How MasterCard lawsuit may affect UK consumers

By Marianne Curphey

Millions of UK credit card holders could be in line for a windfall of more than £400 each if a court claim against MasterCard is successful.

A collective legal action launched by law firm Quinn Emanuel in September 2016 accuses MasterCard of unfair charges on its debit and credit cards, claiming UK consumers have lost as much as £19bn.

The claim is based on a long-running legal battle between MasterCard and the European Commission over the way MasterCard charged usage fees to retailers, known as interchange fees. Quinn Emanuel alleges that the fees were a significant cost for retailers who then passed the cost on to consumers by charging higher prices.mastercard-lawsuit

MasterCard has refuted the claims and says it will fight the challenge. "We firmly disagree with the basis of this legal claim," a spokesman said in a press statement.

UK.Creditcards.com talked with Boris Bronfentrinker, partner and head of the EU & Competition Litigation practice in the UK at Quinn Emanuel Urquhart & Sullivan LLP, and Walter Merricks, a former chief ombudsman at the Financial Ombudsman Service, who are leading the claim, to find out what consumers need to know.

Why is the claim being made?
Merricks says when shops and service providers had to pay MasterCard's excessive fees, they raised prices for everyone, whether they paid by cash or card.

The legal claim follows the introduction of the Consumer Rights Act. Merricks says the new act could change the way consumers were treated because until now, the worst that could happen to a company that behaved in an anti-competitive way was that the firm could be ordered to stop what it had been doing.

Who can claim compensation -- and how?
"All UK consumers will be included, but they have the opportunity to opt out from the collective action," Bronfentrinker says. "We have an expert in claims notification and administration, and a website will be built where individuals can submit their claim for compensation if the case is successful."

If the case is successful, nearly 46 million British card users could benefit, Bronfentrinker says.

"The compensation I hope to win can be claimed by every consumer who has been affected -- that is everyone who had to pay higher prices between 1992 and 2008 -- whether they paid by card or cash," Merricks says.

"If there is any money left over after all the consumers who want to have claimed, then that will go to pay any unrecovered costs of having brought the case, and after that, if there is money left over, it will go to charity.

"Our estimate is that the damages will run into the many billions. Depending on whether I can succeed in getting the full amount, the estimate is that consumers will get at least a few hundred pounds and it could rise to as much as £400."

What's the timeline for the case?
The case will be heard in the Competition Appeal Tribunal, a specialist court that hears competition law disputes.

"Assuming that the case goes all the way to judgment, our proposed timetable to the Tribunal is that there would be hearing in the second half of 2018," Bronfentrinker says.

Bronfentrinker says he could not think of a precedent for such a claim.

"It affected every consumer in the UK over 15 years and will address and test every aspect of the new regime in what is a complex and high value claim," he says. "If the procedure works, it is also likely to work for smaller and less complex claims involving consumers and indirect purchasers."

What about Visa?
Bronfentrinker says the case involves only MasterCard. Visa is not part of the claim.

"Visa ... entered into a settlement with the European Commission and lowered the interchange fees that it charged," he says.

What might the impact be on MasterCard?
"MasterCard is an extremely rich company," Merricks says. "Whilst this claim could hurt its balance sheet, it will not cause MasterCard to fail.

"It may actually make it compete even harder as it tries to recover financially from the claim, and that additional competition can only be a good thing for consumers."

See related: Debate continues over what new fee cap means for you, Solutions for rewards aficionados in a dwindling rewards state, Is this the end of credit card perks?

Published: 22 September 2016