US court to hear $47.5bn credit card abuse claim

The US Supreme Court is likely to rule tomorrow whether a $47.5bn (£32.5bn) legal action that threatens the future of the Visa and Mastercard credit card networks will go to trial in the next few months.

The legal action, started by supermarket giant Wal-Mart but now involving almost every retailer in the US, accuses Visa and Mastercard of abusing their monopoly position to force stores to take their debit cards and pay higher charges than others would offer.

The retailers claim that the "Honour all cards" rule imposed by Visa and Mastercard – which means any card issued by the companies has to be accepted by the retailers – inhibits competition. Specifically they say that when Visa and Mastercard introduced debit cards a decade ago, they used to overcharge retailers. Lawyers for the retailers claim that Visa and Mastercard charge up to $1.49 per $1,000 of sales for their card and online rivals charge as little as 9 cents.

The two card issuers reject this, but have already lost one case brought against them by the US Department of Justice, which accused them of abusing their monopoly.

The total amount of the damages claimed in the retailers' action emerged last week in documents lodged at the court. In sworn evidence, the retailers claim they have been overcharged by between $13.1bn and $15.8bn. Under antitrust law any remedy can be up to three times the losses, a total between $39bn and $47.5bn.

Visa and Mastercard will go to the Supreme Court tomorrow to try to have the potential damages cut by kicking many of the potential plaintiffs off the case. Originally, the action was brought by Wal-Mart and 14 other key retailers, but was turned into a class action, which allowed hundreds of thousands of other store operators to join.

Visa and Mastercard are claiming the case should not be a class action because the retailers signed individual contracts with the credit card giants. The Supreme Court will decide whether it will reject this outright – in which case a trial could begin later this year – or review Visa and Mastercard's appeal. The review could take up to a year.

If the two card companies are forced to pay billions in damages it could destroy their networks and expose the banks that own them to massive losses.

Both networks are federations owned by banks across the world. But their slightly different structures could mean Mastercard would be in better shape than Visa. Mastercard's US business is legally separate from its European side and, in a regulatory statement last year, it said the European banks would not have to pay for any damages incurred in the US.

But British banks which own US businesses, such as Royal Bank of Scotland, HSBC or Allied Irish Banks, would still be liable.

Visa, which is run by former Standard Chartered boss Malcolm Williamson, has given no similar undertaking. It has one global holding company split into six regional operating companies. It is not clear whether European banks would end up contributing to the US losses.

Barclays is among the biggest issuers of Visa cards in the world. US banking experts estimate that Visa and Mastercard have already spent $100m in legal fees, lobbying and public relations defending this case.