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Mastercard and Visa hit with setback in UK interchange fees law suit

In a damaging set back, a British appeals court ruled in favour of retailers including some of the UK’s biggest retailers, in massive a blow to the card networks which could now face billions of pounds in interchange fees damages.

Mastercard and Visa interchange fees law suit

Mastercard and Visa hit with setback in UK interchange fees law suit

The interchange fees fixed by Visa and Mastercard restrict competition and are unlawful, Judge Terence Etherton said – a ruling which is polar opposite from a similar case now concluding in the US. The ruling, which also involved Asda and Morrison, resolved wildly different decisions by judges in the lower courts. The case now goes back to a speciality competition judge to reconsider whether the restrictive practices were justified in the interests of economic efficiency.

“The ruling is a clear blow to Mastercard and Visa, though it left open the possibility to reduce their exposure to damages,” said Aitor Ortiz, an analyst at Bloomberg Intelligence.

At issue is the use of so-called interchange fees, levied by banks at rates set by the card companies each time a consumer’s plastic is swiped at a register. The interchange fees are then passed on to the retailers. Mastercard faces at least 10 lawsuits filed by retailers in the UK totalling as much as $2 billion in claims, according to Bloomberg Intelligence.

Lawyers for the retailers at Stewarts said the ruling “unequivocally recognized that the fixing of interchange fees by Mastercard and its network members over many years was and is an unlawful infringement of competition law.”

In a statement, Mastercard emphasized that the appeals court ruling isn’t final and the issue will be reviewed by the Competition Appeal Tribunal.

“We continue to firmly believe that retailers derive real value from our network,” Mastercard said in a statement. Visa declined to comment after the ruling.

Visa had been seeking to uphold a 2017 ruling by Judge Stephen Phillips, who said the transactions are legal. But the retailers succeeded in persuading the appeals court to side with a group of speciality antitrust judges at the CAT who in 2016 ruled that Mastercard owed Sainsbury’s £69 million ($91 million).

The tribunal, which will consider at what level the interchange fees could be set if any, should take note that Sainsbury’s accepted at its trial that fee levels of 0.2% for debit cards and 0.19% for credit cards would be lawful, the judge said.

“The card companies will likely pay damages only for the amount above these levels,” BI’s Ortiz said. The ruling confirms existing European Union “case law as regards to swipe fees and it won’t help Visa and Mastercard in their ongoing antitrust probes.”

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