MasterCard 2008 Annual Report Download - page 39

was reversed on appeal on grounds that plaintiff lacked standing to pursue his claims. In addition, we have been
served with similar complaints in several state courts seeking to, in effect, extend the judge’s decision to
MasterCard cardholders outside of California. We have succeeded in having several of these cases dismissed or
transferred to the U.S. District Court for the Southern District of New York and combined with putative federal
class actions. The class actions allege that our currency conversion practices violate federal antitrust laws. On
July 20, 2006, MasterCard and the other defendants in the federal class actions entered into agreements settling
those cases and related matters, as well as the California state case. Pursuant to the settlement agreements,
MasterCard has paid $72 million to be used for defendants’ settlement fund to settle the federal actions and $13
million to settle the California case. The settlement agreements are subject to final approval by the court and
resolution of all appeals. If final approval of the settlement agreements is not granted and we are unsuccessful in
defending against these lawsuits or the state currency conversion cases, we may have to pay restitution to
cardholders who make claims that they used their cards in another country, or may be required to modify our
currency conversion practices. See Note 20 (Legal and Regulatory Proceedings) to the consolidated financial
statements included in Item 8 of this Report.
If we determine in the future that we are required to establish reserves or we incur liabilities for any
litigation that has been or may be brought against us, our results of operations, cash flow and financial
condition could be materially and adversely affected.
Except with respect to currency conversion litigations and the California consumer state action discussed in
Note 20 (Legal and Regulatory Proceedings) to the consolidated financial statements included in Item 8 of this
Report, we have not established reserves for any of the material legal proceedings in which we are currently
involved and we are unable to estimate at this time the amount of charges, if any, that may be required to provide
reserves for these matters in the future. We may determine in the future that a charge for all or a portion of any of
our legal proceedings is required, including charges related to legal fees. In addition, we may be required to
record an additional charge if we incur liabilities in excess of reserves that we have previously recorded. Such
charges, particularly in the event we may be found liable in a large class-action lawsuit or on the basis of an
antitrust claim entitling the plaintiff to treble damages or under which we were jointly and severally liable, could
be significant and could materially and adversely affect our results of operations, cash flow and financial
condition, or, in certain circumstances, even cause us to become insolvent. See Note 20 (Legal and Regulatory
Proceedings) to the consolidated financial statements included in Item 8 of this Report.
Limitations on our business and other penalties resulting from litigation or litigation settlements may
materially and adversely affect our revenue and profitability.
As a result of the settlement agreement in connection with the U.S. merchant lawsuit, merchants have the
right to reject our debit cards in the United States while still accepting other MasterCard-branded cards, and vice
versa. See Note 20 (Legal and Regulatory Proceedings) to the consolidated financial statements included in
Item 8 of this Report. These limitations and any future limitations on our business resulting from litigation or
litigation settlements could reduce the volume of business that we do with our customers, which may materially
and adversely affect our revenue and profitability.
The payments industry is generally the subject of increasing global regulatory focus, which may impose
costly new compliance burdens on us and our customers and lead to decreased transaction volumes through
our systems.
We are subject to regulations that affect the payment industry in the many countries in which our cards are
used. In particular, our customers are subject to numerous regulations applicable to banks and other financial
institutions in the United States and abroad, and, consequently, MasterCard is at times affected by such
regulations. Regulation of the payments industry, including regulations applicable to us and our customers, has
increased significantly in the last several years. For example, in 2002 MasterCard became subject to the
regulatory requirements of Section 352(a) of the USA PATRIOT Act, which has required our customers and us
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