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U.K.: Mastercard Loses Appeal Against 14 Billion-Pound Class Action Lawsuit Again

Categories : Cash ensures competition among payment instruments, Cash facilitates budgetary control, Costs of cash versus costs of electronic payment instruments
December 2, 2022
Tags : Costs of payments, Interchange fee, Mastercard, UK
Mastercard is facing a £14 billion class action lawsuit over interchange fees, after a failed appeal was denied by the Court. If successful 46 million claimants could receive £300 each.
Guillaume Lepecq

Chair, CashEssentials

This post is also available in: Spanish

The Court of Appeal has denied Mastercard’s appeal, which attempted to exclude some 3 million people who have died since the claim was first filed. The judges sided with Walter Merricks, the former head of the U.K.’s Financial Ombudsman Service, representing more than 46 million consumers, who argued that it was only because of the delays to the long-running case that the claimants had died in the meantime. The ruling says the suit should proceed from the original starting point of 2016. If successful, each claimant would receive £300.

The Opacity of Interchange Fees

The lawsuit, the largest ever over interchange fees, clearly illustrates the lack of transparency regarding the costs of digital payments. During a recent CashEssentials research seminar on the cost of payments, all papers highlighted the complexity of measuring the cost of payments. Very little research is available, and powerful entities in the payment landscape have the market power to shape consumers, merchants, and even banks’ behavior and perception.

An ECB paper looked at nine cost-of-payment studies across Europe in recent years. They found that cash was the most expensive means of payment in only one country: this was Finland, where cash volumes are low. In three countries, cash was always the lowest-cost instrument (Germany, Italy, and Hungary), and overall cash was the lowest cost.

In a separate case, Barclays was slapped with an £8.4 million fine by the U.K. Payments Systems Regulators for failing to supply retailers with complete information about the fees attached to different card services. Chris Hemsley, the PSR’s managing director, says: “It’s vital that retailers and consumers get value for money on payment services – the interchange fee rules are an important part of making sure this happens. Barclays’ failure to be transparent with retailers about the fees they pay for card services meant retailers could have been missing out on better deals”.

About the Claim

The claim goes back to December 19, 2007, when the European Commission ruled that Mastercard had imposed unlawful fees on transactions processed through its network. These illegal fees were paid by merchants that accepted Mastercard cards. The Commission also stated that consumers will likely have paid higher prices for goods and services because the businesses raised retail prices due to Mastercard’s unlawful fees. Mastercard lost its appeal against this decision in 2014.

According to the claim, it does not matter what form of payment clients used as consumers paid higher prices and lost out due to Mastercard’s unlawful conduct. The proposed suit seeks to include individual purchases from businesses in the U.K. between May 22, 1992, and June 21, 2008.

Walter Merricks is the class representative for the claim. He is a qualified lawyer and the former Chief Ombudsman of the Financial Ombudsman Service, a position he held for ten years, defending consumer interests and holding large financial firms to account for their conduct.

The Timeline

On September 6, 2016, Merricks filed the claim as a class action made possible by the Consumer Rights Act 2015. It seeks compensation of approximately £14 billion on behalf of 46 million persons.

The Competition Appeal Tribunal (CAT) dismissed the application in July 2017. The Court of Appeal reversed that decision. In December 2020, the Supreme Court rejected Mastercard’s appeal, paving the way for the lawsuit in Britain’s most giant class-action suit.

“It is nearly 12 years since Mastercard was clearly told that they had broken the law by imposing excessive card transaction charges, damaging consumers over a prolonged period,” says Merricks. “When challenged, all they have done is to raise technical legal arguments that turn out to have no merit – as the court of appeal has shown today. It’s now time for Mastercard to admit the damage they did, to apologise to the British public, and to agree to pay the compensation they owe.”

In March 2022, the CAT ruled that Walter Merricks could represent class members who were alive on September 6, 2016, and have died since and allowed him to plead a higher interest rate of 5% above the prevailing Bank of England rate. This could add up to £2.7 billion to the £14bn claims on current estimates.

U.K. Regulator Fined Mastercard over Prepaid Cards Cartel in January

In January 2022, Mastercard and four other companies were fined more than £33 million for breaching competition law for vulnerable people in the prepaid cards market. Mastercard’s fine was £31.5m. Prepaid Financial Services (PFS), Allpay, APS, and Sulion split the rest. According to the U.K. Payment Systems Regulator (PSR), the companies had agreed not to poach customers for the cards used to distribute welfare payments to vulnerable people such as the homeless and victims of domestic violence.

This post is also available in: Spanish