UK: Anti-Competitive Interchange Fees: New Ruling Likely To Have Big Impact

Summary and implications

On 14 July 2016, the Competition Appeal Tribunal (CAT) handed down its judgment finding MasterCard had infringed EU/UK competition law by setting a default level for card fees between banks known as "multilateral interchange fees" (MIF), thereby restricting competition in the market for acquiring payment card transactions in the UK. The CAT awarded Sainsbury's Supermarkets Ltd (Sainsbury's) £68.6m in damages. This is an important decision and is likely to have a wide-reaching impact. Notably, a number of cases have been stayed pending its outcome. The decision is also interesting in that it provides guidance on the so-called "passing-on" defence and has some interesting commentary on the use and management of expert evidence.

The action for damages, originally filed in the High Court, was transferred to the CAT in December 2015 to become the first standalone action heard by the tribunal. Sainsbury's had, however, partly relied on findings contained in the European Commission's 2007 decision finding that MasterCard's EEA multilateral interchange fee had breached European competition law.

What are interchange fees?

Interchange fees are paid from the merchant's bank to the cardholder's bank, and are calculated as a percentage of each transaction made by the cardholder. The interchange fee forms part of a package of fees (or Merchant Service Charge) that the merchant's bank charges to the merchant.

Decision

The CAT agreed with Sainsbury's that, in the absence of the MIF, banks would have agreed on lower bilateral interchange fees and therefore charged a lower Merchant Service Charge.

Importantly (in this case and for a £19bn consumer collective action potentially in the offing), the CAT rejected on the facts Mastercard's defence that Sainsbury's had "passed on" the resulting costs to consumers. The CAT was wary about "presuming" pass-on to indirect consumers as it risked fragmenting damages claims or rendering them difficult to prove. The CAT further ruled that a pass-on defence ought only to succeed where the defendant shows that there is another downstream class of claimant to whom the overcharge was passed on.

The judgment was also instructive for future litigants seeking to adduce expert economic evidence. In cases where economic experts lack specific expertise in the field in question (in this case, payment systems), the CAT noted it was "incumbent" on the parties to ensure expert opinions were prepared based on a common – and if possible, agreed – factual base.

What next?

Hundreds of claimants (seeking combined damages of £1.2bn) have brought claims in the CAT and before the High Court against MasterCard, including inter alia Debenhams, John Lewis, WHSmith, Arcadia and Morrisons. A number of advanced cases were stayed pending the outcome in this case and will now be heard in September. While such claimants will no doubt feel emboldened by the ruling, the CAT's finding that, in the absence of the MIF, a lawful credit card interchange fee of 0.5% would have prevailed, is expected to lower any damages awarded to plaintiffs asserting the fee would have been close to nil.

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