Apple Faces Class-Action Lawsuit Over Apple Pay Fees from Card Issuers

The law firm of Hagens Berman today announced it has filed a class-action lawsuit against Apple on behalf of several credit unions and financial institutions that issue payment cards in the U.S.

Apple has been illegally profiting from Apple Pay-enabled payment cards by charging their issuers up to $1 billion in fees every year, the complaint allages. Hagens Berman is representing these issuers, alongside attorneys from Sperling & Slater. According to the lawsuit, Apple’s practices violate federal antitrust law.

Card issuers that want to support Apple Pay’s tap-and-pay functionality have to pay Apple 15 basis points on credit and .5 cents on debit for all transactions. The amounts may appear insignificant, but they quickly add up. What’s more, payment card issuers have to pay nothing for the same contactless payment services on Android.

“When you compare the functionality of Apple Pay to mobile wallets available on Android devices – Google Pay, Samsung Pay – you’re essentially holding up a mirror; they are essentially identical,” said Steve Berman, of Hagens Berman.

“And yet, the same service on Android that card issuers pay absolutely nothing for costs them a collective $1 billion annually through Apple Pay.”

Apple is able to extract these tolls from card issuers because Apple Pay is the only tap-and-pay technology available on iOS devices. The lawsuit alleges that Apple Pay is the only option on iOS devices because Apple makes it so.

Tap-and-pay solutions like Apple Pay and Android alternatives like Google Pay use NFC technology to work. Apple does not allow third-party apps to access the NFC functionality on its devices, making it impossible for anyone to develop an Apple Pay competitor. The iPhone maker recently got into trouble with the European Union for the same practice.

“That Apple has profitably sustained its significant issuer fees, despite other free forms of payment, demonstrates that a hypothetical monopolist can (and has been able to) profitably impose a small but significant non-transitory increase in price (a SSNIP),” the lawsuit states.

The lawsuit outlines Apple’s alleged antitrust violations as two-fold:

  1. Apple has unlawfully linked two of its products – mobile devices and its proprietary mobile wallet – compelling iOS users to exclusively use Apple Pay and foreclosing rival tap-and-pay options.
  2. Apple unlawfully monopolizes the market for tap-and-pay mobile wallets on iOS. While issuers pay $0 when their cardholders use Android wallets and pay $0 when their cardholders use contactless cards, Apple rakes in billions of dollars from fees from tap-and-pay payments on its platform.

The class-action was filed in the U.S. District Court for the Northern District of California on Tuesday. Plaintiffs seek reimbursement for all the payment card issuers who have been charged Apple Pay’s fees, in addition to injunctive relief to reform Apple’s policies.

Hagens Berman has had some success in class-action lawsuits against Apple. The law firm won a $100 million USD settlement last year on behalf of iOS developers, and secured another settlement against Apple and several publishing companies in 2015 for a combined $560 million.