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Interchange fee regulation amended by UK government ahead of Brexit

The UK government has published a draft statutory instrument which will make amendments to retained EU law related to the regulations governing credit card fees, to ensure that it continues to operate effectively in a UK context after Brexit.20 Nov 2018

The draft legislation, amending the laws over interchange fees (5 page / 191KB PDF) is yet to be laid before parliament. The government said in an explanatory note that the changes made in the statutory instrument would not take effect on the day of Brexit, 29 March 2018, if a transition period is agreed.

The EU’s Interchange Fee Regulation came into force in June 2015 and provides a harmonised regime for the fees charged by credit card issuers from a merchant’s payment service provider. The EU rules impose a cap of 0.2% of the transaction value for consumer debit cards, and 0.3% for credit cards. Commercial cards are excluded.

The caps apply to any transaction where both the merchant’s acquirer and the card issuer are located within the European Economic Area (EEA). The caps do not apply where either party is located outside the EEA.

Lower caps can be set by member states and the regulation also imposes a number of other rules on card schemes, issuers and merchants.

The government said after Brexit card scheme operators would be able to set higher interchange fees for cross border transactions. EEA card issuers may therefore receive more interchange fees from transactions that involve a UK payment service provider, and UK card issuers may also receive higher interchange fees from transactions that involve EEA acquirers.

According to the guidance, retailers participating in cross-border transactions between the UK and Europe could incur higher costs, which could well be passed on to consumers either directly or indirectly.

However the scope of the Interchange Fee Regulation will still apply in the UK, under the terms of the statutory instrument, meaning that where both parties are located in the UK the fee caps will remain.

HM Treasury will in future be able to set lower caps on UK debit and credit card transactions and set a maximum cap on the fees charged on a UK debit card transaction. It would need to make these changes by another statutory instrument.

The UK’s Payment Systems Regulator (PSR) will take over from the European Commission as the body with the ability to set regulatory technical standards for the separation of card schemes and processing entities. The PSR is to consult on amendments to its Interchange Fee Regulation guidance to reflect the changes made by the statutory instrument.

Earlier this year the PSR said it was carrying out a market review into the card-acquiring services market amid concerns about the ways fees were levied.

In July 2017 the Competition Appeal Tribunal threw out an attempt brought on behalf of millions of British consumers to sue MasterCard over interchange fees. The claim alleges that consumers lost around £14 billion because the imposition of interchange fees led to higher prices.

The claimants are currently seeking permission to appeal the decision.