UK Supreme Court ruling could cost Mastercard billions

Mastercard suffered a serious blow in its long-running battle over interchange pricing in the United Kingdom. On Dec. 11, 2020, the UK's highest court, the Supreme Court, ruled that the country's Competition Appeal Tribunal (CAT) must reconsider a class action-style lawsuit filed against Mastercard on behalf of millions of consumers that it CAT had previously rejected.

The lawsuit, originally filed in 2016, seeks 14 billion British Pounds ($18.6 billion) in alleged overcharges UK consumers paid for goods and services because of Mastercard interchange fees.

While class action lawsuits are often filed on behalf of consumers and businesses in the United States, in the UK such lawsuits (known there as group litigations or collective proceedings) are rare. A consumer rights law enacted by the UK in 2015 opened the door for consumer group litigation involving purported violations of the country's fair competition laws. The Mastercard case is the first major test of that newfound ability.

The law firm White & Case, in an analysis of the Supreme Court's ruling, suggested the decision helps to create a framework for additional consumer actions against UK business "as the UK's collective proceedings regime still struggles to find its feet." It added that "the finely balance Supreme Court judgement means that collective proceeding should be easier to instigate in the UK, which in turn is likely to make them more common."

That could be bad news for other businesses operating in the UK, including payments companies. "The UK Supreme Court decision in the Mastercard case is a watershed moment that risks opening the floodgates for US-style class actions in the United Kingdom," Harold Kim, president of the U.S. Chamber of Commerce's Institute for Legal Reform, said in a statement

$18.6 billion for 46 million consumers?

Mastercard and Visa have faced numerous legal challenges to interchange in the UK and the European Union. In 2019, the two companies committed to slash interchange rates by as much as 40 percent across the EU to stave off an antitrust investigation. Earlier this year, the UK Supreme Court upheld a lower court ruling that Mastercard and Visa interchange fees restricted competition, and instructed a lower court to decide compensation retailers are due for interchange overpayments. That process is still underway.

The latest ruling by the Supreme Court stems from a lawsuit filed in 2016 on behalf of 46 million UK citizens over the age of 16 who purchased goods between 1992 and 2008 from merchants accepting Mastercard-branded credit and debit cards. The lawsuit was filed by Walter Merricks, a renowned UK attorney and formerly chief ombudsman of the UK Financial Ombudsman Service, which was created 20 years ago to settle disputes between consumers and UK financial services providers. The case is known as Merricks v Mastercard.

The CAT dismissed the case in 2017, but Merricks won a judgement on appeal. In a statement released to the UK press, Merricks asserted that Mastercard has been "imposing excessive card transaction charges over a prolonged period in a way it must have known would impose an invisible tax on consumers."

In 2019, Mastercard requested and garnered approval from the Supreme Court to review the appeals court decision. Now the Supreme Court wants CAT to consider the case anew. Mastercard asserted in a statement to the UK press that the case is "fundamentally flawed," adding that "No U.K. consumers have asked for this claim."

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