EU Competition Commission warns VISA over credit card fees

15th August 2012  

Following repeated rumblings that it would take action in the past few months, the EU Competition Commission has formally warned VISA Europe that it may be in contravention of EU anti-trust regulations over its merchant fees for international credit card payments. (read more in the EU CC’s press release on the Official websites of the Euroepean Union.)

At present, the credit card giant, which processes 41% of all credit and debit card transactions in Europe, charges so-called Multilateral Interchange Fees (MIF’s) whenever its cards are used across borders. In some EU countries, including Ireland, Italy and the Netherlands, these fees also apply to all domestic VISA transactions.

What are MIFs?

MIF’s are automatically paid by retailers to their bank, who then pay VISA the transaction fee every time one of their credit cards is used to make a transaction. Inevitably, these additional charges lead retailers to increase their prices to cover the difference, leading to higher costs for consumers. In the UK, these charges end up being met by consumer via credit card surcharges.

Now, the EU Competition Commission, which is responsible for regulating competition between banks and other businesses, has said that these fees, “harm competition… inflate the cost of payment card acceptance for merchants and ultimately increase consumer prices.”  The organisation has warned VISA Europe that this is the case, and informed it of the considerable fines that may be levied against it if it is discovered to be breaching anti-trust regulations. These may be up to a total of 10% of the company’s turnover worldwide.

Great news for consumers – overseas surcharges should reduce

It is likely that the company will have little choice but to comply, but VISA Europe’s chief executive, Peter Ayliffe released a statement saying that they were, “very disappointed that the Commission has taken such a confrontational approach.

If the charges are not scrapped, the likely next step is that the matter will be brought to the European Court, as was the case with rival MasterCard over its own multilateral interchange fees some two years ago. In that instance, the credit card firm was told to remove its fees. Consumer groups have long campaigned to get the international transaction charges removed as consumers don’t understand why they are needed and they’re difficult to avoid. (Take a look at our overseas credit card tables to see credit cards with no or low overseas surcharges.)

In upholding the Commission’s decision earlier this year, the European General court confirmed the Competition Commission’s findings that MasterCard’s MIF’s were, “not necessary for the functioning of the Master Card system” and “a restriction of competition.”

This gradual move towards removal of additional cross-border transaction fees may not be welcomed by credit card firms, but it is good news for consumers as it should in theory lead to lower prices. It should be particularly welcomed by those living or travelling in countries which are currently subject to MIF’s on all domestic VISA transactions as well as cross-border ones.

Credit card firms have in the past argued that the fees play an important role in helping them to process credit card transactions, and they have also been applied to debit cards. VISA withdrew these debit card fees in 2010, but has so far resisted cutting those for its credit cards.

With this new development in the saga, it seems likely that MIF’s are set to become a thing of the past, effectively leading to a fairer and more economical deal for consumers.

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