Last month, the UK Competition Appeal Tribunal (CAT) published its long-awaited Trial 2 judgment on “pass-on” in the interchange fee litigation involving Mastercard, Visa and thousands of UK businesses (the Merchant Interchange Fee Umbrella Proceedings).[1]
The ruling is important because it addressed a question that can be read across to other cases, and often affects whether claimants can recover meaningful damages when they were overcharged:
If interchange fees were unlawfully inflated, where were the costs passed on, and who actually bore that loss – merchants, consumers, or someone else?
The CAT’s answer, in short, was that in most sectors, Mastercard and Visa failed to prove that merchants passed their interchange costs on to consumers through higher prices, with only a few exceptions.
Before we look at what the CAT ruled, it helps to first look at Trial 2 within the context of the wider proceedings.
What are interchange fees?
Schemes like Mastercard and Visa operate what’s known as a four-party payment scheme. The four parties referred to by this term are:
There is also the scheme itself (i.e. Mastercard or Visa), which operates the network used to facilitate transactions. In a three-party scheme (like Amex or Diners Club), the issuer and the acquirer are the same entity, so the issue of interchange does not arise.
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Interchange fees are paid to issuers, and form part of the cost merchants pay their bank to accept card payments, via the merchant service charge (MSC). The levels of default multilateral interchange fees (MIFs) are set by the card schemes and, in the Umbrella proceedings, the claimants allege that those rates were unlawful and caused them to pay more than they should have.
The issuing and acquiring banks are also required to pay fees directly to Mastercard and Visa, called scheme fees. These fees are very opaque, and have been the subject of separate regulatory and legal scrutiny in recent years.
What is pass-on?
Pass-on is a form of loss mitigation. Even if an overcharge is proven and the schemes are determined liable, the courts still have to ask whether the claimant (in this case the merchant) actually suffered the proven loss, or whether they mitigated their losses by making changes elsewhere.
In cases like the Umbrella proceedings defendants often argue a pass-on defence. Here, their defence is that acquirers did not pass-on the full cost of the MIF to merchants and, either way, merchants raised prices downstream to offset the higher card acceptance costs, meaning that consumers, not merchants, bore the harm.
To make matters more complicated, Mastercard had the difficult task of arguing pass-on both ways, i.e. putting forward the downstream pass-on defence against the merchant claimants, whilst also defending the Merricks opt-out collective proceedings case, brought on behalf of 44 million UK consumers. The Merricks case settled mid-way through Trial 2 for £200 million.
The CAT’s Trial 2 judgment tackled pass-on at two distinct points in the chain:
The direct causative link
One of the most important parts of the CAT’s judgment is its discussion of the level of evidence required to prove merchant pass-on.
The Tribunal held that, where pass-on is pleaded as a mitigation defence, the defendants must prove a “direct causative link” between the overcharge and downstream consumer prices. It wasn’t enough to show that interchange costs might be reflected in prices in some broad, economy-wide sense, particularly because, for many merchants, the MSC is only a small component of their costs.
That point matters beyond this case, as it shows that defendants can’t rely on general economic theory (“costs go into prices”) without evidence that, in the real world of pricing decisions, the specific cost changes actually drove price changes.
The CAT's findings
On acquirer pass-on, the merchant claimants argued that MIFs were passed through to them by their acquiring banks through higher MSCs, while the schemes claimed that, under certain types of contract, acquirers absorbed some or all of the overcharge.
For IC+ and IC++ contracts it was already common ground that pass-on to merchants was 100%, because the contract is structured such that it automatically passes through the interchange component.
For “standard” or “blended” contracts, however, where merchants pay a single all-in rate, the Tribunal accepted that there was substantial pass-on and determined an average pass-on rate of 85% for blended arrangements.
So, the merchants did suffer the loss in the first place, but did they then mitigate that loss by passing it on downstream?
On merchant pass-on, the CAT found that Mastercard and Visa did not prove on the balance of probabilities that merchants passed on the overcharge to customers via higher prices, apart from in three specific sectors.
Those exceptions were:
Outside those areas, the Tribunal found no sufficient causative link and therefore no merchant pass-on.
The CAT also rejected supplier pass-on (the argument that merchants offset the cost by negotiating to pay their suppliers less), finding this was not proven for any claimant.
Why is this ruling important?
In competition damages cases, pass-on can be a make-or-break issue. If defendants prove merchants fully passed the overcharge on to consumers, merchant damages can shrink dramatically.
Similarly, had Merricks not settled before the pass-on judgment was handed down, there would likely have been significantly less money on the table for the consumer class.
This is why the CAT’s rejection of merchant pass-on across most sectors is being treated as an important win for merchant claimants: it preserves the argument that merchants absorbed most of the harm and should be compensated accordingly.
It also affects other proceedings where pass-on economics are relevant, because the judgment provides a detailed roadmap of the kinds of evidence the Tribunal found persuasive (and unpersuasive), how it treats industry-wide cost arguments, and how rigorous the causation standard is when pass-on is pleaded as a defence.
What next?
Trial 2 was decided on the assumption that MIFs were unlawful. Liability has already been addressed in Trial 1 (in which the CAT also found in the merchants’ favour), but Mastercard and Visa are highly likely to appeal that outcome, and separately still intend to argue in Trial 3 that the conduct is exempt under Article 101(3) TFEU, which is scheduled for October 2027.
So, the story isn’t over, but this pass-on judgment will meaningfully shape the damages landscape, and is likely to affect settlement dynamics across competition litigation.
[1] 1517/11/7/22 (UM) Merchant Interchange Fee Umbrella Proceedings - Judgment (Trial 2) | 17 Feb 2026
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