The economic and monetary affairs committee of the European Parliament voted on Thursday (20 February) in favour of caps to the fees charged by payment cards companies and banks on shoppers’ purchases, paving the way for the entry into force of the new legislation.
The fees, best known by their acronym MIFs (multilateral interchange fees), have long been the object of a legal dispute between the EU authorities and the leading payment cards companies (MasterCard and Visa).
To bring the dispute to an end, last July the European Commission tabled proposals aimed at setting new fee limits at 0.2% and 0.3% of the transaction value for debit cards and credit cards respectively.
The caps would apply to both domestic and cross-border transactions.
The economic affairs committee of the Parliament broadly endorsed the Commission proposal. “These fees are not transparent and they differ between EU member states, where they are subject not to legislation but to decisions by national competition authorities,” reads the press release announcing yesterday’s MEPs decision.
For debit cards MEPs amended the cap proposed by the Commission, and agreed a €0.7 cents cap in alternative to the tabled 0.2% of the transaction value, underlining that the limit to apply should be “whichever is the lower.”
In the EU, over 23 billion payments are made every year with payment cards, the overall value of which exceeds €1,350 billion.
The Commission estimates that MIFs cost EU retailers over €10 billion each year. These costs are eventually carried by shoppers which pay a hidden tax on their purchases, according to retailers’ organisations.
The caps would provide a definitive legal cover for commitments already made and partially applied by MasterCard and Visa.
Visa Europe is already capping at 0.2% the MIFs on debit card transactions, and has offered to lower credit card MIFs to 0.3%, the same benchmark applied by MasterCard. The Commission is currently analyzing Visa’s offer but is said to be likely to endorse it.
A legal dispute at the EU Court of Justice brought by MasterCard on the same case is also likely to end up with the upholding of the Commission decision, confirming the illegality of existing MIFs.
Parliament's decision will be brought to the plenary of the assembly “at an upcoming parliamentary session,” reads a Parliament note. But MEPs close to the dossier said it will likely be postponed to the Italian Presidency, after 1 July 2014.
"Since I started working on the Multilateral Interchange Fees Regulation, my aim has been to strengthen the Single Market by establishing a level playing field for card payments and for companies at European Level", underlined Spanish MEP Pablo Zalba Bigedain.
Portuguese MEP Diogo Feio added: "Today, we have approved a text with a significant majority that will increase consumer protection and bring more safety and more transparency to the market of online payments.”
"I believe that through the Payment Package we will ensure greater transparency in the payments market, ensuring that both retailers and consumers know how much they are paying when they acquire a product with a debit or credit card", said Zalba Bigedain.
"Very important is the achievement of the obligation to create a Consumers Rights leaflet to be available to all European consumers making sure that EU legislation is comprehensible and available to all EU consumers", concluded Diogo Feio MEP.
Christian Verschueren Director-General of EuroCommerce, a retailers' association, said: “This is a great result. Once adopted, lower interchange fees would lead to better prices for consumers across Europe. We are especially pleased at the Parliament’s inclusion of commercial cards in the caps and their acceptance that the ‘Honour all cards rule’ should be prohibited.”
Verschueren added: “Of course, this is just the first step: we have a long way to go yet. But we trust today’s vote will send a strong message to the Parliament as a whole and to the member states in Council that Europe needs forward-looking legislation which will bring great benefits to Europe’s merchants and consumers.”
MasterCard issued a statement welcoming the vote in Parliament but said it remains deeply concerned by the decision to maintain the Commission’s “one-size-fits-all” approach to interchange fees across Europe.
"The setting of a strict ceiling on interchange rates is not based on any clear data or methodology. It ignores the very different market realities between countries, and most importantly, it is likely to drive the cost of cards up for consumers and small merchants. Experience from other countries, such as Spain, has shown that this risk is real," reads the press release.
MasterCard is also surprised by the Parliament’s intention to include commercial cards in the Regulation. "This goes against the initial proposal of the European Commission, which recognised that these cards serve a very different purpose than consumer cards. Imposing similar restrictions on commercial cards could significantly harm SMEs and the European economy. Estimates show that such a move would result in increased annual card fees for SMEs (by more than 80%), and a reduction of card use by 40%, ultimately leading to significantly reduced credit capacity for SMEs," the statement continued.
Sir Ian Cheshire, chief executive of home-improvement retailer Kingfisher PLC, welcomed the Parliament vote. “Today’s vote is critical. Reform of interchange fees is finally heading in the right direction and retailers, hard-pressed consumers and small and medium enterprises are set to benefit. Reaching this point was not easy. There was a real risk that the fair formula for interchange fees proposed by the Commission would be replaced with a clunky, opaque and unworkable alternative. Change needs to come now. A fair cost for card fees and a fully functioning internal market for payments are critical for economic development, growth and the Digital Single Market.”
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, the EU Tribunal upheld the EU executive 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.