MasterCard Facing Damages Claim of $18 Billion Over High Swipe Fees
September 08 2016 - 10:00AM
Dow Jones News
LONDON—MasterCard Inc. is facing a damages claim of £ 14 billion
($18.72 billion) on behalf of U.K. consumers who were allegedly
charged higher prices because of the card giant's high swipe
fees.
The claim, filed Thursday in the Competition Appeal Tribunal,
was described as the biggest in U.K. legal history by former Chief
Financial Services Ombudsman Walter Merricks, who is bringing the
claim. It is also only the second to be filed under the Consumer
Rights Act of 2015 which allows a collective damages claim to
brought on behalf of a class with consumers automatically becoming
claimants unless they explicitly opt out.
It comes after a 2014 ruling by the Luxembourg-based European
Court of Justice upholding a 2007 European Commission decision that
MasterCard's multilateral interchange fees on cross-border
transactions breached competition rules for 15 years between 1992
and 2007. The ECJ's decision, which was binding, cannot be
appealed.
Every time a consumer makes a card purchase, the cardholder's
bank charges an interchange fee to the retailer's bank. The
Commission argued that the fee system was anticompetitive and
artificially increased prices for consumers. By letting banks
charge higher fees, credit-card companies gave them an incentive to
issue their cards rather than those of competitors.
"Because MasterCard's fees have already been found to be illegal
by the Commission, this 'follow-on' claim need only prove the
damage consumers suffered as a result of MasterCard's
anticompetitive behavior," Mr. Merricks' law firm Quinn Emmanuel
Urquhart & Sullivan LLP said in a statement.
Quinn Emmanuel said it arrived at the £ 14 billion figure by
looking at publicly available data on consumer transactions in the
U.K. and cross-border transactions such as online purchases by
roughly 40 million consumers over more than 15 years, and then
adding interest to these.
"We continue to firmly disagree with the basis of this claim and
we intend to oppose it vigorously," a spokesman for MasterCard
said.
According to the class action claim, all U.K. consumers, not
just MasterCard holders, lost money as a result of the card
company's high interchange fees since these were passed on to
consumers by retailers that increased the prices of goods and
services.
Quinn Emmanuel said funds affiliated with Chicago-based Gerchen
Keller Capital, LLC will provide up to £ 40 million toward the case
and that it estimates a trial in 2018 unless MasterCard settles
before then. MasterCard has hired Freshfields Bruckhaus Deringer
LLP to represent it in the case.
"MasterCard firmly disagrees with the basis of this legal
claim," said a spokesman. "Electronic payments deliver real value
to people online, in-store and everywhere."
Other legal experts say the amount being asked for in damages is
highly unrealistic given it presumes that all interchange fees were
passed along from retailers to consumers.
"It is very difficult to work out where the loss would fall,"
said Andrew Bartlett, a competition lawyer for law firm Osborne
Clarke, which isn't involved in the claim. "The charges were
initially paid by retailers: To what extend did they absorb them
and to what extent did they pass these along to customers?"
MasterCard has faced claims from a string of retailers in
Britain starting in 2012, seeking damages tied to its swipe fees.
In April, the card company estimated it could settle claims from
U.K. retailers for $270 million.
In July the U.K.'s Competition Appeal Tribunal—a specialist
court that hears competition law disputes— ruled that MasterCard
must pay £ 68.5 million in damages to supermarket chain J
Sainsbury PLC for having infringed competition law. MasterCard had
sought to argue that Sainsbury hasn't suffered any harm because
they raised prices. The Tribunal, however, found that there was no
evidence Sainsbury had passed the higher costs along to consumers,
a finding that legal experts say could make it harder for Mr.
Merricks to make his case.
Quinn Emmanuel said MasterCard rival Visa Inc. isn't facing a
similar claim despite also charging interchange fees since it
agreed to set fees at a level the European Commission accepted.
Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com
(END) Dow Jones Newswires
September 08, 2016 09:45 ET (13:45 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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