A 14 billion pound damages claim has today been filed against MasterCard for imposing illegal card charges that were ultimately borne by UK consumers.
The claim, the biggest in UK legal history, was filed this morning at the Competition Appeal Tribunal (CAT) in London. It is the first claim to be filed under the Consumer Rights Act 2015 on behalf of all UK consumers. The Act enables a collective damages claim to be brought on behalf of a class of people who have suffered loss.
MasterCard was found, following a long-running legal battle with the European Commission that ended in 2014, to have infringed EU law by imposing charges (known as ‘interchange’ fees) on businesses that accept MasterCard debit and credit cards. More than half a million businesses in the UK accepted MasterCard cards, including major supermarkets, airlines and high street stores.
MasterCard had the option to accept that its card fees were set at an unlawfully high level and reach a settlement with the European Commission to lower its fees. It chose not to do that and instead imposed these unlawfully high card fees for nearly 16 years whilst it engaged in a decade-long legal battle with the Commission. MasterCard lost this battle at every level and showed complete disregard for its cardholders and consumers at large, focusing instead on generating unlawful profits.
Consumers were unaware of the level of these fees or that they were illegal. The fees were a significant cost for retailers that was then passed on through increased prices of goods and services. All UK consumers, including cash purchasers – and not just MasterCard holders – have lost money as a result.
The claim is being brought by Walter Merricks CBE, as the proposed representative of the class of UK consumers that have suffered loss. Mr Merricks has had a long and distinguished career in defending consumer interests and holding large financial firms accountable for their conduct. Mr Merricks is a qualified lawyer and the former Chief Financial Services Ombudsman, a position he held for 10 years. During that time he oversaw complaints and investigations in respect of some of the largest mis-selling cases by financial institutions and ensured consumers received billions of pounds in compensation.
We have today filed over 600 pages of documents with the CAT that sets out our claim against MasterCard. This includes a statement from Mr Merricks explaining why he is bringing the action and how he will manage it on behalf of consumers. There is also a report from independent expert economists and accountants that support the claim; and a detailed plan for managing the claim, including how the proposed class of 46 million consumers will be communicated with through a claims website, newspapers, magazines and social media. High profile consumer groups such as Which? and MoneySavingExpert.com have also agreed to follow the progress of the proposed claim and keep consumers updated.
Walter Merricks stated: “MasterCard charged billion of pounds of unlawfully high fees for its sole benefit and to the detriment of consumers. 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.”
“The filing of this claim is the first step towards consumers obtaining compensation for what MasterCard did. I am confident that the CAT will authorise the claim to go forward, and I look forward to the opportunity to present our case. This is a watershed moment for consumer redress in this country.”
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 behaviour. Based on expert analysis of the evidence, including recently obtained evidence from MasterCard, we believe the total damage caused to UK consumers to be £14 billion.
Walter Merricks has instructed leading litigation law firm Quinn Emanuel on this landmark case. Their team is being led by partners Boris Bronfentrinker and Kate Vernon, along with of counsel Nicola Chesaites. Leading competition silks Paul Harris QC of Monckton Chambers and Marie Demetriou QC of Brick Court Chambers have also been instructed, along with Victoria Wakefield of Brick Court Chambers.
Boris Bronfentrinker, stated: “Despite criticising this action publicly in July and further insulting consumers by referring to the UK’s new collective action regime as ‘unfortunate’, MasterCard has since turned over evidence (witness statements and expert reports) that allows us, even at this early stage, to robustly value the claim at £14bn.”
“They are now preparing for a tough legal battle which we estimate will go to trial in 2018 unless they are prepared to make UK consumers a fair settlement offer before then.”
He added, ‘‘MasterCard has itself argued before English courts that any unlawful charges were passed on to consumers by retailers when trying to defend itself in cases brought against it by retailers. Despite arguing that consumers bore the cost of its illegal fees, MasterCard has made no efforts to try to compensate consumers through new voluntary compensation mechanisms. We have taken account of that evidence in the allegations and damages analysis made in our claim. The consumer claim is completely consistent with what MasterCard has been saying about who paid these unlawful fees. It is not clear how MasterCard can now turn around and argue the opposite to prevent our case from succeeding.”
