/ Money, Shopping

It’s quite possible that MasterCard owes you money

MasterCard is facing a claim of up to £19bn in a landmark UK collective action over card charges that were passed on to shoppers. Lawyer and former head of the Financial Ombudsman Service, Walter Merricks CBE, explains what this may mean for you.

For years MasterCard defied UK and European competition watchdogs and set the transaction fees that they charge at excessive levels. So what, you may wonder? This sounds rather technical and nothing to do with me. You’d be wrong.

You and I – and virtually everyone – has lost out as a result, and I’m going to do something about it.

Mastercard interchange fees

Because retailers have to pay these interchange fees, they pass on the cost to consumers by raising their prices. The prices of everything we all bought from 1992 to 2008 –whether using a MasterCard or not – were higher than they should have been as a result of the unlawful fee-fixing of MasterCard.

Although most of us didn’t know this, experts who study the retail economy knew it was happening – and so did MasterCard.

Our estimate is that we’ve collectively lost out by about £19bn, possibly between £300 and £400 per consumer.

Until very recently, the chances of getting any kind of redress for this, as individuals, were almost zero. While the competition authorities have powers to stop detrimental practices, they don’t have any role in forcing offenders to surrender wrongful profits or making them pay compensation.

But the recent Consumer Rights Act that came into force last year, hugely supported by Which?, has allowed for legal actions to get collective redress for a whole class of consumers who’ve lost out as a result of anti-competitive conduct.

Collective redress

When I was head of the Financial Ombudsman Service, I had to handle a large number of ‘single issue’ mis-selling scandals that affected masses of consumers. These included mortgage endowments, bank default charges and PPI. I was frustrated that there was no means of dealing with these collectively, and we had to handle each complaint individually.

My aim is to use the new collective action to get the redress to which UK consumers are entitled and to ensure that MasterCard cannot hold on to the illegal profits it made.

The great thing about this collective approach is that no one has to take any action to be part of the claim. I’ll be fighting the case against MasterCard on behalf of all UK consumers, so nobody needs to file an individual claim or complaint.

And if and when we win compensation, I’m determined to ensure, so far as I possibly can, that the claims companies who hijacked the PPI compensation process don’t get a look in this time, and that the process for claiming a share of the compensation is as straightforward as possible.

This is a guest post by Walter Merricks CBE, a lawyer and former Chief Ombudsman of the Financial Ombudsman Service. All opinions are Walter’s own, not necessarily those of Which?

Comments
Profile photo of malcolm r
Member

The prospect of free money! Who isn’t going to join that bandwagon. Are you proposing that every UK resident could be entitled to between £3-400 because it makes no odds whether you were a Mastercard user or not. And what about the transaction fees charged by other credit card companies? Were they not excessive and will they not “owe” us money?

I’d relish the thought that, for once, the Americans would have to pay the UK huge amounts; makes a change from them fining our banks to fill their tainted coffers. But can you realistically see Donald or Hillary allowing it?

I would much prefer to see a surcharge shown on prices if you choose to pay by credit card (and get a fee loan therefore for up to 2 months). Then I can decide whether it is better to pay by cash, debit card or cheque. Any means to reduce irresponsible purchasing on “free” credit would be welcomed (by me). We’d have to think harder about what we could afford to buy. But I hate to think how our consumer-driven economy would react.

Profile photo of Walter Merricks CBE
Member

You don’t have to take any action to be part of the “bandwagon”. A collective action such as the one we are taking covers everyone unless they choose to opt out.
Visa limited the level of their fees, MasterCard didn’t.
US politicians won’t be able to interfere. I’m not sure how retailers would cope with dual pricing of the kind you favour but I get your point.

Profile photo of malcolm r
Member

Retailers used to give a discount for cash instead of using a credit card – presumably it avoided them paying a fee.

