In one of two court rulings involving MasterCard this week, European judges will decide whether the company broke competition law when setting interchange charges for cross-border card payments.
The European Court of Justice (ECJ) decision in Luxembourg on Thursday (11 September) will likely be the end of a long-running legal dispute over multilateral interchange fees (MIFs). The issue has been hotly debated since 1992.
MasterCard denies it restricted competition or that it fixed the fees after 2006, when it became a publicly listed company rather an association of banks.
In a related but separate case, the EU’s General Court will decide tomorrow (9 September) whether the European Commission should give MasterCard access to documents relating to a 2008 study on MIFs. The study, by a Dutch company employed by the executive, was used to justify the level at which the fees have been capped.
Commission lawyers argue that the papers are part of the antitrust proceedings against MasterCard, and so shouldn’t be made public. MasterCard’s lawyers say that they should be made public because of the obligations of the EU’s Transparency Regulation.
Tomorrow’s decision will be closely scrutinized, as it may have ramifications beyond just the card industry. If EU judges decide the papers should be made public, they will be made available to everyone, and not just MasterCard.
Provided it is not appealed, it will set a precedent that EU competition law does not trump transparency law. That will likely be cited by those demanding more access to Commission documents, such as internal papers related to the controversial Transatlantic Trade and Investment Partnership (TTIP).
The ECJ ruling
If it goes against MasterCard, the ECJ ruling will not result in fines, because the card company notified the Commission of its processes in 1992. Under EU competition law at that time, businesses notifying the executive could not be fined for any trespass.
But MasterCard sees the court battle as a point of principle after being accused of illegal activity.
If judges back the card company, it could influence the ongoing legislative process to regulate cross-border MIFs. A bill proposed by the Commission in 2013 capped MIFs at 0.2% of the transaction value for debit card payments, and at 0.3% for credit card payments, is currently with the Council of Ministers for amendment and approval.
The law was drafted in response to the General Court’s judgment against MasterCard in 2012. MasterCard appealed that, leading to Thursday’s expected ruling.
In April, the old European Parliament passed amendments to the revised Payment Services Directive legislation, a package including the interchange regulation. It is now up to the new Parliament, the Italian Presidency of the EU, and the Council of Ministers, to finalise it.
The judges’ decision on whether the cross-border MIFs were anti-competitive could set the tone of those inter-institutional negotiations. Regulators may be inclined to treat the industry more harshly, if MasterCard is confirmed as having broken the law, or more leniently if it did not.
An earlier ECJ opinion on the case found the fees were anti-competitive. It is unusual but not unprecedented for judges to ignore the Advocate General’s opinion, which is written before a final decision.
The European card industry has complied with the cap since the Commission decided in 2007 that MasterCard and others like Visa – who later settled – had broken competition law.
That decision was appealed to the General Court, which ruled against MasterCard in 2012. That judgment was appealed by MasterCard at the ECJ, the EU’s highest court of appeal, on two points of EU law: First, that MasterCard was an ‘’association of undertakings’’, in its case banks, fixing the level of interchange, and, second, that those prices actually restricted competition in practice.
MasterCard argues that it is no longer an association of banks, but an independent, publicly listed company, whose clients are banks. In May 2006, the banks sold their shares in MasterCard through an initial public offering on the New York Stock Exchange.
MasterCard also argues that it did not restrict competition in practice. MasterCard operates a four party card system. The acquirer (the merchants’ bank) pays an issuer (cardholders’ bank) an interchange fee, and the merchant pays the acquirer a service fee.
That service fee is where distortions in competition would take place, and is an area the issuer has little influence, argues MasterCard.
The Commission argues that the service fee is determined by the interchange fee, and that merchants pass on their costs for accepting card payments to their customers by raising retail prices.
The Commission needs to win on both points of law in order for it to be deemed a breach of antitrust rules.
If one or both points go MasterCard’s way, it is unclear what the Commission’s next move will be. It could decide to try and put another case together or simply wait until payments legislation comes into force. That is expected to be adopted by 2015 with caps entering into force in 2016.
A multilateral interchange fee (MIF) is an interbank payment made for each transaction carried out with a consumer card.
In a long legal battle waged against what are seen as unfair practices of payment cards groups, the European Commission fined Visa (which is currently under a new investigation) and took on MasterCard for its MIFs. In May 2012, EU judges upheld the executive's move against MasterCard.
In an attempt to turn the tribunal's decision into law, the European Commission proposed in July 2013 new legislation capping MIFs at 0.2% of the transaction value for debit card payments, and at 0.3% for credit cards.
- Tuesday 9 September: General Court ruling on access to documents
- Thursday 11 September: ECJ ruling
- 2015/2016: Estimated date when revised Payment Services Directive comes into force.
- Press release: New rules on Payment Services for the benefit of consumers and retailers
- FAQs: Payment Services Directive and Interchange fees Regulation: frequently asked questions
- EURACTIV France: Mastercard remporte la première bataille face à la Commission