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MasterCard faces £19bn claim over ‘illegal charges’

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Written by: Paloma Kubiak
06/07/2016
MasterCard is facing a multi-billion pound damages claim – the biggest in UK legal history – for allegedly imposing illegal card charges which were swallowed by unsuspecting UK consumers.

Millions of consumers could be in line to receive hundreds of pounds of compensation as a result of a £19bn class action against MasterCard over ‘illegal card charges’.

The claim, the biggest in legal history, will be one of the first to be filed under the Consumer Rights Act 2015, which enables a collective damages claim to be brought on behalf of a class of people who’ve suffered loss.

What happened and what’s the basis of the claim?

MasterCard was found by the European Commission to have infringed EU law by imposing charges – known as interchange fees – on the use of MasterCard credit and debit cards.

The claim, which is being led by Walter Merricks, lawyer and former financial services ombudsman, says MasterCard ‘unlawfully’ imposed high card fees for nearly 16 years and that consumers were unaware of the level of the fees or that they were illegal. It says the fees were a significant cost for retailers that was then passed on through increased prices of goods and services.

It claims all UK consumers, not just MasterCard holders, have lost money as a result, and that MasterCard had the option to accept its card fees were anti-competitive and reach a settlement with the European Commission to lower its fees, but chose not to.

Merricks estimates UK shoppers were overcharged to the tune of £19bn, equating to hundreds of pounds in damages for every single person.

He said: “All of us over-paid to the tune of up to £19bn during a period lasting 16 years. Although most of us did not know this, experts who study the retail economy knew it was happening – and so did MasterCard.

“My aim is to get the redress to which UK consumers are entitled and to ensure that MasterCard cannot hold on to the illegal profits it made. This case should send a signal to companies that break competition laws at the expense of UK consumers that they do so at their financial peril.”

MasterCard said it “firmly disagrees with the claims”.

Merricks has instructed law firm Quinn Emanuel to handle this case.

Under the rules laid down in the Consumer Rights Act, all UK consumers who are found to have lost out will automatically become part of the group of claimants unless they explicitly opt-out.

This means that once the claim is filed no action will be required by individuals as they will automatically be eligible to receive compensation at the conclusion of the claim.

MasterCard’s response

In a joint post addressing the claims, Tim Murphy, general counsel and chief franchise officer of MasterCard and Mark Barnett, president, United Kingdom and Ireland for MasterCard, said the EU Commission decision applied to interchange fees related to transactions that cross borders within the EU.

That decision did not touch on domestic UK interchange fees; those were set on very specific market conditions. Attempting to equate those two is like comparing apples to oranges.”

They also said these types of claims have been unsuccessful in the past.

“In the United States, class action lawyers have attempted to bring almost identical claims for damages supposedly suffered by consumers due to interchange. Virtually all of those cases were thrown out as the courts found the theory that interchange harmed consumers was too speculative and remote to proceed.”

They added that the costs of making a payment is shared by all of those who benefit from the payment – the consumer, the card issuer, the retailer and the acquirer (what the industry calls the retailer’s or merchant’s bank) – all pay a small portion of the cost

“By sharing the costs among all of those who benefit from the transaction, consumers and merchants obtain the full value of our technology at costs that are much lower than they could achieve if they paid the costs on their own,” they stated.

The case is set to be heard before the Competition Appeal Tribunal and should take place in the autumn.

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