VISA and MasterCard Interchange Claims

Merchants can Still Recover Damages Against Global Card Schemes Visa and Mastercard

VISA and MasterCard interchange claims. Hundreds of merchants from across Europe have, and continue to, file claims against the card schemes after early adopters such as Sainsbury’s and Tesco paved the away. Mastercard recently stated that it has already resolved £2bn of EU claims through judgment or settlement. The claims allege that multi-lateral interchange fees (“MIFs”) restrict competition in the acquiring market and therefore raise prices for both merchants and consumers.


If you are not one of those which have already claimed, the big question is: should you submit a claim?


Visa and MasterCard Interchange ClaimIn simple terms, the answer is probably, yes, but let’s take a closer look at the background of the claims and what the position is today.

In 2007, the European Commission (“EC”) issued an infringement decision finding that Mastercard’s cross-border EEA MIFs were unlawful, dating back to May 1992. This decision withstood appeals to the General Court of the EU in 2012 and the European Court of Justice in 2014. This decision prompted many large EU merchants to issue claims arguing that the principle of the EC’s finding could be read-across as applying to domestic MIFs too. There are now claims pending from merchants based in nearly 20 EU countries.

The reason Visa was not subject to a similar infringement decision is that they offered commitments to reduce their EEA MIFs in 2010, however, merchants argue that the same infringement exists for Visa, even if there is no EC decision to refer to.

In a strange turn of events, what are essentially the same claims have been taken to trial three times with very different outcomes:

  1. Sainsbury’s vs Mastercard
    The Competition Appeal Tribunal (“CAT”) found that, in a counterfactual world (i.e. one in which MIFs did not exist in their current form), bi-lateral agreements would have been formed between acquirers and issuers which would have set MIFs at materially lower levels, and Sainsbury’s was awarded £68m in damages. However, neither side had submitted any evidence on the suitability of bi-lateral agreements, and this became a key focal point of Mastercard’s appeal.
  2. Asda & Others v Mastercard
    The High Court found that (i) the MIFs were not an infringement of Article 101(1); and (ii) the MIFs as set would in any event have been exempt under Article 101(3) because they infer greater benefits to merchants than their cost. The court was persuaded by Mastercard’s “death spiral” argument, meaning that MIFs were objectively necessary for the card scheme to operate. In the absence of any evidence regarding Visa being materially identical, the court held that, should Mastercard have had to lower its MIF, Visa would not, and issuers would have migrated to Visa for higher MIF revenue, leading to a “death spiral” for Mastercard.
  3. Sainsbury’s & Others v Visa
    The Commercial Court found that MIFs did not infringe Article 101(1) meaning that they did not restrict competition, but that, had the MIFs constituted an infringement, they would not have been exempt at any level based on Article 101(3).

So, three judgements on essentially the same issue, but three different trials and three very different findings. It is clear then that the right evidence and arguments must be presented, and lessons must be learned from these earlier trials, perhaps giving new claimants the upper hand.

The cases were then heard in the Court of Appeal which, in July 2018, landed firmly in favour of the merchants. It determined that MIFs do fundamentally have the effect of restricting competition and the two counterfactuals identified in earlier trials – bi-lateral MIFs and the “death spiral” argument were overturned. A consideration as to whether there could be a lawful level of MIF exemptible under Article 101(3) was passed back down to the CAT and it gave a number of guiding principles which will put downward pressure on any finding of a lawful level of MIF.

Furthermore, it found that the burden of proof for the exemption is on the card schemes and not the merchants, and that there needs to be a direct causal link established for reducing the level of damages due to “pass-on” – a key line of defence for the card schemes based on the argument that some or all of the MIFs were passed onto consumers in the form of higher prices and therefore the consumers, not the merchants, suffered damages.

The current position is that card schemes successfully petitioned the Supreme Court for a further appeal and we expect an outcome sometime next year after a January hearing.


How much can I Claim?


The statute of limitations in the UK, Ireland and a number of other EU countries is six years, meaning that you can claim damages going back six years. Given that MIFs were reduced due to regulation in December 2015, the earlier portion of the claim tends to be more valuable, meaning that the claim reduces significantly as time runs on. The only practical way to stop the clock on limitation is to issue a claim now.

Moreover, there is merit in claiming for all MIFs, not just domestic or intra-EU but also for international cards and commercial cards – those issued to businesses. These last two card types tend to carry much higher MIFs but for many merchants – excluding hotels, car rental and others – they will only represent a small fraction of turnover.

Recent events should also benefit new claimants as Mastercard was fined nearly €600m in January 2019, for restricting cross-border competition for acquiring and both card schemes have given commitments to reduce inter-regional MIFs significantly from October this year.


What next?


You will need a robust assessment of damages to determine the size and strength of your claim, and the same will be important during the claim process. In our experience many merchants will not have the necessary data available to go back six years, particularly given the changes to interchange fees and card mix during that time. Knowing the potential upside will no doubt be useful prior to going down a costly legal avenue.

Bankhawk has significant expertise in this area and our team have assisted a large number of merchants to develop their business cases and supported their claim through to settlement or active litigation, including any challenges made by the card schemes.

Finally, as mentioned above, Mastercard stated in its annual report recently that, out of £3bn in EU claims, it has already resolved two-thirds of this amount through judgment or settlement. Both card schemes have set aside provisions of hundreds of millions of dollars in the last few years to fund settlements and legal fees relating to these cases, and we know that settlement deals are being done.

At Bankhawk, we believe that MIFs have been set too high for too long; if you wish to find out more about launching VISA and MasterCard interchange claims, speak to Bankhawk today.

Contact us for more information on VISA and MasterCard interchange claims.