MasterCard faces one of the UK’s first class-action lawsuits
Class Actions in the UK
Class actions have long been a feature of the US legal landscape. But until October 2015 there was no genuine “class action” procedure in the UK. Then the Consumer Rights Act 2015 (“CRA“) introduced collective proceedings that can be brought in the Competition Appeal Tribunal (“CAT“) by representatives of consumers or businesses.
While previously the UK had “opt-in” group litigation orders, these were really just a means of organising litigation where large numbers of claimants were actively pursuing similar claims. The CRA permitted “opt-out” collective actions for the first time. In “opt-out” cases anyone resident in the UK who is within the defined class is automatically included in the action unless they opt out. There is no need for the representatives to identify all of the members or specify their losses. If the claim succeeds, aggregate damages will be awarded to the group of claimants (as opposed to an individualised assessment for each claimant).
Initially, the Government’s intention was to exclude funders, law firms and special purpose vehicles from acting as representatives for either consumers or businesses in collective proceedings. But no such provision was incorporated into the legislation or the CAT rules.
The new CRA regime will apply retrospectively. Collective proceedings are to be expected in respect of competition law infringements which have historically been identified by the UK and/or EU competition authorities.
The consumer class action against MasterCard
MasterCard now finds itself faced with a legal challenge brought by a representative under the CRA on behalf of consumers, on an “opt-out” basis.
Multilateral Interchange Fees (“MIFs“)
The action relates to a previous finding by the EU Commission that MasterCard’s MIFs were kept unfairly high. Interchange fees are paid by a retailer’s card acceptance provider to a consumer’s card issuer (such as MasterCard) every time a card transaction takes place. The retailer’s bank pays the retailer the cost of the goods/services, less a service charge that is largely determined by the level of MIF. Retailers then pass on the cost of accepting card payments to their customers, by way of increased retail prices. Interchange fees can be bilaterally agreed between the issuing bank and the retailers bank, or, the default fee established multilaterally by MasterCard (the MIF) will apply. The MIF should be limited to no more than 0.3% on credit cards and 0.2% on debit cards.
European Commission decision
In 2007, the European Commission issued a decision against MasterCard which was applicable to cross-border transactions using MasterCard and Maestro credit and debit cards in the European Economic Area. It found that MasterCard’s MIF breached Article 101 of the Treaty on the Functioning of the European Union (“TFEU“), because they restricted competition between retailers’ banks and inflated the cost of card acceptance by retailers. The Article 101(3) exemptions were not satisfied. MasterCard failed in an appeal and in September 2014 the European Court of Justice confirmed that MasterCard’s MIF restricted competition.
Current collective proceedings
The representative of the consumer proceedings is Walter Merricks CBE, who was previously the Chief Financial Services Ombudsman and is a non-practising solicitor. Mr Merricks has instructed a law firm to file the claim. This includes a plan for managing the claim – it is said that “the proposed class of 46 million consumers will be communicated with through a claims website, newspapers, magazines and social media”. It is reported that the claim has been quantified at £14 billion worth of charges borne by consumers. The claim relates to MasterCard’s MIF to 2008, as following the European Commission judgment referred to above, MasterCard undertook to reduce its cross-border MIF to the recommended level. A litigation funder will provide funding of up to £40 million to Mr Merricks and his legal advisers.
The Sainsbury’s Supermarkets Ltd v MasterCard decision
The recent judgment in Sainsbury’s Supermarkets Ltd v MasterCard Incorporated and others is likely to have an impact on this consumer action. In 2012, Sainsbury’s filed a claim against MasterCard UK seeking damages for loss suffered by Sainsbury’s due to MasterCard’s infringement of competition law, through its setting of the UK MIF. On 14 July 2016, the CAT awarded Sainsbury’s £68.5 million plus interest, ruling that MasterCard had restricted competition by setting fees on card transactions in the UK.
MasterCard tried to use the “passing-on” defence, asking the CAT reduce the damages award because Sainsbury’s passed the costs to its customers. The CAT ruled that “no identifiable increase in retail price has been established, still less one that is causally connected to the UK MIF. Nor can MasterCard identify any purchaser or class of purchasers of Sainsbury’s to whom the overcharge has been passed who would be in a position to claim damages“. The CAT confirmed that MasterCard would have had to prove that there was a further class of claimant (the consumers) who could bring an action because the overcharge was passed on. The CAT’s ruling on this point will potentially cut the other way now MasterCard is facing a class action by the consumers like those who could not be shown to have suffered a loss in the Sainsbury’s case.
Best in class?
The introduction of “opt-out” class actions along the lines of the US model is controversial, with many fearing it will see the rise of a US-style litigious culture driven by entrepreneurial funders and law firms seeking out opportunities to certify large classes and generate returns as much for themselves as the class they purport to represent. On the other hand, the competition law context might be one in which individual consumers lack the incentives and resources to take on large organisations without a class-action regime, meaning wide-reaching anti-competitive behaviour would never be redressed. Now that the CRA has one of its first high-profile cases, there will be a chance to see what the pros and cons of the new procedure will be in practice.