My “bandwagon” point was that all (well, almost all) will be happy to get something (back) for nothing. I’m not sure how the payout will be calculated as you infer all spending between 1992 and 2008 was affected. So will a blanket figure be applied or will we have to calculate all our spending in that period to get a pro rata payment?

I assume that Mastercard will not give in to this without a fight, so they will pay lawyers a lot of money. Presumably lawyers here will also earn a bit. Let’s hope they aren’t the big winners. Do we wait for claims companies to help us get our just deserts.

Sorry to be cynical but, with £19 bn at stake, I don’t see a quick and easy win.

Profile photo of Walter Merricks CBE
Member

You are certainly right: it won’t be quick or easy, but there is a strong case to be fought. The claims process if and when we get to it will be centrally managed, keeping claims companies out.

Member
Haihung87.vn.hh@gmail.com says:
10 September 2016

Ok

Profile photo of malcolm r
Member

Who is providing the funds for the legal challenge?

Profile photo of malcolm r
Member

According to the FT “He has instructed Quinn Emanuel to lead the case, and litigation funder Gerchen Keller Capital is providing up to £40m to finance the lawsuit.”
The trial may start in 2018.
If eventually MC lose, I wonder just how the money will be distributed or will it end up as a fine going to the Treasury?
I also wonder just how much money the legal firms involved will make out of this. Gerchen Keller will no doubt be expecting a large return on their “investment”. as it was EU law apparently that was broken why does the EU not bring an action against MC and put the winnings in the coffers of member states (hurry up or the UK may miss out). Is there a choice between class action and national action in how these cases are brought?

Member
petejay says:
11 July 2016

MC will get worried when thousands of customers stop using it.

Profile photo of Patrick Steen
Member

You might be interested in this story: MasterCard must pay £68.5m in damages to supermarket group J Sainsbury after losing a landmark competition case over charges imposed on payments with credit and debit cards.

http://www.ft.com/cms/s/0/35fcd220-49c2-11e6-8d68-72e9211e86ab.html#axzz4ETFSQOG4

Profile photo of malcolm r
Member

For those unable to access the FT report (if you don’t subscribe and you’ve used up all your free views) the mail Online carries a bit of the story:

Read more: http://www.dailymail.co.uk/news/article-3690888/Sainsbury-s-wins-68million-payout-MasterCard-rip-processing-fees-imposed-customers-time-used-debit-credit-card.html#ixzz4EUrch8f8
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It says:

“The award to Sainsbury’s was made by the Competition Appeal Tribunal on the basis MasterCard had infringed EU and UK competition laws.
The retailer will receive £68million plus interest, driving the total up towards £100million. It is understood the supermarket had initially been seeking £200million.

But the supermarket chain insists that it carried the cost of the card fees itself and so would be keeping the £68million rather than passing it back to shoppers. ”

This does not hold water, does it? It would have set business expenses off against revenue to ensure an acceptable profit margin was maintained. So it is the shoppers who lost out. But how do you ensure they get compensated in line with their theoretical loss? And how will the £19 billion get fairly shared out (less legal fees)?

MasterCard paid £39million to Tesco last year to settle a dispute on the same issue. The case did not reach a tribunal hearing.

So there is nothing new about this story then? I believe Visa are also involved.

Member
dieseltaylor says:
5 September 2016

Technically I suspect the supermarket did carry the cost as it did not differentiate on how people paid.

But the overall effect is as Mr Merrick says. It does though not account for the claims made under CC legislation which people could benefit from. Not very relevant to food purchases but for larger goods.

Given the Consumers Association has the power also to bring a case perhaps they would like to comment on the situation. Just to remind you it was us who sued JJB Sports in the last decade that illustrated the shortcomings of the old Act.

Member
Ian Stocks says:
28 January 2017

I have independent evidence to support the credit card industry being exposed to illegal business activity, on an vast scale in order for fraudsters to obtain commission payments. This was during the same 1992-2008 period as above. How do you look to identify and address those transactions that entered the credit card system illegally?