Payment card interchange fees were anti-competitive, CJEU confirms

Out-Law News | 15 Sep 2014 | 3:18 pm | 2 min. read

The level of fees charged by a credit card provider to cover the cost of processing card payments had "restrictive effects on competition", the Court of Justice of the European Union (CJEU) has ruled.

Its judgment confirmed the European Commission's 2007 decision that multilateral interchange fees (MIFs) 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.

MasterCard has since reduced its fees for cross-border transactions within the EEA at 0.2% for debit card transactions and 0.3% for credit card transactions and has stated that it will continue to maintain its rates at this level.

In its judgment, the CJEU said that the General Court was correct to find that MasterCard was an "association of undertakings" for the purposes of competition law, in which participating banks were "not merely customers for the services provided but participated collectively and in a decentralised manner in all essential elements of the decision-making power".

"The General Court correctly found that, when those decisions are taken, those undertakings intend or at least agree to coordinate their conduct by means of those decisions and that their collective interests coincide with those taken into account when those decisions are adopted, particularly in circumstances where the undertakings in question pursued, over several years, the same objective of joint regulation of the market within the framework of the same organisation, albeit under different forms," the CJEU said.

Moving on to look at whether MIFs were "objectively necessary" for the payment system to work effectively, the CJEU said that the test was "whether that operation would be impossible to carry out in the absence of the restriction in question". "The fact that that operation is simply more difficult to implement or even less profitable without the restriction concerned cannot be deemed to give that restriction the 'objective necessity required in order for it to be classified as ancillary," it said.

In its original decision, the Commission had hypothesised that some of the problems created by eliminating MIFs could be resolved by prohibiting 'ex post' pricing, where issuing and acquiring banks are prevented from defining the amount of the interchange fees after a purchase has been made by a cardholder. The CJEU found that the General Court had erred in law in its 2012 ruling when it confirmed this hypothesis without considering whether this was likely to happen without regulatory intervention. However, this error had no effect on the General Court's analysis of the competitive effects of the fees or on the objective part of the judgment under appeal, the CJEU said.

MIFs refer to the charges imposed for the cost of processing of credit and debit card payment transactions. 'Acquiring' banks which collect card payments on behalf of retailers, for which they charge a merchant service charge (MSC), must pay MIFs to 'issuing' banks that issue the relevant payment card to the customer. The cost of MIFs is built into the MSC.

Earlier this year, the European Parliament voted in favour of proposals which would cap all MIFs at 0.3% of credit card transaction values and the lower of 0.2%, or €0.07, for debit card transactions. The caps would apply to both EEA cross-border transactions as well as domestic transactions within EEA Member States. Third party online payment providers would also have to disclose the actual cost of processing payments on request. The proposals are currently being considered by the EU Council of Ministers under the Italian Presidency.