U.K. Class Action Seeks Almost $19 Billion From MasterCard, but How Strong Are Its Claims?

By Jim Daly
@DTPaymentNews

An eyebrow-raising consumer class-action lawsuit filed Thursday in the United Kingdom against MasterCard Inc. over payment card acceptance costs has parallels with U.S. card litigation, and like its American cousins, the British lawsuit faces an uncertain future.

The suit seeks £14 billion ($18.6 billion) in damages, the biggest such damages claim in British history, according to the plaintiffs’ law firm, Quinn Emanuel Urquhart & Sullivan LLP. The suit’s premise is that MasterCard charged U.K. merchants that accepted its brand allegedly excessive interchange fees during the 16-year period the suit covers. In turn, the approximately 500,000 merchants passed on those costs in the form of higher prices for goods and services to all consumers, not just MasterCard cardholders.

Some 46 million British consumers could be eligible for a payout, according to Quinn Emanuel. Should the plaintiffs win all they’re asking for, each class member would be eligible for an average payout of £304 ($403).

News of the potential claim spread earlier this summer. In a statement, MasterCard said that “now that the claim has been filed, we will take time to review it in detail, however we continue to firmly disagree with the basis of this claim and we intend to oppose it vigorously.”

Quinn Emanuel filed the claim with the U.K.’s Competition Appeal Tribunal. The lead named plaintiff is Walter Merricks, the U.K. government’s former chief financial-services ombudsman. During his 10-year tenure, Merricks oversaw investigations into financial firms’ improper selling of products and services to consumers.

Quinn Emanuel said the MasterCard case is the first one filed under the U.K.’s 2015 Consumer Rights Act, which enables collective damages claims by groups of people alleging a loss. The lawsuit, which covers 1992 to 2008, cites a battle lasting more than a decade that MasterCard had with the European Union over payment card fees. The fight finally ended in 2014, when the EU’s competition authority, the European Commission, found that MasterCard infringed on EU law, according to Quinn Emanuel.

“MasterCard charged billions of pounds of unlawfully high fees for its sole benefit and to the detriment of consumers,” Merricks said in a statement issued by Quinn Emanuel. “It has already been found to have broken competition law, the basis of which was to protect consumers, and that cannot be disputed. There is no basis upon which MasterCard can contend that its card fees were not unlawful.”

Quinn Emanuel filed more than 600 pages of documentation with its claim. While admitting that he hadn’t yet reviewed it, attorney Thomas P. Brown, a former vice president and senior counsel at Visa who is now a partner in the San Francisco office of law firm Paul Hastings LLP, wonders how anyone could accurately quantify the effects of card-acceptance costs on all consumers.

“I think these claims are loopy, and they’re not new,” says Brown, who helped defend Visa in the so-called Wal-Mart case in which Wal-Mart Stores Inc. led a merchant class action against Visa and MasterCard over debit card acceptance. That case, settled in 2003, resulted in the networks paying just over $3 billion to merchants, temporary interchange relief, and repeal of rules requiring merchants to accept the networks’ debit cards if they accepted their credit cards.

In the wake of the Wal-Mart settlement, consumers filed a number of lawsuits in various states that made allegations similar to those in the U.K. suit regarding the effects of card-acceptance costs on overall prices, according to Brown.

“None of those case succeeded; it was the speculativeness of the claim,” he says.

“That’s the fundamental problem with this [U.K.] case—sort of these heroic assumptions you have to make about both the relative benefits and costs, as well as the distribution of those benefits and costs.”

The Competition Appeal Tribunal will rule on whether the case can proceed, according to British press reports. Quinn Emanuel expects the case to go to trial in 2018.

In March 2015, the European Parliament approved interchange caps of 0.3% for credit and 0.2% for debit beginning Dec. 9.