The European Commission has found that interchange fees paid by European merchants have been artificially inflated and that merchants have been overpaying to accept Visa and MasterCard as forms of payment. Following a series of recent enforcement actions against both card schemes by the European Commission, there are strong grounds to state that interchange rates paid by European merchants have been too high.

European merchants may now be entitled to recover the amounts by which they have been overcharged as a result of anticompetitive practices by Visa and MasterCard.

1. Liability

The European Commission has found that the manner in which MasterCard sets certain interchange fees is anticompetitive. That finding is now final and binding on the courts of all EU member states.

Visa and MasterCard impose rules on member banks that have the effect of requiring merchants that accept Visa-branded and MasterCard-branded payment cards to pay interchange fees at pre-determined rates to their acquiring banks, which fees are then paid to the card-issuing banks. In response to a complaint by the British Retail Consortium, the European Commission investigated this practice as it relates to the setting of MasterCard’s intra-EEA cross-border interchange fees. In December 2007, the Commission issued an infringement decision in which it found that the manner in which MasterCard sets these fees is anticompetitive.

2. Damages

Merchant damages in this matter depend on four main factors:

  • The difference between the interchange rate merchants actually paid and the rate that would prevail in a competitive environment, i.e. if Visa and MasterCard did not engage in conduct that infringes EU competition law.

    During the preceding decade, Visa and MasterCard typically required issuing and acquiring banks to charge merchants interchange rates between roughly 120 and 150 basis points. With regulation taking effect in Europe, Visa and MasterCard have now reduced certain credit interchange rates dramatically. The net effect is that rates going forward will be in the neighbourhood of 30-40 basis points. Most merchants have been charged interchange rates that are roughly 50 to 100 basis points higher than the rates that would prevail in a competitive market. This represents the amount by which merchants have been overcharged.

  • The amount of overcharge, if any, that Visa and MasterCard can prove merchants were able to pass- through to consumers.

    Not all of the estimated overcharge can be assumed to have been paid by merchants. European law recognizes that victims of competition law infringements are sometimes able to pass through some or all of the overcharge to their customers and that damage claims must take account of this pass-through.

  • The period of time over which merchant damages have accumulated.

    These claims are subject to the usual statutes of limitations and claim-accrual laws. This means that applicable statutes of limitations are running. Hence, the value of claims diminishes day by day as fewer days of overcharge are included within the limitations period.

  • Interest on the accumulated damages.

    There is uncertainty in the law as to the applicable interest rate to be applied to damages in competition law cases. Based on a review of economic conditions, it is estimated that interest would add roughly 15% to any damage totals.

3. Next steps

Bankhawk have assembled a team of lawyers and specialist economists to offer large merchants the opportunity to recover money the card schemes have taken from them. These services are provided under a damages based agreement. There are no upfront/ongoing legal costs to clients as the lawyers are paid a percentage of any amounts recovered, and nothing in the unlikely event that no amount is recovered from Visa and MasterCard.