EU: EC proposes sweeping new payments regulation

The European Commission announced a legislative package Wednesday that will revise the Payments Services Directive and adopt new legislation on payment card fees. The move is, in part, an effort by European regulators to end the anticompetitive effects of interchange fees, lessen such a burden of fees on the consumer, and allow for new entrants of the payments service provider industry.

The overhauls are bad news for credit card giants like Visa and MasterCard. The European Commission ordered MasterCard in 2007 to maintain a reduction in interchange fees imposed on retailers; in 2012, the European Generai Court, the EU’s second-highest court, backed that ruling.

In an official statement, Michel Barnier, internal market and services commissioner, explained the interchange fee overhauls “will remove an important barrier between national payment markets and finally put an end to the unjustified high level of these fees.”

Further, the proposed revisions to the Payments Service Directive extend regulation to Internet payment services with low costs. “These service providers will now be subject to the same high standards of regulation and supervision as all other payment institutions,” said the Commission in a press release.

As speculated last week, the Commission has proposed capping interchange fees, including domestic card transactions, at .2% for debit cards and .3% for credit cards. If approved, the cap will be introduced in two phases: The cap will initially apply to cross-border transactions before the overhauls enter into phase two, in which domestic transactions wil lbe applicable, after two years.

The Commission proposed a ban merchant surcharges on almost all cards subject to these caps. Yet in a striking development, the EC said it would allow such fees on the cards issue by three-party systems, such as American Express.

In response, American Express commented, “Unlike the two dominant networks, American Express does not set prices collectively or operate on the basis of inter-bank arrangements. Authorities around the world, including those in Europe, have not found our pricing practices to be anti-competitive and have not challenged our licensing arrangements. We believe that any new regulatory framework should recognize fundamental differences in business models and market positions.”

According to the Commission’s press release, such overhauls will eventually reduce merchant fees and, in response, consumer products and services will subsequently become cheaper as well. Credit card giants Visa and MasterCard, however, have denounced such interchange fee regulation, saying such regulation would harm consumers and potentially expose them to other, higher fees.

Commissioner Joaquin Almunia disagrees, and backed the proposed regulation. “The interchange fees paid by retailers end up on consumers’ bills,” Almunia stated. “This needs to change.”

According to Bloomberg, MasterCard appealed the proposal, and stated in an email, “Based on the press statements and legislative proposals released by the commission today, we are concerned about the harm these proposals will cause to consumers and small merchants in the EU.”

No decisions have been made yet, as the proposal awaits approval from the European Parliament, and most of the 28 EU countries that have yet to vote.

The news of European overhauls to the practice of interchange fees comes on the heels of news that Canada’s Comeptition Tribunal rejected a case initiated by the nation’s Competition Commission seeking to prohibit credit card giants like Visa and Master Card from banning such interchange fees to be transfered to the customer. The Commission expressed disappointment in the Tribunal’s decision.

Similar debates rage on elsewhere. Just weeks ago, a group of some of the largest retailers in the US collectively rejected a proposed $7.25 billion settlement offered by Visa and MasterCard; the merchants issued a new lawsuit against the payments companies, accusing them of abusing their dominant position by forcing merchants to pay inflated interchange fees. The retailers that filed the lawsuit include 7-Eleven and Amazon.

Full Content: Bloomberg

Click here to read a FAQ statement from the European Commission.

Related Content:

• The Consumer, Once King, is Missing in the EU Interchange Fee Debate
• The Regulation of Interchange Fees by the US Federal Reserve Board: A Primer on Economic Principles
• The Drama of Interchange Fees

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