Merricks V Mastercard: A poisoned chalice for the financial services sector?

Merricks v Mastercard

The path to the bringing of mass opt-out class action claims by consumers was cemented last year when the Supreme Court (in Merricks v Mastercard) confirmed the Court of Appeal’s decision to overturn the Competition Appeals Tribunal's (CAT) decision to refuse to grant a collective proceedings order (CPO) in favour of Mr Merricks against Mastercard (and others). The Supreme Court's decision allows the class action (brought on behalf of approximately forty-six million consumers in the name of Mr Merricks in a claim for an alleged loss of £300 each) to proceed against Mastercard and others.

Each consumer’s claim (through Mr Merricks as class representative) was that the ‘interchange fee’ charged by Mastercard had restricted competition between banks and resulted in inflated prices for all UK cardholders, irrespective of whether those cardholders had a Mastercard or not.

The interchange fee is a transaction fee that the merchant's bank account must pay whenever a customer uses a credit/debit card to make a purchase from their store. The fee is paid to the card-issuing bank to cover handling costs, fraud and bad debt costs and the risk involved in approving the payment. The fee was therefore an ‘overcharge’ that retailers paid to their banks, and crucially, that retailers then passed on to their customers.  As a result, consumers paid higher prices for goods and services than they would otherwise have done.

The Supreme Court concluded that the prospect of individual proceedings by over 46 million consumers would be a “practical impossibility”, such that collective proceedings would clearly be preferable. It concentrated its attention on the requirement for a claim to be “suitable” to be brought in collective proceedings in which a number of claims can be brought as part of one claim where they all relate to substantially the same matter. 

The class criteria in the Merricks case was anyone domiciled in the UK who, between 1992 and 2008, was at least 16 years old and had purchased goods and/or services from UK businesses that accepted Mastercard cards.  Anyone in that class would be included in the claim unless they opted out.  The previous opt-in process was considered to be ineffective at allowing broader consumer claims to be brought.

Consumer Class Actions

As a result of the Supreme Court’s approach in Merrick, it will most likely now be much easier for claims to be brought by consumers collectively by providing access to the CAT, which has powers to punish offenders and order damages in a way that the civil courts cannot handle.  Cases are therefore being built with the potential for claimants to bring huge value claims (in the case of Merricks, which now has approval to proceed in the CAT, the potential recoveries are apparently just shy of £14 billion).

On the topic of money, financial services companies should take note of the size of the pockets of the representative in such class actions.  Mr Merricks has a litigation funding budget of c. £45 million of which £12.6 million has been earmarked for adverse costs, as well as the claimants having in place an ATE (after the event) indemnity cover of £15 million.  This allowed Mr Merricks to ensure that the defendant's legal costs could be covered (a requirement to bringing a claim in the CAR).   It will be interesting to see whether the CAT decides in Merricks’ favour whether the forty-five million class members sitting behind his claim, most being blissfully unaware that such a case has been raging on their behalf for the last few years, reap the benefit.

Impact of Merricks on the Financial Services Sector

There is now scope for any company, particularly those in the financial services sector, to be at risk of being on the wrong end of high value, class action cases if some illegality can be found and exploited by lawyers keen to put their efforts behind such claims.

Already, two out of the fifteen collective proceedings filed to date in the CAT concern the European Commission’s decisions against several banks in relation to two FX spot trading cartels.  Because of the approach taken by the court in Merricks, there is likely to be more collective competition claims brought against financial institutions in the future.

Further, a trend has been surfacing in the form of less traditional competition claims, where parties are seeking to squeeze a financial services dispute into the competition collective proceedings framework, in order to benefit from the numerical advantage provided by the opt-in method. There is furthermore a more indirect approach in which further claims in all sectors could be affected, were claimant law firms to start to treat the competition collective proceedings as available to any kind of opt-out class actions regime. Such claims would be justified on the basis of the “relative suitability” approach taken by the Supreme Court in Merricks.

Government support

In July of last year, the government launched a consultation on proposed reforms to competition and consumer policy, seeking views on whether further avenues should be made available for collective consumer actions. If a regime for collective proceedings on an opt-out basis is made available for consumer cases, the risk of collective actions against companies operating in the financial services sector, as well as those in any consumer-facing industries, could increase significantly.

There is also concern in some corners that the current class action system does not go far enough to make civil litigation accessible for consumers and small business seeking recovery from much larger corporations.  For a long time now, there has been a debate about whether more claims should be able to proceed on an opt-out basis (i.e. not just competition law claims). Numerous attempts have already been made to expand the scope of representative actions (e.g. Lloyd v. Google) and it appears that it may only be a matter of time before this becomes a reality, following the US class action model.

The Horizon for opt-out class actions

In our opinion it sems likely that there will be an increase in opt-out class actions in various industrial sectors, including financial services, and larger corporations would be well advised to keep both their employees and management well appraised at an early stage of the circumstances and the law which might give rise to a claim of this nature in order to minimise their impact and hopefully quash any chances of such a claim succeeding.