MasterCard predicts $270 million settlement on UK merchant litigation

Out-Law News | 03 May 2016 | 12:56 pm | 1 min. read

Payment card company MasterCard has estimated that it could face costs of $270 million to settle damages claims from UK merchants over bank fees.

In a filing to the US Securities and Exchange Commission (SEC), MasterCard said that, beginning in May 2012, "a number of retailers filed claims or threatened litigation against MasterCard seeking damages for alleged anti-competitive conduct with respect to MasterCard's cross-border interchange fees and its UK and Ireland domestic interchange fees".

Interchange fees are applied to credit or debit card transactions, and are paid by the retailer's bank to the purchaser's bank. They reduce the amount the retailer makes on the sale.

The UK and Ireland retailers seek damages of over $1 billion, and have been joined by others seeking a further $1 billion over interchange rates in Europe, MasterCard said.

In June 2015, MasterCard settled with Tesco for $61 million and it has submitted statements of defence to other litigants, it said.

"With respect to all UK Merchant claimants’ litigations, MasterCard believes that it is reasonably possible that it could incur a loss and estimates the lower end of a negotiated settlement could result in a loss of $270 million," MasterCard said in its filing. This is only an estimate, it stressed, and the amount could increase or decrease depending on litigations and settlement negotiations.

The EU brought Interchange Fee Regulation (IFR) into force in April 2015, imposing new caps on interchange fees.

The cost of interchange fees, which amounts to "tens of billions of euros every year", is ultimately passed from retailers to consumers, the Council said in a statement. The fees have varied from one member state to another, the Council said.

For debit cards used cross-border, there is now a cap of 0.2% of the transaction value.

Domestically, the debit card cap is also 0.2%. During a five-year transition period, EU member states may cap fees at a set value – 0.2% of the "annual weighted transaction value of all domestic transactions within the scheme".

Countries may also set a maximum fee of 5 euro cents for smaller domestic transactions after the five year transition period, the Council said.

An immediate cap of 0.3% of transaction value was placed on credit cards and member states can choose whether to lower this for domestic purchases.