European MPs back credit card fee cap

[STRASBOURG, France] EU lawmakers backed on Tuesday a deal to cap the fees that banks charge businesses to process payments by credit and debit cards, saying it would lower costs for shoppers.

The deal overwhelmingly approved by the European Parliament in Strasbourg applies to both cross-border and domestic card payments, it said in a statement.

"This legislation will establish a level playing field for payments across Europe," said centre-right MEP Pablo Zalba, who steered the plan through parliament.

Legislators voted in favour by 621 to 26.

The deal will lead to a reduction of about 6 billion euros (S$8.95 billion) a year in hidden fees, according to the European Commission, the powerful executive arm of the 28-nation European Union.

When a customer uses a credit or debit card, the merchant's bank has to pay a fee to the buyer's bank for the service, which in turn charges the merchant a fee to cover this cost. That is then added to the price of goods on sale, affecting all customers, including those who do not pay by credit card.

Competition Commissioner Margrethe Vestager said the new rules were "good for consumers, good for business and good for innovation." "For too long, uncompetitive and hidden bank interchange fees have increased costs of merchants and consumers. Today's vote has brought us another step closer to putting an end to this," she said.

The new cap for cross-border debit card transactions will be 0.2 per cent of transaction value and will take effect within six months of the deal's formal approval by ministers, which is expected this summer.

For domestic debit card transactions there is a five-year transition period before the cap takes effect.

Credit card transaction fees will be capped at 0.3 per cent of transaction values.

The deal could however result in some shops accepting a smaller range of cards, under new rules that mean card companies cannot force retailers to accept a wide option of cards at conditions they set, European officials said.

The deal comes six months after the EU's top court ruled that US credit-card giant MasterCard was at fault over its fees on cross-border transactions.

Upholding a 2007 finding which MasterCard had appealed, the European Court of Justice said the company's use of interchange fees had forced merchants to put up prices for customers.

AFP