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European Parliament Committee agrees on payment card interchange fee caps

A Committee of MEPs has reached political consensus on a draft EU regulation to impose caps on the fees charged between banks for processing debit and credit card payments, known as ‘interchange’ fees.21 Feb 2014

The European Parliament's Economic and Monetary Affairs (ECON) Committee voted to approve plans to introduce a cap on interchange fees for credit card payments of 0.3% of the value of transactions. For debit card payments, a cap of the lowest of €0.07 cents or 0.2% of the value of transactions has been backed by the MEPs. The caps would apply simultaneously to both domestic and cross-border transactions in the EU.

Currently, interchange fees are levied at different rates across the EU. The European Commission proposed to harmonise those fees in a new Multilateral Interchange Fees (MIF) Regulation last summer. The draft Regulation was published alongside a draft new Payment Services Directive (PSD2). The Commission said at the time that the aim of its proposals was to reduce the costs to consumers associated with making payments and help drive cross-border trade.

Now the ECON Committee has announced its backing for the caps on interchange fees. Whilst it had always been intended that the cap would apply to consumer cards, controversially the ECON Committee extended the scope of the Regulation also to cover commercial cards.  In addition, it is proposed that the cap would apply to cards issued by three-party payment schemes such as American Express in certain circumstances.

The European Parliament is set to vote on the Committee's proposals "at one of the upcoming parliamentary sessions", the Committee said. The Parliament and the EU's Council of Ministers would both have to back the plans before they could become law.  It is unlikely that the proposal will finally be adopted before late 2014.  It would come into force within one year.

The interchange caps are a maximum and Member States will be free to require lower caps at a domestic level or, where applicable, to maintain their current lower rates. In principle, this would enable the proposed new payment systems regulator in the UK to impose lower UK domestic interchange fees.

The MEPs also gave their backing to amendments to the Commission's draft PSD2. Under their plans, banks and other payment service providers could be required to disclose the actual cost of processing payments.

Under the ECON Committee's proposals, retailers would generally have the choice of whether to accept certain credit or debit cards, thereby doing away with the long standing 'honour all cards' rule imposed on retailers by the main card schemes.

Banks will also be able to issue cards that are 'co-badged', that is, that carry more than one payment scheme brand and offer consumers the choice of application.

For the payment schemes, a full legal, organisational and decision making separation of the scheme from its processing operations will also be required.

Earlier this month the European Central Bank called for a single regulator to be given the power to ensure businesses subject to the proposed PSD2 comply with the new regime.