Small Iowa Credit Union Sues the World's Largest Tech Company

August 8, 2022

*Originally posted on CUTimes.com.

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The $137 million Affinity Credit Union in Des Moines, Iowa was the first plaintiff named in a proposed class action antitrust lawsuit against Apple, the largest tech company in the world.

Affinity is one of the 5,480 financial institutions worldwide that issue payment cards through Apple Pay, which is allegedly violating federal antitrust laws because it holds a 100% market control over tap-and-pay iOS mobile wallet, according to attorneys at Hagens Berman law firm in San Francisco. It bills itself as an international class-action and complex plaintiffs’ litigation law firm.

The lawsuit seeks to represent a class of U.S. credit unions and other financial institutions that issue payment cards enabled for use in Apple Pay. The proposed class action suit was filed in the U.S. District Court for the Northern District of California in San Jose on July 18.

Unlike other digital wallets available on Android devices such as Google Pay and Samsung Pay, Apple requires that consumers of its mobile devices also use its mobile wallet, Apple Pay, to the exclusion of all competitors offering nearly identical services.

Attorneys alleged that Apple unlawfully tied Apple Pay to its mobile devices – iPhones, iPads, and Apple Watch – by precluding third parties from offering tap and pay functionality on those devices with NFC technology, requiring that Apple Pay be used for all tap and play iOS mobile wallet transactions. As of Q1 2022, Apple’s iPhone held 51% of the smartphone market and its iPad held nearly 54% of the tablet market, as of June 2022.

On iOS devices, Apple has ensured that only its mobile wallet, Apple Pay, can make contactless payments at the point of sale, according to the lawsuit.

The tech giant charges card issuers who use Apple Pay supracompetitive fees for a service that is available on Android devices for free, attorneys alleged. Legal research site Law Insider defined supracompetitive prices as rates that are higher than what would be found in the context of normal competition.

Whenever an Apple Pay transaction is completed on a U.S. issuer’s card, the issuer must pay Apple a fee that amounts to 15 basis points on credit cards and five cents on debit cards. These fees reportedly generate Apple $1 billion annually, and this same service on Android wallets costs payment card issuers $0. This revenue stream – earned entirely on the backs of issuers – is predicted to quadruple by 2023, according to the lawsuit.

Attorneys claimed that Apple also forces these same fees on e-commerce transactions, keeping issuers from disabling Apple Pay’s e-commerce function from its tap-and-pay feature. Apple also prohibits issuers from passing these fees onto consumers.

“On the surface, Apple Pay’s fees pushed onto card issuers may seem small, but truly the devil is in the details of Apple’s policies, and these fees add up, big time,” Steve Berman, Hagens Berman’s co-founder and managing partner, said in a prepared statement.

The lawsuit seeks to reimburse payment card issuers who have been charged Apple Pay’s fees and injunctive relief to put an end to Apple’s policies.

This is the third time the firm has sued the tech giant for antitrust matters.

In 2015, Hagens Berman secured a combined $560 million settlement against Apple and publishing companies regarding price-fixing of e-books after Apple appealed the case to the U.S. Supreme Court, and in 2022, the firm won a $100 million settlement on behalf of iOS developers who were harmed by Apple’s app store policies.

Apple did not respond to CU Times‘ request for comments on Friday.

Read the lawsuit, Affinity Credit Union v. Apple Inc., Case Number: 5:22-cv-04174.