MasterCard broke EU antitrust law when setting interchange charges for cross-border card payments, the highest court of the European Union today ruled (11 September).
The judgment will influence other national competition law proceedings in the EU, which were paused pending the European Court of Justice (ECJ) decision in Luxembourg. The court rules on points of EU law, giving clarification to other courts.
The European Commission said several court appeals in France, Italy and Hungary were stayed, and an investigation by the UK’s National Competition Authority was also put on hold. There are other ongoing probes in Germany, Cyprus and Hungary.
The judgment will indirectly also have a bearing on actions for damages launched against MasterCard in the UK, the Commission said.
MasterCard will not be fined by the EU as a result of today’s judgment, because the company notified the Commission of its practices in 1992. Under EU competition law at that time, businesses notifying the executive could not be fined for any trespass.
Regulation in the works
The ECJ ruling could also influence the ongoing legislative process to regulate multi-interchange fees (MIFs) at EU level.
A bill proposed by the Commission in 2013 capped cross-border MIFs at 0.2% of the transaction value for debit card payments, and at 0.3% for credit card payments. Caps on domestic fees are brought into force after a transition period.
In April, the old European Parliament passed amendments to the revised Payment Services Directive legislation, a package including the interchange fee regulation.
It is now up to the new Parliament, the Italian Presidency of the EU, and the Council of Ministers, to finalise it. Their negotiations will likely be influenced by the judges’ ruling.
The law was drafted in response to the General Court’s judgment against MasterCard in 2012, which was appealed, leading to today’s ruling. The bill is expected to be adopted by 2015 with caps entering into force in 2016. On Tuesday, MasterCard won a case against the Commission, which is expected to give it access to research documents that fed into the draft rules.
The European card industry has complied with the cross-border cap since a Commission decision in 2007 that MasterCard and others had broken antitrust rules.
The decision was appealed leading to the 2012 General Court judgment, which was today confirmed as correct by ECJ judges.
Commission competition spokesman Antoine Columbani told reporters, “Today’s judgment is a big win for EU consumers who for too long have been paying unjustifiably high hidden fees for payments with credit and debit cards
“It’s the end of a debate that has lasted for two decades and is relevant not only to cross-border fees but all fees, including domestic fees, that are set in a similar way.”
Javier Perez, president of MasterCard Europe, said the ruling was disappointing.
“When MasterCard brought this action in 2007 we did so because we believed then, as we do now, that market-based solutions are the best way to ensure a fair and competitive payments landscape in Europe – one that makes consumers’ lives easier, and brings increased business for merchants,” he said.
Judges rejected MasterCard’s appeal against a European Commission 2007 decision that the company, at the time an association of banks, had colluded in fixing the price and had restricted competition.
The Commission decision was backed by the EU’s General Court in 2012 but MasterCard had appealed that judgment on two points of EU law. It denied it restricted competition in practice and that it fixed the fees after 2006, when it became a publicly listed company rather than an association of banks.
The judges decided MasterCard is still “an association of undertakings”, despite its 2006 initial public offering, when banks sold their stake in the company on the New York Stock Exchange.
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, argued MasterCard but the judges did not agree.
The Commission argued 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.