A former financial services ombudsman is launching an unprecedented legal bid to secure £19 billion compensation from Mastercard over charges that were passed on to shoppers, claiming some 40 million UK consumers could each receive hundreds of pounds in damages.
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. But there's no guarantee it will succeed, and Mastercard says it "firmly disagrees" with the basis of the claim.
Walter Merricks, who was the chief financial services ombudsman from 1999 to 2009 and is represented by the law firm Quinn Emanuel, is bringing the claim because he believes Mastercard broke competition law for 15 years between 1992 and 2007 by charging excessive 'interchange fees.'
These are fees charged by card providers and paid by retailers whenever a consumer uses a credit or debit card. Mr Merricks says Mastercard's "unlawful conduct" in charging high fees meant retailers passed them on to customers in the form of higher prices, and as a result "the prices of everything we all bought from 1992 to 2008 were higher than they should have been".
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.
See our Consumer Rights guide for more on your legal protection and what the Consumer Rights Act means for you.
What does the law say about interchange fees?
The European Commission found in 2007 that Mastercard's interchange fees for transactions that cross borders within the EU had broken competition law.
Mastercard was ordered to bring an end to the practice within six months. The firm did reduce the level of its fees, as ordered, in 2008, but then challenged the legality of the EC decision in an unsuccessful, seven-year-long set of appeals that ended two years ago.
In 2014 the European Court of Justice declared that high interchange fees were a violation of EU antitrust rules.
On 29 April last year the European Parliament and the Council of the European Union adopted the Interchange Fee Regulation, capping them at 0.2% for debit cards and 0.3% for credit cards. This came into effect on 9 December 2015.
Will Brexit affect the case?
No. The European Commission's decision in 2007 is binding on UK courts and will remain so, even if Britain were to leave the EU midway through the case being heard. Changes to UK law as a result of Brexit are unlikely to apply retroactively.
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 and it's so far only a legal claim, which is likely to be fiercely contested by Mastercard.
But if – and it's a big if – the case was to succeed, eligible consumers would be invited to make claims within a fixed period of time.
The firm estimates Mastercard's high interchange fees cost consumers £19 billion pounds 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.
Quinn Emanuel 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 the services of 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 does Mastercard say?
"Electronic payments deliver real value to people online, in store and everywhere.
"Mastercard is committed to providing ever more convenient, safe and secure payments to all our customers, including consumers, retailers, governments and banks."
The company has also published a blog post pointing out that the EC ruling in 2007 didn't relate to domestic UK interchange fees.
What do the lawyers say?
Boris Bronfentrinker, lead partner at Quinn Emanuel, says: "This is precisely the type of claim for which the new collective action regime was established. This is a landmark case where unlawful anti-competitive conduct has harmed UK consumers.
"That harm, likely to be in the hundreds of pounds, is not large enough for any individual consumer to bring their own claim. But by aggregating the claims and bringing them on a collective basis, all UK consumers who lost out will get the compensation they are owed."
Additional reporting by Press Association.