Issuing the ruling, Competition Commissioner Neelie Kroes said: “Multilateral interchange fee agreements such as MasterCard’s inflate the cost of card acceptance by retailers. Consumers foot the bill, as they risk paying twice for payment cards: once through annual fees to their bank and a second time through inflated retail prices paid not only by card users but also by customers paying cash. The Commission will accept these fees only where they are clearly fostering innovation to the benefit of all users.”
The fees in question range from 0.4 percent to 1.20 percent per transaction, considerably less than the rate in the U.S., which averages 2.14 percent. All consumers pay the fees, even those who use cash or checks, because card company rules force retailers to build the fees into all transactions.
Visa will have to stop charging interchange fees on these payments as well, according to the Commission, when its exemption from EU competition laws expires on December 31, 2007. Visa Europe’s interchange rate is currently 0.7 percent.
“The European Commission today moved aggressively to correct a long-standing abuse of European consumers,” said Hammonds. “By questioning whether interchange fees are justified at all, the door is finally open for bringing these outrageous fees into line with the actual costs of providing payment services.
“Virtually every developed economy in the world has ruled that these credit card company practices violate their antitrust laws or have these practices under active investigation. As the U.S. Congress prepares to continue hearings started in 2006 to investigate these same anticompetitive practices, we ask simply: Shouldn’t America’s consumers receive the same protection against predatory practices as their European counterparts?”
In the U.S., interchange fees cost $36.3 billion in 2006. At the current rate of increase, these fees will cost more than $40 billion in 2007 and cross the $50 billion mark in 2008.
Congress has already held three hearings on interchange fee issues, including one on July 19 by the House Judiciary Committee Antitrust Task Force and two in 2006 by the full Senate Judiciary Committee on July 19 and the House Commerce Subcommittee on Commerce, Trade and Consumer Protection on February 15.
The U.S. Justice Department revealed at the 2007 hearing that it is investigating interchange fee antitrust issues. Merchants are pursuing more than 50 lawsuits against credit card companies and banks, charging that interchange fees are fixed in violation of the antitrust laws.
Global Action to Investigate and Reduce Interchange Fees
Previously, Competition Commissioner Kroes has said that “consumers are being ripped off by card fees.” She has also characterized MasterCard and Visa Europe as “an effective duopoly” that makes “outrageous profits.”
Examples of how other economies are dealing with interchange fees include:
Australia — The Reserve Bank of Australia set credit card interchange rates at 0.5 percent per transaction and debit card fees at 12 cents in 2006; these rates will remain in effect for three years. Interchange rates averaged 0.95 percent before the bank deemed them anti-competitive.
Israel — Once the Israel Antitrust Authority began regulating interchange fees, the nation’s Banks & Competition Authority agreed to reduce the rate to 0.875 percent by 2012.
New Zealand — In 2006, the New Zealand Commerce Commission filed a court case against Visa, MasterCard and 11 financial institutions alleging price-fixing in the way interchange fees are set.
Poland — The Polish Office of Competition and Consumer Protection declared interchange fees unlawful and ordered them discontinued in a January 4, 2007, ruling.
Spain — In 2005, the Spanish Competition Tribunal denied authorization for interchange fees and reached an agreement with the card companies to reduce these fees to 0.54 percent by 2008, down from 2.32 percent.
Switzerland — The Switzerland Competition Commission ruled that credit card interchange fees are price-fixing agreements under the nation’s Cartel Act, and in 2005 capped them at 1.35 percent, down from 1.70 percent.
United Kingdom — The UK Office of Fair Trading equated interchange fees with price fixing in 2005. It is now investigating the interchange practices of Visa and MasterCard.
FMI is a leading member of the Merchants Payments Coalition, a group of nearly 30 associations representing retailers, supermarkets, drug stores, convenience stores, fuel stations, online merchants and other businesses that accept debit and credit cards. The MPC is fighting for a more competitive and transparent card system in which interchange fees are based on actual transaction costs. The coalition’s member associations collectively represent about 2.7 million stores with about 50 million employees.