€570m MasterCard Fine is Triggering a New Wave of Overcharges Recovery

The €570m fine from the EU Commission will compel merchants to re-evaluate their existing claims against Mastercard even those that have already been settled. Any merchants that were holding back the settlement of their claims will now be adding considerably to those claims.

Many merchants who settled card fees claims in 2018 were disappointed with the amount of historical fees recovered. Mastercard played hardball even though it would have known that the EU Commission would ultimately rule against it. The approach to many of the legal cases meant that the result for many merchants was poor.

There is expected to be an avalanche of new damages cases. The EU has been investigating interchange fees where merchants were prevented from optimising interchange rates by processing card transactions in another EU State with lower interchange fees.

Mastercard changed their rules in 2015 when it complied with new regulations that largely eliminated variations in fees applied in different EU member states by capping them. The EU commission however said that Mastercard’s cross-border interchange fees amounted to a violation of the bloc’s antitrust rules for the two years they were in effect.

Mastercard are now facing trouble beyond the €570m EU fine. A string of private claims over other issues related to interchange fees are winding their way through the courts. An avalanche of new cases are in the pipeline.

A huge amount of follow-on damages litigation in the EU has come out of the various decisions and rulings.

The initial wave of litigation followed a 2007 EU Commission decision finding that some fees set by Mastercard for cross-border transactions in Europe hurt competition between banks and ran afoul of antitrust rules since they weren’t tied into any specific consumer benefits. Mastercard tried unsuccessfully to appeal that decision but ultimately agreed to limit the fees.

Visa was also investigates by the EU Commission and made a separate agreement to limit its interchange fees in 2010 and 2014. Yet both Mastercard and Visa have faced a string of claims from retailers alleging they were overcharged due to the fees which will come to billions in damages.

The EU Commission’s investigation into the cross-border acquirer rule was launched in 2013, resulting in the €570m fine against MasterCard this week. It found that the restrictions preventing merchants from shopping for banks in other member states hurt cross-border competition between banks, artificially segmented the single market, and caused retailers and consumers to pay higher prices.

This decision noted that the overcharging stopped in 2015 when the interchange caps came into effect. Other aspects of interchange fees are continuing to be challenged up to and including the fundamental legality of the interchange fees per se. Airlines, hotels and international luxury retailers are among those most affected.

The EU’s investigations are on-going and include Visa and Mastercard interchange fees for transactions made in the EU by cardholders from outside of the bloc which were not covered by the 2015 regulation. The card companies have offered fixes which include the capping of interchange fees.

This investigation may not result in a fine on the basis that the fees will be lowered in the future. This however will lead to a new round of overcharging recovery.

Many merchants have been underwhelmed by the legal settlements amounts secured from Visa and Mastercard for overcharging after legal costs. They will seek to find a more efficient mechanism along the lines of Bankhawk’s approach which involves direct engagement with the card companies.

Author: Brian Weakliam, Founder & CEO
Bankhawk