EU legislators endorse plans for cap on card payment fees

The Parliament’s economic and monetary affairs committee voted to support the draft rules on 27 January.  

The vote confirmed an “informal deal” reached between parliamentarians and negotiators for the EU’s Council of Ministers last December.

Under the deal, the agreed cap for cross-border debit card transactions is 0.2% of the transaction value, the European Parliament said. For domestic transactions, member states can apply the cap of 0.2% to the annual weighted average transaction value of all domestic transactions within the card scheme.

“Parliament's negotiators made sure that the system of applying the cap on a weighted average basis will apply for five years only,” the Parliament said. “Thereafter, interchange fees for domestic transactions will be subject to a simpler, more transparent regime where the cap for a domestic transaction is 0.2% of the transaction value, or set at a fixed fee of at most five cents per transaction.” For credit card transactions, the parties agreed to cap the fee at 0.3% of the transaction value.

The European Parliament said the draft rules were drawn up because interchange fees for card-based payments, paid by the merchant's bank to the bank that issued the card, “are not transparent and they differ between EU countries, where they are subject in some cases to legislation and in others to decisions by national competition authorities”.

“These fees are charged by banks belonging to card schemes such as Visa and MasterCard (so-called four-party schemes, involving an issuing bank, a merchant’s bank, the retailer and the card user) which together control the lion’s share of the market,” the Parliament said. “Retailers are charged for every card transaction and add the costs to the prices of the goods or services they offer.”

According to the European Parliament, the draft rules “also aim to enhance fee transparency, so as to stimulate competition and enable both retailers and users to choose the card schemes that offer them the best terms”.

The European Parliament as a whole will now vote on the draft rules when it convenes in April. It said the measures must also be approved by EU member states and receive a “formal endorsement” of the Council of Ministers before they can take effect, which will be six months after legislation enters into force.

The draft rules agreement followed a ruling by the Court of Justice of the European Union last September which said that the level of fees charged by credit card provider MasterCard to cover the cost of processing card payments had had "restrictive effects on competition" in breach of EU rules.

The Court’s judgment confirmed the European Commission’s 2007 decision that multilateral interchange fees set by MasterCard effectively set a price floor on transaction costs in a way that was not "objectively necessary". The Commission's decision was upheld by the EU's General Court in 2012.