Most will not even realise yet, but some 46m UK adults are now set to be involved in a £14bn lawsuit against Mastercard that is Britain’s biggest ever damages action. The Supreme Court on Friday allowed a case to go ahead against the payment group for allegedly causing retailers to overcharge essentially all resident UK adult consumers for 15 years from 1992 by setting anti-competitive fees. In doing so, the court cleared the way for US-style class action suits to proceed in Britain on the basis of 2015 legislation — and potentially for several other pending cases to come to court. The term “landmark” ruling is overused, but is justified here.
The European Commission found in 2007 that Mastercard had breached EU competition law by charging merchants excessive fees for use of its debit and credit cards for cross-border transactions. The UK case brought by Walter Merricks, a former financial ombudsman, alleges that since retailers passed on the fees, consumers paid higher prices than they should. Winning the suit would give each consumer about £300. The Competition Appeal Tribunal, which must certify such cases to proceed, had blocked it. The Supreme Court overturned its ruling.
Mastercard said no UK consumers had asked for the claim, which was being “driven by ‘hit and hope’ US lawyers, backed by organisations primarily focused on making money for themselves”. Regardless of the EU’s 2007 ruling, it denies that UK consumers suffered losses. It will no doubt defend the lawsuit vigorously.
What is important is that consumers will get their day in court. Individuals or small businesses harmed by anti-competitive behaviour can often not afford costly legal action against a large company. The UK’s Consumer Rights Act 2015 was designed to enable “collective” actions by entire classes.
The Supreme Court ruling recognised the need for such actions, and both clarified and lowered the bar for them to go ahead. The CAT had rejected Mr Merricks’ Mastercard case in part because it was difficult to quantify total alleged losses and ensure damages were distributed so that individuals were fairly compensated. The top court said such complexities were no reason to deny a trial to a class with a reasonable chance of demonstrating they had suffered loss.
The ruling marks a culture shift; the UK and EU long lagged behind the US in class action lawsuits. The US system has balanced a lighter regulatory burden with greater scope for litigation; regulatory controls in Europe are tougher. Yet, as the VW emissions scandal showed in Germany, even stringent regulation can be evaded. Berlin in 2018 introduced a form of collective damages lawsuit after the VW case.
Some will worry class action lawsuits will bring a US-style ambulance-chasing legal culture to the UK. But the Competition Appeal Tribunal was given the role of weeding out frivolous claims, and has now received valuable guidance on what the standard should be. The rise of litigation funding firms, which finance lawsuits and receive a share of damages if they succeed, means careful scrutiny is needed; one such firm is financing the Mastercard suit. But there is no reason such cases should not go ahead if they are sound.
The UK and Europe’s heavier regulatory burden should not be combined with overbearing litigation. Yet the increasing power of large corporations makes proper enforcement of competition law essential. Companies that breach it will now know they risk not just regulatory fines, but consumer damages. Consumers will know too. In an era of growing suspicion of big business, that can help to restore trust.
