Insurance · 25 January 2017

Thousands of small businesses owed millions from overcharged credit card fees

MasterCard credit card fees
A landmark ruling in 2016 that saw Sainsbury’s receive £68.5m in compensation has paved the way for small businesses to make claims against MasterCard

Small UK businesses could soon make claims against MasterCard of up to millions of pounds in overcharged credit card fees, after a law firm received the financial backing to represent claimants.

The possibility of a pay-out to smaller firms follows a victory by Sainsbury’s in a July 2016 Competition Appeals Tribunal (CAT) regarding overcharged credit card fees. MasterCard was then ordered to pay the retail giant £68.5m after breaching the legal limit of merchant fee charges.

The payments corporation had overcharged credit card fees by 0.4 per cent, and debit cards by 0.09 per cent. Businesses that depend on merchant terminals for sales and transactions – such as retailers, restaurants and hotels – may stand to win significant compensation from MasterCard.

Maclay Murray & Spens LLP (MMS) is the commercial law firm throwing itself behind future cases, and will be able to represent small companies in England and Scotland that have suffered over the MasterCard breach. 

Highlighting the likely impact of the case, Catriona Munro, an MMS partner, said that the MasterCard ruling laid the groundwork for future action.

“The Sainsbury’s case is the first significant judgment in UK competition law damages and it gives us a template from which we can assess who might be entitled to reclaim fees, and how to proceed,” she said in a statement. 

Munro warned that any business owners who may have a case against MasterCard should take imminent action, as claims will expire after six years under English law.

She added that MMS was beginning to reach out to business owners, with the firm covering all initial legal costs to bring credit card fees cases to tribunal.

“We are currently talking to businesses that make substantial sales via credit and debit cards, with a view to advising them on whether they have been over-charged. Where we believe that is the case, we have in place a funder who is prepared to absorb the initial cost of litigation, should it prove necessary, and we can also advise on insuring against potential costs should a case fail.”

A spokesperson for MasterCard provided the following comment to Business Advice following the announcement from MMS that it had financial backing to pursue excessive credit card fees claims from small businesses:

“MasterCard has sought permission to appeal to the Court of Appeal and we continue to work to highlight the value received by all those who benefit from electronic payments in the UK.

“By continually looking to add to and improve on these benefits for all participants of the UK economy, we remain committed to helping our retailer and acceptance partners grow their businesses and encouraging the adoption of ever more convenient, safe and secure payments.”

Speaking after the Sainsbury’s ruling a spokesperson for the financial services company said: “On first look, we are grateful that the court found that significant benefits flow to both retailers and cardholders from interchange in the UK.

“What’s interesting is that the court concluded that a lawful level of credit interchange for the UK market would be over 65 per cent higher than the 30bps rate cap imposed in the 2015 Interchange Fee Regulation (“IFR”).  At the same time, the court criticised and rejected the ‘merchant indifference test’, the cornerstone for the IFR. 

“While we are disappointed to see liability as part of the finding, we note that in awarding a limited portion of the claimed damages, the court concluded that Sainsbury’s did not pass through interchange costs to consumers in the form of higher prices.”

Back then, MasterCard said it would take a pre-tax charge of £68.6m as a “special item” in its second quarter 2016 financial result, and would be looking at whether any adjustment of the amount or additional charges would be required.

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Praseeda Nair is the editorial director of Business Advice, and its sister publication for growing businesses, Real Business. She's an impassioned advocate for women in leadership, and likes to profile business owners, advisors and experts in the field of entrepreneurship and management.