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The UK Competition Appeal Tribunal (CAT) has put on hold a class action lawsuit accusing Visa and Mastercard of imposing excessive interchange fees for inter-regional and commercial card transactions.
The court’s decision means that a proposed class action brought against the card giants cannot proceed in its current form.
Commercial and Interregional Card Claims (CICC), the special purpose vehicle set up by litigation firm Harcus Parker, filed the lawsuit last July, seeking to represent UK businesses that were charged multilateral interchange fees (MIFs) for accepting corporate credit cards, and credit and debit cards from overseas visitors.
Securing a so-called collective proceedings order is a necessary step in a class action suit before a claim can go on trial. It requires the plaintiffs to obtain a court order that certifies a class representative, a person who can properly represent the class, and that the claims are eligible for collective proceedings.
The CAT has refused to certify CICC’s claim, for now, on the ground that there are “a number of unsatisfactory aspects” to the proposed class action and that the claimants were unable to “bring forward coherent proposals” and to “show a practical way forward”.
“This is despite what is referred to by [CICC] as the ‘relatively low bar’ set by Merricks SC,” the court said, referring to precedent-setting ongoing class action proceedings by former financial ombudsman Walter Merricks against Mastercard.
The court raised concerns about the methodology for acquirer pass-on and merchant pass-on, as well as issues around determining participants of the classes, among others.
Specifically, the lawsuit proposed two classes — one for UK businesses with an annual turnover above £100m, which could opt-in to the claim, and another one for businesses with a turnover under this threshold, which were automatically included unless they choose to opt out.
The court found “real difficulties” in determining whether a merchant is or is not a member of the proposed classes in the opt-in and opt-out cases, which “makes it impossible to identify the extent and nature of common issues or to determine the most appropriate way of dealing with them”.
The card schemes asked the court to scrap the proceedings altogether, but the CAT decided to put only a stay on the proceedings and give CICC eight weeks to file a new application.
The law firm says it appreciates the detailed guidance and clarifications given by the court.
Speaking to VIXIO, the firm emphasises that the CAT “accepted that proceedings are necessary to enable access to justice for the many merchants who would otherwise struggle to obtain redress, and rejected Mastercard and Visa’s arguments that collective proceedings were not necessary for this purpose”.
The firm plans to study the court directions closely and “will advise soon how we propose to take this case forwards".
Mastercard welcomed the court’s decision saying that it believes that “if a revised claim is made, it should equally fail”.
“We have always maintained the claim is fundamentally flawed and has never been about helping businesses — it’s lawyers and their financial backers out to make money for themselves,” a Mastercard spokesperson told VIXIO.
Visa did not reply to a request for comment by the time of publication.
The card schemes are currently subject to hundreds of lawsuits at the tribunal, the court’s register shows.
Nevertheless, the claimants argue their case is unique because it is specifically focused on MIFs where the courts have not yet ruled and where there are “gaps in the patchwork of regulation”, Harcus Parker told VIXIO at the time of filing the claim.
Current EU and UK interchange fee regulations impose caps on consumer credit and debit card transactions. However, those caps do not apply to corporate credit and debit cards or to inter-regional transactions.
As a result, the interchange fee levied on commercial cards is five to six times the domestic interchange fee on consumer cards, according to the law firm.
The issue has been in the focus of regulatory and government scrutiny too.
The Payment Systems Regulator (PSR) and the cross-party group of parliamentarians, the Treasury Select Committee, are both looking at the fees charged by the card schemes.
But Harcus Parker argues “the investigation into cross-border interchange fees is too narrow” because it does not take into account inter-regional fees beyond Europe.
Despite the claims of anti-competitive behaviour, the UK Interchange Fee Regulation enables merchants to either surcharge or decline acceptance of card payments not regulated by the IFR, such as commercial cards.
Findings from the Edgar Dunn 2020 review of IFR revealed that merchants are aware of their right to not accept certain payment card types but the majority of them do not choose to reject the acceptance of non-regulated card products.
This may be due to the type of customer and the type of spending used with commercial cards, which suggests that many merchants see the value in continuing to accept these cards.
