European Union Proposes Capping Card Fees Washington Report

The proposal would limit debit and credit card transaction fees to 0.2%.

July 18, 2013

LONDON – A new proposal by the European Union’s executive arm would impose a ceiling for credit and debit card transaction fees, scaling back billions of dollars for EU banks, the Financial Times reports.

While the measure does not ban the fees, the proposal seen by the Financial Times is far more aggressive than in earlier drafts. “[T]he assault on fees will be a setback for the payments industry, which has warned it will raise banking fees for consumers rather than cut retail prices,” it writes. 

The plan would also require payment card schemes and card processors to be separate entities, a split that would reconfigure the business model for the major payment groups.

"As the cost of processing is a significant part of the total cost of card acceptance, it is important for this part of the value chain to be opened to effective competition," the draft said. "On the basis of the separation of scheme and infrastructure, card schemes and processing entities should be independent in terms of legal form, organization and decision making process." 

The plan is a culmination of “years of trench warfare between EU competition authorities and the payment providers,” the Times said, which previously resulted in agreements with Visa and MasterCard to limit cross-border transaction fees. 

The commission will propose a 0.2% ceiling on all consumer debit transactions and a 0.2% cap on credit card transactions, to be introduced after a two-year transition period during which the ceiling would apply only to cross-border fees.

Such a plan would reduce EU debit card fees from around $6.32 billion to $3.29 billion annually, and credit card fees from $7.5 billion to $4.6 billion. "High [fees] paid by merchants result in higher final prices for goods and services, which are all paid by consumers," the proposal said.

Banks and payment groups attack any cap on fees as heavy-handed. They argue card use would decline, cardholder fees would rise, and retailers would be unlikely to pass along the savings.   

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