Saturday , May 27, 2023

Mastercard’s Credit Card Fees Find Themselves in the Cross-Hairs of a U.K. Class Action

While the two global payments networks have been embroiled in a controversy over merchant debit card fees in the U.S. market, they also face trouble in the United Kingdom over an even bigger issue: credit card interchange fees.

That fact was thrown into relief early Thursday when Reuters reported the U.K.’s Competition Appeal Tribunal certified a $14-billion class action brought against Mastercard Inc. that alleges interchange set by the network between 1992 and 2008 hurt consumers as merchants passed on the cost. The case, brought by a former financial ombudsman named Walter Merricks, could result in 46 million adults receiving approximately 300 pounds ($410) each, according to Reuters.

The news service quoted Mastercard calling the case “spurious” and alleging it is being pushed by lawyers and others seeking to profit from it. A U.S. spokesman adds that the tribunal has already chopped the plaintiff’s monetary claim. “The decision today reduces the value of this spurious claim by more than 35%,” the spokesman tells Digital Transactions News. “Mastercard is confident that over the coming months a review of key facts will further significantly reduce the size and viability of the claim.”

The 5-year-old case represents the first time a consumer class action has been approved in the United Kingdom. It follows action by Britain’s Supreme Court in December to let the case proceed. That high court in June last year handed down a ruling that the interchange schedules set by both Visa and Mastercard unlawfully restricted competition.

Mott: “A steady drumbeat of discontent with the status quo of card payments and costs.”

U.S. observers tell Digital Transactions News the latest action could have implications that go beyond the U.K.’s borders, as U.S. merchants have complained for years about interchange rates, the fees they pay to acquirers to accept card payments. “There is a steady drumbeat of discontent with the status quo of card payments and costs, in the U.K., obviously, but also in this country,” says Steve Mott, principal at BetterBuyDesign, a payments consultancy, in an email message.

Mott cites recent actions, including inquiries by the U.S. Department of Justice and the Federal Reserve’s efforts to update its 10-year-old rule on debit card routing and fees in the face of widespread merchant discontent. “Legacy card-payment types better get creative—especially about digital solutions—or the corner they’re painting themselves into might be more like an abyss,” he warns.

Not all observers, however, agree the consequences for the card networks could be so dire, despite Thursday’s setback for Mastercard. “The U.K. [card]-issuing market is competitive,” argues Eric Grover, principal at the consultancy Intrepid Ventures. “In a competitive issuing market, much of interchange is passed on to cardholders in lower fees and a buffet of benefits. I would argue higher interchange would benefit many consumers through more fee-free cards and richer benefits, benefits consumers might not individually be able to negotiate from merchants.”

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