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.
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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.
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"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 Â£ 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 firstname.lastname@example.org