We have invited MasterCard to consider resolving this - out of court - through Alternative Dispute Resolution (ADR) but it has not responded to that offer. Indeed, such is the concern about its ability to defend the proposed claim that it has now switched from its usual legal advisers that are representing it in all the retailer claims and hired one of the most highly regarded ‘Magic Circle’ defence law firms, Freshfields Bruckhaus Deringer, to represent it.
Under the rules laid down in the Consumer Rights Act, all UK consumers who have lost out and are now living in the UK 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. Those not currently living in the UK, but who were during the period 1992 to 2008, will have the opportunity to opt-in.
Funds affiliated with Chicago-based Gerchen Keller Capital, LLC, the world’s largest litigation funder, will provide up to £40 million to partner with Mr Merricks and Quinn Emanuel in order to see this action through to the end. Everything is in place to get the best possible result for UK consumers and ensure that MasterCard is made to pay for its unlawful conduct.
Notes to Editors
Boris Bronfentrinker, Partner, Quinn Emanuel
+44 (0) 20 7653 2090
To arrange an interview with Walter Merricks, or for further background on the story, please contact:
James Baxter, Director, JBM
+44 7711 486394
What are interchange fees?
Each time a consumer uses a credit, debit or prepaid card to buy something, the retailer’s bank pays an ‘interchange fee’ to the cardholder’s bank that issued the card. The retailer’s bank then charges the retailer a cost to recover, amongst other things, the amount it has paid to the cardholder’s bank. Interchange fees are set by credit card companies, such as MasterCard. Retailers are not party to the process and have the charges imposed upon them. These costs are incorporated by retailers into the prices they charge consumers, which increases the retail price of their goods and services. Interchange fees are therefore, indirectly, paid by consumers.
How does this work in practice?
If you buy something in a shop, you can pay by cash or in most shops by card. If you pay by card, the shop does not get the full amount, a little less. Shops see this as a cost of doing business, but to ensure they do not lose profits from offering the convenience of card payments, they charge increased prices to all customers, whether they pay by cash or card, to cover the card fees they need to pay MasterCard.
Over what period did MasterCard charge these fees?
The European Commission issued a decision against MasterCard in 2007 finding that it had broken competition law through its interchange fees for 15 years between 1992 and 2007. It was ordered to bring an end to the practice within six months. MasterCard reduced the level of its fees as ordered in 2008, but it also challenged the legality of the EC decision in an unsuccessful, seven-year long set of appeals that ended two years ago.
So MasterCard knew that its excessive fees would result in higher prices for consumers?
Undoubtedly. Both the UK and European authorities challenged MasterCard and in doing so stated their belief that these excessive fees were borne by consumers. Furthermore, in order to resist claims brought against them by retailers like Sainsbury’s, MasterCard has publicly stated that Sainsbury’s suffered no loss because it passed on the cost to consumers in the form of higher prices.
What is the impact of the Sainsbury’s judgment as that found Sainsbury’s suffered loss?
The judgment of the CAT in the Sainsbury’s case is long and complex. Whilst it did make a finding in favour of Sainsbury’s, it also acknowledged the evidence of both Sainsbury’s and MasterCard that interchange fees are a cost like any other that retailers seek to pass-on to their customers. Indeed, Sainsbury’s stated that it monitored its interchange fees and did look to recover these to the fullest extent possible. The facts accepted in the Sainsbury’s case support the claim being brought on behalf of consumers. However, the case turned on a legal point and MasterCard failed to make out the legal defence it needed. The Sainsbury’s judgment does not prevent the proposed consumer claim being successful.
How have you calculated that damages could be as much as £14bn?
By applying economic and accounting analysis and looking at publicly available data on all consumer transactions in the UK, as well as cross-border transactions (such as online purchases), by approximately 46 million consumers over more than 15 years – and adding in interest. Regard has also been had to the witness and expert evidence of MasterCard in the Sainsbury’s claim that we have obtained already from MasterCard. It is not surprising that the total loss caused by MasterCard’s illegal fees runs into the many billions.
Was MasterCard the only credit card company to charge these fees?
Visa also charges interchange fees, however Visa always agreed to set its fees at a level the Commission regarded as justifiable and therefore has not been found to engage in unlawful conduct.
Are the retailers exposed to any liability for passing the fees onto their customers?
No. Retailers and all other companies that accept card payments had the unlawful MasterCard fees imposed upon them. Faced with this cost, and in order not to reduce their own profits, retailers passed on the card fees. In reality, they had no other choice and acted rationally seeking to protect their own profits.
