The Commons: Mastercard Settlement Threatens the Essence of UK Consumer Law
A record settlement of £200 million ($271 million) has been awarded to complainants against Mastercard. Complainants will be able to claim a maximum of £70 ($95) each individually with the case thought to affect millions. The outline of the case is that between 1992 and 2008 fees were unfairly placed onto consumers due to Mastercard charging higher processing fees. Whilst these fees were paid for by the retailers rather than the consumer directly, the suit alleged that these extra fees had simply been added to the price point of the goods that consumers were buying. Thus meaning, that consumers had lost the concept of a free market as they had to accept hidden costs which they had no way of avoiding.
Only £100 million ($135 million) of the settlement is ringfenced for consumers with the rest of the money going towards costs of the case such as lawyers.
Walter Merricks is the man who brought the original suit against Mastercard. He said: “Mastercard's fees paid by retailers for processing card transactions had been unlawfully high.
“Virtually all UK consumers had lost out for long periods by paying higher prices than they should have done as retailers passed on those costs.
"The settlement that has today been finally approved represents a fair and just outcome for UK consumers."
Theoretically, if every consumer who is able to joins the claim, then payouts could be as low as £2.50 ($3.39). This has raised serious questions regarding class litigation in the UK arguing that money that is won through civil litigation ends up funding lawyers and law firms rather than the people they are supposedly fighting for.
One of the portions of the settlement divvied up is to reimburse the costs to the funder for the litigation. The concept here is that the funder deserves renumeration and reward for bringing the class action to the fore. Without the original funder, there would be no claim and therefore no settlement to be handed out to consumers in the first place.
The Competition Appeal Tribunal (CAT) imposed certain changes to the settlements when it appeared before them. One of these was limiting the amount of money that could go to the original funder. Counsel for Merricks initially proposed that the £200 million ($271 million) would be split evenly amongst any class member that came forward to accept their portion of the settlement and the rest of the money would go to the funder. The estimated amount this would be is around £4.50 ($6.11) amongst the 44 million claimants. A cynical analysis of this would lead to the conclusion that not many people would be willing to sit down and fill out numerous online forms for the price of a coffee, whereas after the new boundaries that CAT put into place, they would be much more likely to do so for £70 ($95).
A different organization, The Litigation Funding Agreement (LFA) provided for the funder to receive eight times as much as the original investment. This would hence increase the amount to £179 million ($242.9 million) that Merricks would be entitled to. However, CAT ultimately made the decision to ringfence half of the pot for consumers directly. In the event that not all of this money is claimed it will proceed to charity though this outcome appears unlikely.
The outcome of these changes by CAT in terms of a wider view for future class action in the UK are positive for the side of consumers. Increased limitations placed upon the funder suggests limiting the amount of money that big law and rick claimants are able to profit off actions such as these. However, there does exist other issues which may arise. Without the financial incentive for these big law firms there exists a worry that claims such as these will be brought forward less frequently thus allowing large multinational companies to not be held to account.
Merricks said: “I had clearly hoped to have recovered more, but the case and facts developed in a way which meant I could recover less than I initially planned, but I recovered the best amount possible. I now look forward to distributing the settlement to get it in the hands of UK consumers.”
After the outcome of the CAT tribunal, Mastercard said: “We welcome the tribunal’s decision. We will continue to focus on providing consumers and businesses with what they expect from Mastercard – a great payments experience, strong value and peace of mind.”
The original claim was valued at up to £16.7 billion according to the Global Legal Post. Innsworth, a company which funds litigation cases only over the value of $100 million according to their website, described the outcome as “very disappointing”. Managing Director, Ian Garrard said: “It is a full capitulation [in] the majority of the case.” Innsworth attempted to stop the settlement arguing that it was unfair as it did not reach the amount that the case was truly worth.
CAT awarded Innsworth a return of £68.4 million ($92.8 million). This figure is one and a half times their original investment of £45.6 million ($61.8 million). Innsworth were disappointed in their return pointing out the possibility that companies and financial backers don’t enter into business on the premise of a 50% return over eight years. Here is where potential issues may lie for future litigation in the UK. In order for the consumer to get there renumeration and just deserves, it requires backing from financially powerful sources. If these powerful sources do not get a return which they are satisfied with, they will not back cases such as these leaving the consumer helpless.