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EU restricts how much retailers can be charged on card transactions

The European Parliament has approved legislation to put a cap on how much retailers can be charged by banks in 'interchange fees' for each credit or debit card transaction.11 Mar 2015

The legislation, which members of the European Parliament agreed with member states in December, was passed by 621 votes to 26, with 29 abstentions and is now final, Dorota Kolinska, a spokesperson for the European Parliament said. The text will now be signed by the Council of Ministers and published in the official journal. It will become law 20 days after its publication, and the legislation will apply six months after that, Kolinska said.

Interchange fees are paid by the retailer's bank to the purchaser's bank, and are deducted from the amount the retailer makes on the sale.

The cap will vary according to the type of card and whether it is a 'cross-border' or domestic purchase, the Parliament said in a statement.

For debit cards used cross-border, there will be a cap of 0.2% of the transaction value.

Domestically, the debit card cap is also 0.2%. During a five-year transition period, EU member states may cap fees at a set value – 0.2% of the "annual weighted transaction value of all domestic transactions within the scheme".

Countries may also set a maximum fee of 5 euro cents for smaller domestic transactions after the five year transition period, the Parliament said.

Credit cards will see an immediate cap of 0.3% of transaction value, and member states can choose whether to lower this for domestic purchases.

Retailers currently have to accept all cards except third-party cards such as America Express and Diners, and the conditions set by card issuers. They will now be able to choose only those cards that are subject to the fee-capping rules, the Parliament said.

Shoppers may find that retailers accept a smaller amount of cards, but lower fees should result in lower costs for both retailers and customers, the statement said.

Third-party cards will be exempt from the cap, provided the card is both issued and processed within one scheme, the statement said.

After three years, however, the rules will apply to third party schemes "that license other parties to issue cards and this circumvent the law by operating as four-party ones," the Parliament said.

Commercial cards used only to pay business expenses will also be exempt.

The European Commission welcomed the vote, estimating that the rules could lead to a reduction of about €6 billion (US$6.4 billion) annually in fees.

"This legislation will put a cap on interchange fees, make them more transparent and remove a hurdle to rolling out innovative payment technologies," said EU Commissioner Margrethe Vestager,. "It is good for consumers, good for business and good for innovation and growth in Europe. As cards are the most widely used means of online payment, this regulation is also an important building block to complete the European Digital Single Market."