statement to the FT: “Today’s judgment sends a powerful signal to companies that infringe competition law that they do so at their financial peril.”

For some time, merchants have voiced their grievances over interchange fees, particularly in the UK. This is due to the amount these fees shave off already-strapped margins.

“Businesses and consumers simply cannot afford to continue paying sky-high rates when it comes to card payments,” Yapily’s chief commerical officer, Matt Cockayne, tells FinTech Futures.

He points to open banking-enabled payment initiation as a solution. The CCO highlights the progress made in adoption this year, with half of the UK’s small and medium-sized enterprises (SMEs) now using open banking in some capacity.

“Not only does it reduce costs for everyone involved, businesses who are trying to get back on their feet can access fairer, personalised loan options and take control of their business’ financial health.”

Mastercard doesn’t agree with the basis of the lawsuit. “No UK consumers have asked for this claim,” the card issuer said in a comment.

“It is being driven by ‘hit and hope’ US lawyers, backed by organisations primarily focused on making money for themselves.”

It’s not just consumers

In June, the UK’s Supreme Court decided to unanimously uphold an earlier Court of Appeal ruling. It stated that the Multilateral Interchange Fees (MIFs) set by US card issuing giants Mastercard and Visa are anti-competitive.

UK merchants have paid the most interchange fees of any European country

Major UK supermarkets Asda, Sainsbury’s and Morrisons have battled the case since 2018. They now hope to receive millions in settlement fees.

From 2016, EU law capped interchange fees on credit card payments at 0.3% of any transaction. The debit card fee sat at 0.2%.

But for a time, both card issuers allegedly charged fees of 1% of transactions.

Independent payments expert CMSPI estimates a maximum pay-out of £15.2 billion. That’s if Visa and Mastercard fail to prove pass-through benefits.

UK merchants have paid the most interchange fees of any European country, according to CMSPI.

Increased card usage in COVID-19

In October, UK-based retail groups accused Visa and Mastercard of charging inflated fees during the coronavirus pandemic.

With cash usage at an all-time low, more consumers than ever are paying by card. Hence, more interchange fees are deducted from their spending. It sees merchants’ margins even more squeezed.

Which is why the British Retail Consortium (BRC) head of finance policy, Andrew Cregan, told the BBC that the government must take action to curb “excessive” card costs.

Cregan claimed that to increase card fees is an abuse of Visa and Mastercard’s dominant position in the marketplace. He says the two firms have merchants “over a barrel”.

The BRC is therefore calling on the Competition and Markets Authority (CMA) to investigate the matter. It warns that if things don’t change, retailers my pass the costs onto consumers.

Read next: Visa and Mastercard abusing UK duopoly, say retail groups