Is this the first action to be brought under the new regime?
This is the first UK-wide consumer action under the new regime and by far the largest claim of any kind ever bought in UK legal history. A relatively small class of pensioners recently brought a relatively small claim (seeking £2-3 million in damages, plus interest) against a mobility scooter company for resale price maintenance.
Could the decision of the UK to leave the EU prevent you from ultimately bringing the claim?
No. The European Commission Decision that the action follows on from dates from 2007. Pursuant to current English law, this decision of the Commission is binding on UK courts, irrespective of what may now happen following the vote for Britain to leave the EU. The action has now been filed at the Competition Appeal Tribunal and it may even be resolved before any decision to leave the EU takes effect (given there is a minimum of two years from when any exit negotiations start and reports are suggesting no exit will take place until 2019 at the earliest). But if the litigation is still ongoing, any changes in the law following any eventual British exit from the EU will not affect a case such as this that will be mid-way through. Changes to English law to give effect to Britain’s exit from the EU should not apply retroactively.
In what capacity is Walter Merricks bringing this claim?
A class representative can be any person the Competition Appeal Tribunal considers is “just and reasonable” to represent the class in the proceedings, irrespective of whether they are a member of the class. Relevant factors in that assessment include whether the applicant would fairly and adequately act in the interests of the class members, and that the representative does not have a material interest that is in conflict with the interests of class members. Given his qualifications, experience and background, Mr Merricks ought to be recognised as a suitable individual to bring a claim of this type as a class representative. He is also a member of the class and suffered loss just like all other UK consumers.
For further information on Walter Merricks CBE please see his Wikipedia page here.
When and where will the case be heard?
The case will be heard before the Competition Appeal Tribunal which, as its name suggests, is a specialist court that hears competition law disputes. Now the claim is filed, there will be a certification hearing at which the Tribunal will be asked to allow the action to proceed on a collective, opt-out basis. This hearing should take place in late 2016. A timetable will then be set to take the claim through to a trial that will likely happen around mid-2018, unless MasterCard makes UK consumers a fair settlement offer before that.
What happens once a damages figure is fixed, either by Tribunal award or by a settlement?
Eligible consumers will then be invited to make claims within a fixed period of time, for the amounts of compensation to which they are entitled. After that the Tribunal will determine what to do with any amounts that remain unclaimed. It can then award out of the unclaimed money a payment to cover the unrecovered costs incurred by the representative in bringing the proceedings. Any ultimately remaining amount will be paid to the Access to Justice Foundation for it to use on the worthwhile causes it supports.
What is the Access to Justice Foundation?
The Foundation is a charity officially designated to receive unclaimed monies in cases like this. Established in 2008, it raises funds and distributes them to organisations that support those who need legal help but cannot afford it. For information about the Foundation see www.atjf.org.uk, or contact chief executive Ruth Daniel at email@example.com or on +44 20 7092 3973.
About Quinn Emanuel
Quinn Emanuel is a 700+ lawyer business litigation firm—the largest in the world devoted solely to business litigation and arbitration with 19 global office locations. Firm lawyers have tried over 2,500 cases, winning 88% of them. When representing defendants, Quinn Emanuel’s litigation experience gets better settlements or defence judgments. When representing claimants, Quinn Emanuel lawyers have won over $50 billion in judgments and settlements. Quinn Emanuel has also obtained five 9-figure jury verdicts, twenty-four 9-figure settlements, and fourteen 10-figure settlements. The American Lawyer twice named the firm one of the top six commercial litigation firms in the US. Quinn Emanuel were voted four times as one of the four “most feared” firms by General Counsels at Fortune 500 companies — the lawyers they “least like to see” on the other side. The Lawyer named us “International Firm of the Year.” in the UK, whilst Legal Business has awarded Quinn Emanuel the "US Law Firm of the Year" in the UK in 20012, 2014 and 2105. London EU and Competition Litigation head, Boris Bronfentrinker, was recognised in 2016 as one of the "40 Under 40" best competition lawyers in the world by Global Competition Review, whilst The Lawyer named him one of the "Hot 100" lawyers in the UK in 2016. Kate Vernon has also appeared in the Lawyer “Hot 100” and has been recognised by Chambers & Partners and Legal 500 as well as SuperLawyers. Further information is available at www.quinnemanuel.com