A former financial services ombudsman is launching an unprecedented legal bid to secure £19 billion compensation from Mastercard over charges that were passed onto shoppers, claiming some 40 million UK consumers could each receive hundreds of pounds in damages.Walter Merricks, the man behind this landmark legal bid, has written exclusively for MoneySavingExpert.com on why he's trying to take the company to task.
The 'collective action', one of the first of its kind under the Consumer Rights Act 2015, will make legal history in the UK by automatically representing the interests of ALL affected UK consumers – including those who've never used a Mastercard.
If it does work, there potentially would be paybacks for all affected, but like all lawsuits there's no guarantee it will succeed, and Mastercard says it "firmly disagrees" with the basis of the claim.
The claim itself revolves around Merricks' belief that Mastercard broke competition law for 15 years between 1992 and 2007 by charging excessive 'interchange fees' – the fees a retailer pays to your credit or debit card company when you use your card to shop. Merricks claims retailers would have then passed on these charges to consumers.
The case will be heard at the Competition Appeal Tribunal, a specialist court that hears competition law disputes. An initial hearing will take place next month, with a trial expected to take place in mid-2018.
Get Our Free Money Tips Email!
What's Merricks' case against Mastercard?
Walter Merricks (pictured below), the chief financial services ombudsman from 1999 to 2009, is represented by the law firm Quinn Emanuel. Here he writes for us to explain why he brought the case:
We all want a good deal when we shop, and as we all know Martin Lewis gives lots of great tips on MoneySavingExpert.com about how to bag a bargain.
But up until now there hasn't been much focus on 'interchange fees' – the fees a retailer pays to your credit or debit card company whenever you use it to shop.
Perhaps this isn't surprising, as it's retailers who suffer the fees in the first instance and the effect on consumers is indirect.
We have a lot to thank the competition authorities for – in particular, the European Commission (EC) for doggedly pursuing Mastercard for over 20 years, trying to prevent its charges pushing up retail prices for consumers.
The EC finally succeeded in 2007, when it found that Mastercard had charged unlawful cross-border interchange fees. But Mastercard insisted on fighting a seven-year series of appeals that it ultimately lost two years ago.
We all paid higher prices than we should have done as a result of the unlawful charges levied by Mastercard. Now it's payback time.
I've been involved in consumer protection for 20 years, first as an insurance ombudsman and subsequently as a financial ombudsman. The ombudsman schemes are great for dealing with unresolved disputes between individual consumers and big firms, but the big problem has always been how to get justice for whole classes of consumers who've been affected by the same thing.
When the mortgage endowment mis-selling scandal was exposed, individual consumers had to make complaints to our service one-by-one and I had to manage over 500,000 cases. This was followed by other disgraceful financial affairs: bank default charges, precipice bonds, and of course PPI.
If you've been a victim of mis-selling and had to make a complaint, you probably wondered: "Why do I have to do this when it's obvious that millions of us have been victims? Can't someone in authority sort it for us all?"
Now at last, the new Consumer Rights Act 2015 allows for legal actions to be taken on behalf of a whole class of consumers who've lost out as a result of competition law breaches, without each consumer having to make a claim individually.
So I am pleased and proud to be able to act on behalf of all UK consumers in bringing this first UK-wide class claim, against Mastercard. In this case virtually everyone has been affected, not just people who paid by Mastercard. You don't have to do anything to be part of this claim.
What are the chances of success? Mastercard says it disputes the legal basis for our claim. Well, it would, wouldn't it? The fact is, it has already been found guilty of breaching competition laws, so we have won half the battle.
Of course the case will take time, as any major legal action would. But I'm confident that in the end we will be able to hold Mastercard accountable for its misdeeds and for the detrimental effect on consumers, and get the redress we all deserve.
Just watch this space!
Martin Lewis, founder of MSE, says: "I hope the advent of mainstream class action will be beneficial to consumers. Whether it's been PPI, or CPP, or Sentinel or a host of others it is a constant frustration that when it's ruled companies have wrongly taken people's money, they still run a 'don't ask, don't get' policy on refunds.
"This is in itself unjust. It tends to mean more savvy, more affluent, more confident consumers get justice and the more vulnerable don't. So an attempt to change that is to be hugely welcomed, we just must ensure if it happens that enough of the compensation goes into the hands of those who suffered loss.
"The issue of interchange fees themselves is more complex. The push to reduce them has always been something I've been in two minds about. The direct cost is borne by retailers, how much of that is then indirectly passed onto consumers is open to question.
"However, the reduction of interchange fees has certainly directly hit some consumers, as it's the revenue from these fees that funded cashback and rewards schemes – and since the rules reducing them came into effect in December last year, we've seen a huge reduction in those schemes."
Who's in line for compensation if the case succeeds?
What's most unusual about this legal claim is that it's a class-action style claim being made on behalf of all affected UK shoppers, whether or not you've heard of the issue before or believe you were specifically affected.
If you were of working age and living in the UK at any point between 1992 and 2007, it's likely you'll be automatically represented in the case. You aren't required to do anything and you'll still be able to opt out if you wish, though Quinn Emanuel hasn't yet specified how.
Quinn Emanuel told us it currently estimates the 'class' or group of people represented in the case numbers around 40 million, but it added that in some circumstances those who lived abroad but visited the UK during the relevant period could 'opt in' to the class too – though again it's not yet said how that will work.
If the claim succeeds at the Competition Appeal Tribunal, everyone in the class will be able to claim a share of the compensation.
And how much could people get?
We're in the realm of pure speculation now. As this is the biggest UK case of its kind, compensation hasn't ever been divvied up among this many claimants before in the UK.
Quinn Emanuel estimates Mastercard's high interchange fees cost consumers £19 billion during the period, and it's claiming for that amount. If awarded in full, this would equate to an average £475 for each of the estimated 40 million affected UK consumers.
The law firm says it arrived at this figure "based on expert analysis using publicly available data", but just how accurate it is is anyone's guess. Remember that the case might not succeed. Even if it does, a much lower amount of compensation could be awarded – or the tribunal could find that not everyone in the class is eligible to receive it. At this stage, we simply don't know what will happen.
Quinn Emanuel told us it would employ a professional claims administration company to help and would try to make sharing out compensation "as easy as possible" – you wouldn't, for example, need to show old receipts of things you had bought.
What can I do?
There's nothing you can do right now, other than sit tight and wait for more information to become available. We will continue to monitor the progress of the class action – so watch this space.
What does Mastercard say about this?
In response to Merricks' claims, Mark Barnett, Mastercard's president for the UK and Ireland, says:
As it stands, no lawsuit has yet been filed against us, but given the arguments being levelled against us through the media, we firmly disagree with them. It's important to note that the European Commission's decision had no bearing on purchases made by Britons spending here in the UK.
It is unfortunate to see the US class action system being replicated in the UK. All too often in class action cases, the only winners are the lawyers. If past experience is any indication, even the lawyers will be losers in this one.