After a defeat at the U.K. Supreme court last December, Mastercard’s odds in this litigation have changed significantly. The high court lowered the standard of scrutiny to certify opt-out collective proceedings and sent the case back to the CAT, which will decide whether the action should be certified and go to trial. This doesn’t mean that Mastercard will have to pay $19 billion, if at all, but it raises the prospect of a settlement.
How did Mastercard get here?
Mastercard has been defending this consumer class action in the CAT since 2016 for restricting competition with high swipe fees from 1992 to 2007. The European Commission found in 2007 that the agreements between Mastercard and banks to set interchange fees (fees that banks pay to each other when you use your debit or credit card) were anticompetitive. This was later confirmed by the European Court of Justice in 2014. Retailers sued Mastercard in the U.K. for more than $4 billion, but many of these cases have already been decided or settled. Yet, the biggest one, a $19 billion consumer class action which was dismissed by the CAT in 2017, was brought to life by the U.K. Supreme Court and now the CAT is reviewing the case again. However, this time the outcome may be different
How much Mastercard will have to pay?
Nothing, $21 billion or most likely, something in between. Precedents are positive for Mastercard since no opt-out class action has been certified in the U.K. ever, and the CAT already dismissed this claim back in 2017. Yet, a lot has changed ever since. The Supreme Court ruling in December sent a strong signal that this time the CAT may have to certify the class action and leave any analysis on the methodology to calculate damages for the full trial. If this happens, Mastercard may have more incentives to reach a settlement instead of going to court. Additionally, claimants are seeking to amend the original class by adding more people and asking for compound interests, raising the total bill to around $21 billion. However, it isn’t clear whether the CAT would allow these changes. If the case ends up in trial, claimants will still have an uphill road to prove the damage and to show a robust methodology to calculate damages. This was a key point in the CAT’s 2017 decision when the claim was dismissed.
What may happen next?
The CAT is likely to issue a decision on the certification in the following months. The parties held an oral hearing in March where both, Mastercard and the claimants, seemed to focus more on defining the class rather than fighting the certification, assuming that the case would likely go to trial. If the class is certified, the CAT still needs to decide on the size of the claim, whether it includes deceased people (or representatives) or not, whether interests to be paid are simple or compound, etc. Other important issues such as passing-on to consumers, or whether the interchange fees may be lawful to a certain point, will be left for the trial. In any event, it is unlikely that this claim will be over in the next one or two years.
Is Mastercard optimistic?
The company has always been confident in winning this case, and looking at the past, yes, why not? Mastercard is so confident that, unlike other litigation in the U.S. and the U.K., it hasn’t made any provisions to cover legal or settlement costs. While this was a reasonable approach until December, after the defeat at the Supreme Court, this approach may look more like a chess game. Maybe the company is just waiting to see if the class is certified to make a provision, or maybe the company is still confident that the class will be thrown away or maybe, just maybe, Mastercard’s $19 billion damage claim exposure is a huge underestimated risk.
