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A US court has given class certification to ATM operators in a 12-year legal battle over surcharge rules set by Visa and Mastercard.
The DC Circuit Court of Appeals has affirmed a class certification granted by a US district court in 2021, saying that the lower court’s legal analysis was “brief but materially correct”.
Non-bank, independent ATM operators led by the industry association National ATM Council filed a lawsuit in 2011, alleging that the global card brands breached competition law by prohibiting them from charging cardholders lower fees when they use a rival card network.
In August 2021, US District Judge Richard Leon granted certification to three class groups, a decision that was challenged by Visa and Mastercard.
In a judgment filed on July 25, the Court of Appeals said it found “no error in the district court’s conclusion” and the ATM operators provided “reasonable, wholesale methodologies, tethered to plaintiffs’ respective theories of liability, showing that all class members suffered injury”.
The decision means that the case can now move to trial.
“The ATM operators have been prosecuting this case for the past 12 years. The district court was totally correct to certify the ATM operator class and the appellate court agrees,” said Jonathan Rubin, partner at MoginRubin LLP who represents the claimants in the case.
ATMIA, the ATM Industry Association, has welcomed the decision.
“It is definitely a big step and we are pleased that the case will be moving forward,” David Tente, executive director of USA and Americas, told VIXIO PaymentsCompliance.
Tente said ATMIA has been following the case since the beginning, although it did not join the lawsuit as a party.
“The question boils down to whether ATM operators have the right to vary surcharge fees based on their costs for that transaction.”
Current rules by Visa and Mastercard prohibit that. The contention of the classes is that this artificially raises costs for both the operator and the consumer, a position that ATMIA shares with them, Tente said.
Ban on charging less on rival networks
Independent ATM operators argue that Mastercard and Visa have engaged in anti-competitive conduct by preventing bank and non-bank ATM operators from offering cardholders lower fees for transactions routed over cheaper networks.
This distorts competition between regional networks and the ATM networks of Visa and Mastercard.
ATM operators, which MoginRubin says represent 60 percent of US ATMs, typically rely on two revenue streams: the interchange fee they charge the card-issuing bank for serving its card; and a surcharge or access fee they charge each cardholder.
They must in turn pay a network fee, or an acquirer fee, to the ATM network each time a transaction goes through the network. The higher the network fee is, the less profit ATM operators have.
According to the court document, more than half of all domestic ATM withdrawals are routed over Visa’s Plus and Mastercard’s Cirrus ATM networks. These networks charge higher fees than their local competitors, meaning that they bite away a bigger share of ATM operators’ revenue than their alternatives would.
Normally, an ATM operator trying to expand its customer base would offer cost incentives by applying varying surcharging on transactions routed over higher-cost networks such as Visa and Mastercard, versus lower-cost card networks.
However, the network rules of Visa and Mastercard prohibit ATM operators from charging cardholders lower access fees for transactions routed over other networks, meaning that even if the ATM operator uses a cheaper network, it is not allowed to pass a portion of its savings to cardholders.
The ATM operators argue that if they were not barred from charging lower access fees, demand from customers would likely drive card-issuing banks to serve them via cheaper networks.
ATM operators would therefore benefit either from network-fee savings or from attracting more customers and increasing their volume of transactions by differentially charging lower access fees to process transactions over less expensive ATM networks, they claim.
These rules “serve no purpose except to insulate Visa and Mastercard’s ATM networks from price competition from rival networks”, Rubin said.
ATM operators are seeking more than $1bn in damages from the card networks and a court order abolishing the rule.
Court battle spanning 12 years … and counting
Although the class certification is a significant step in the litigation, the case is nearly 12-years old.
This case has taken an extraordinary amount of time; however, Rubin told VIXIO that it is not unprecedented for a complex anti-trust case.
“Large companies with unlimited resources typically use any means at their disposal to delay civil litigation proceedings, and this is a good example of an extra step that delayed this case for two years,” Rubin said, pointing out that “we are now back to where we were in 2021 when the class was certified”.
“It has been a 12-year battle — which means 12 years of mountainous attorney fees and they will continue to accumulate as the case moves forward,” Tente noted.
“My concern is whether the settlement, after fees, will measure up to what the smaller ATM operators are expecting.”
“In the end, though, it will be a big win if all operators can implement variable surcharging and a big win for shackle-free competition in the marketplace,” Tente added.
Rubin agreed that despite the lengthy process, the “outcome of the case is likely to change the rules of the road for US ATM operators in the future by eliminating an anticompetitive rule, and will result in compensation for excessive charges extracted by Visa and Mastercard since 2007”.
These are “both important results that we expect from the outcome of the litigation”.
VIXIO reached out to Visa and Mastercard for comment but did not receive a reply by the time of publication.
Editor's note: the article has been corrected to clarify that ATM operators filed one lawsuit and the plaintiff in the case is the National ATM Council. It has been also clarified that the plaintiffs claim competition between the regional ATM networks and Visa and Mastercard’s ATM networks was harmed.
