In a ground breaking decision, the Competition Appeal Tribunal (CAT) has approved a £200m interchange fee settlement between Mastercard and Walter Merricks, the former solicitor leading the UK’s largest collective legal action.
Mastercard £200m interchange fee settlement
Initially valued at £14bn, the case, which began in 2016, sought compensation for consumers over interchange fees Mastercard imposed on debit and credit card transactions.
The ruling marks a significant moment in UK consumer rights litigation and sets a precedent for future opt-in collective proceedings under the 2015 Consumer Rights Act.
Legal Background: A Case Eight Years in the Making
Merricks, the former Financial Ombudsman Service chief, represented an estimated 44 million UK consumers, arguing that Mastercard’s interchange fees led to inflated retail prices.
Following several adverse rulings – particularly regarding causation and limitation – the claim was significantly reduced, with 95% of the original claim deemed either at serious risk or unrecoverable.
This led to the eventual decision to settle for £200m, a move contested by Innsworth Capital, the case’s litigation funder, which sought a higher return on its £40m investment.
However, the CAT dismissed Innsworth’s objections, approving the settlement terms. The tribunal’s full reasoning is yet to be published.
In a surprising turn, Mastercard has agreed to back Merricks in arbitration proceedings against Innsworth, committing up to £10m to aid his legal defence.
Innsworth had launched arbitration against Merricks personally, alleging he failed to act in its best interests.
Compensation Distribution: Who Gets What?
Under the settlement agreement:
- £100m will be distributed to affected consumers who file claims. Merricks estimates 5% of eligible claimants will come forward, receiving £45 each. If 10% apply, the amount falls to £22.72, and in the unlikely event that all eligible claimants apply, payouts drop to £2.27 each.
- A cap on individual compensation is yet to be determined – Mastercard proposed £45, while Merricks suggests £70. The CAT will decide the final figure.
- Any unclaimed portion of the initial £100m will revert to Innsworth.
- The next £45.6m will reimburse Innsworth for legal and operational costs.
- The remaining £54.4m may either be paid to Innsworth or used to increase consumer compensation if more than 5% of claimants come forward.
Merricks raised concerns that Innsworth may attempt to challenge legal fees, potentially securing an unjustified windfall. Without guarantees from Innsworth, he stated he could not ringfence additional funds for the litigation funder.
Merricks expressed satisfaction with the settlement, acknowledging that while the final amount was lower than initially sought, it was the best possible outcome given the legal challenges.
“After more than eight years, I am pleased that the tribunal has confirmed the settlement is just and reasonable. I look forward to distributing the funds to UK consumers,” He said.
His solicitor, Boris Bronfentrinker, a partner at Willkie Farr & Gallagher, highlighted the landmark nature of the proceedings. “This case set the foundation for UK collective actions and has now ended with an equally ground breaking settlement despite heavy resistance from Innsworth.”
He also criticised Innsworth’s attempts to challenge the agreement and personally litigate against Merricks, calling it an unsuccessful and unnecessary effort.
The Mastercard settlement represents a significant milestone for collective actions in the UK, reaffirming the importance of consumer compensation while navigating the complexities of litigation funding.
As the CAT’s full ruling is awaited, this case underscores the evolving legal landscape of financial disputes and the role of litigation funders in major class actions.
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