This article is from the source 'nytimes' and was first published or seen on . It last changed over 40 days ago and won't be checked again for changes.

You can find the current article at its original source at http://www.nytimes.com/2013/07/25/business/global/european-union-aims-to-lower-credit-card-fees.html

The article has changed 4 times. There is an RSS feed of changes available.

Version 1 Version 2
European Union Aims to Lower Credit Card Fees European Union Aims to Lower Credit Card Fees
(about 5 hours later)
BRUSSELS — European Union officials on Wednesday proposed ways of lowering the fees that consumers do not see, but ultimately pay, for using credit card services like Visa and MasterCard. The proposal is meant to give the retail sector a shot in the arm. BRUSSELS — European Union officials on Wednesday proposed capping certain fees on credit and debit card purchases, immediately setting off a fierce debate about whether consumers will benefit.
But the proposal is expected to face heavy opposition from the card companies and from other financial services companies. The measures are aimed at so-called interchange fees — behind-the-scenes fees incurred whenever consumers tap in their PIN codes or sign a credit card receipt. The European Commission, which wants to set a ceiling on the transaction fees that banks charge retailers for purchases with plastic, said the move would help stimulate the sluggish economy by saving retailers 6 billion euros a year.
The rules would also limit the surcharges imposed by some merchants on card payments for purchases, in particular airline tickets. Such sums can reach levels of around 12 euros, or about $16, on top of an individual purchase, according to commission officials. But it’s unclear whether the savings will flow through to consumers. While the European Commission and retailers indicated that lower fees would translate into lower prices, financial companies argued that consumers were unlikely to reap the rewards.
The officials said that the measures were necessary to stop the gouging of consumers by the operators of payment systems that are vital for e-commerce and a thriving retail sector, and to make it easier for Europeans to make purchases across national borders. Officials also said the measures could encourage new companies to enter the bank card market. The proposed rules takes aim at so-called interchange fees.
“The interchange fees paid by retailers end up on consumers’ bills,” said Joaquín Almunia, the European Union’s commissioner for competition policy, referring to the fees paid by banks to one another for each card payment. The European plan would cap such fees at 0.2 percent for debit card transactions and 0.3 percent for credit cards purchase. Officials said the credit card levels would be particularly beneficial in Poland and Hungary, where fees are especially high.
“Not only are consumers generally unaware of this — they are even encouraged through reward systems to use the cards that provide their banks with the highest revenues,” he said. The rules would also limit the surcharges imposed by some merchants on card payments for purchases, in particular airline tickets. Such sums can add 12 euros, or about $16, to an individual purchase, according to commission officials.
Peter Ayliffe, the president of Visa Europe, said in a statement that the proposals would be “detrimental to the innovation that will support European economic growth.” He also complained that proposals mostly exempted American Express and a number of providers of e-commerce and mobile payment systems. Another measure would let Visa and MasterCard formally separate their credit card services business from their processing business. The split, said European regulators, should help bolster competition.
About 9 percent of fees charged by American Express would be covered by the new rules, according to the commission. “The interchange fees paid by retailers end up on consumers’ bills,” said Joaquín Almunia, the European Union’s commissioner for competition policy. “Not only are consumers generally unaware of this — they are even encouraged through reward systems to use the cards that provide their banks with the highest revenues.”
MasterCard said in a statement on Wednesday that it would cooperate with the commission to make the payment systems in Europe more secure and efficient, but it said the proposals would have unforeseen and negative consequences. European officials said the initiative partly mirrored the American effort to restrict interchange fees on debit card purchases. In 2011, the Federal Reserve in 2011 capped such fees at 21 to 24 cents a transaction, down from an average of 44 cents.
The cap on fees “will actually harm and inconvenience consumers and small merchants” and will “hinder competition and innovation in the European payments landscape,” said Javier Perez, president of MasterCard Europe. Europe is going one step further than the United States, which did not address interchange fees on credit cards. Efforts to restrict those fees in the United States have largely stalled in court battles.
Michel Barnier, the bloc’s commissioner in charge of financial services, said Wednesday that MasterCard, in particular, had engaged in “extraordinary and unheard-of lobbying” aimed at opposing the measures. Mr. Barnier, speaking at a news conference with Mr. Almunia, insisted that the proposals “will not create supplementary difficulties for consumers.” Already, retailers and financial companies in Europe are lining up on both sides of the issues, as they did for a similar debate in the United States.
The European Commission, the executive agency that also serves as the Union’s consumer watchdog, has long suspected the major card companies and banks of overcharging, hurting retailers and consumers. Big financial players, which plan further lobbying efforts, called the rules unnecessary, warning that consumers would probably not see substantial savings. Instead, they argued that retailers would pocket the extra money.
The rules would limit banks to charging 0.2 percent on the value of a debit card transaction and 0.3 percent on credit cards. That is important, according to commission officials, because card companies like Visa and MasterCard have, in the past, partly competed on the size of the fee that banks collect in exchange for those banks issuing their cards to consumers. “Experience indeed shows that merchants do not pass fee reductions on to consumers as expected by regulators and consumer organizations,” Sébastien de Brouwer, an executive director of the European Banking Federation, an industry group made up of national associations representing the region’s largest banks, said in a statement. “We have seen this in countries like Australia or Spain.”
The rules would apply to transactions across borders in the European Union as soon as the law goes into force. But there would be a 22-month transition period before they went into effect for domestic transactions, which represent the vast majority of payments. MasterCard said in a statement that it would cooperate with the commission to make the payment systems in Europe more secure and efficient, but it said the proposals would have unforeseen and negative consequences. The cap on fees “will actually harm and inconvenience consumers and small merchants” and will “hinder competition and innovation in the European payments landscape,” said Javier Perez, president of MasterCard Europe.
The proposal would need approval by the European Parliament and by a majority of European Union member states before becoming law. Some financial players also complained that the rules did not treat all payment companies equally.
Peter Ayliffe, the president of Visa Europe, said the proposals mostly exempted American Express and a number of providers of e-commerce and mobile payment systems. The commission estimated that about 9 percent of fees charged by American Express would be covered by the new rules, since most payments using their cards do not involve interchange fees.
Retailers are pushing back against financial firms, claiming consumers would benefit.
Merchants argued that the rules would esentially level the playing field, making payments with cash or plastic roughly equivalent. That, in turn, retailers said, would help consumers.
“Price competition and the elimination of inefficiencies are in the DNA of retailers,” said Christian Verschueren, the director-general of EuroCommerce, an industry group that represents national retail consortia and some giant retailers including Carrefour, IKEA and Tesco.
At the same time, retailers indicated the rules might not go far enough.
Some industry players are pushing to abolish transaction fees altogether on debit card payments. Mr. Vershueren of EuroCommerce warned that debit fees could go up in some countries like Belgium and Denmark, where those fees already were lower than the planned level of 0.2 percent.
The proposals “fall short of the ideal,” said Mr. Vershueren.
The debate is likely to continue for a while.
The rules would apply to transactions across borders in the European Union as soon as the law went into force. But there would be a 22-month transition period before they went into effect for domestic transactions, which represent a large majority of payments.
The proposal also needs approval by the European Parliament and by a majority of European Union member states before becoming law — a process that could take years.