The National Retail Federation welcomed a ruling by the European Commission that hidden fees currently charged by MasterCard to process credit card transactions in Europe Ã¢Â similar to those that cost U.S. shoppers $40 billion annually Ã¢Â drive up costs for consumers in violation of EC rules and must be withdrawn within six months.
“European authorities say MasterCard is double dipping in Europe, and that’s exactly what we think both MasterCard and Visa are doing here in the U.S.,” NRF Senior Vice President and General Counsel Mallory Duncan said. “Visa and MasterCard are charging billions of dollars directly to consumers for all the fees that show up on their monthly statements, then they turn around and charge billions more from the hidden credit card fees they force merchants to include in the price of merchandise.”
“These fees drive up the cost of merchandise for shoppers while delivering little if any benefit commensurate with the billions charged,” Duncan said. “It’s time for this to stop, and authorities here in the United States should take the European ruling as a signal that it’s time to bring the same relief to U.S. consumers.”
The European Commission ruled today that so-called “interchange” fees charged by MasterCard and its banks violate EC Treaty rules on restrictive business practices and “inflated the cost of card acceptance by retailers without leading to proven efficiencies.” The commission ordered MasterCard to withdraw the fees within six months or face fines equivalent to 3.5 percent of global revenues.
The commission said the fees are “not illegal as such” and stopped short of saying MasterCard could not charge any interchange fee at all. But any replacement system of fees, even if lower, would be allowed under EC rules only if MasterCard could show that it “contributes to technical and economic progress and benefits consumers.”
EC Competition Commissioner Neelie Kroes said the fees drive up costs for consumers as well as retailers.
“Consumers foot the bill as they risk paying twice for payment cards: once through annual fees to their bank and a second time through inflated retail prices,” Kroes said in releasing the ruling. “The commission will accept these fees only where they are clearly fostering innovation to the benefit of all users.”
Averaging close to 2 percent in the United States, interchange is a fee Visa and MasterCard banks charge merchants every time a credit card or signature debit card is used to pay for a transaction. Visa and MasterCard collected more than $36 billion in interchange fees last year, up 17 percent from 2005 and 117 percent since 2001. This year, the amount is expected to top $40 billion, or about $350 per household. Interchange is largely unknown to most consumers because Visa and MasterCard don’t disclose the fee on monthly statements and prohibit merchants from disclosing it on receipts.
MasterCard interchange rates for cross-border transactions in Europe currently range from 0.8 percent to 1.2 percent of each transaction. Visa was not addressed in today’s ruling but reached an agreement with the EC in 2002 that restricts its fees Ã¢Â previously averaging 1.1 percent Ã¢Â to a maximum of 0.7 percent. That agreement ends at the end of 2007, and the EC said today that beginning in 2008 Visa will be “responsible to ensure that its system is in full compliance with EU competition rules.”
NRF is leading retailers’ fight against soaring interchange costs in the United States, and Duncan testified before the House Judiciary Committee’s Antitrust Task Force in July that collusion between banks when setting the fees has violated U.S. antitrust law. The hearing was the second time Congress has looked at interchange practices in the past two years following a Senate Judiciary hearing on possible antitrust violations in July 2006. In addition, approximately 50 federal antitrust lawsuits against Visa, MasterCard and their member banks have been consolidated in U.S. District Court in New York and are awaiting action.
The National Retail Federation is the world’s largest retail trade association, with membership that comprises all retail formats and channels of distribution including department, specialty, discount, catalog, Internet, independent stores, chain restaurants, drug stores and grocery stores as well as the industry’s key trading partners of retail goods and services. NRF represents an industry with more than 1.6 million U.S. retail establishments, more than 24 million employees – about one in five American workers – and 2006 sales of $4.7 trillion. As the industry umbrella group, NRF also represents more than 100 state, national and international retail associations. www.nrf.com
EU to MasterCard: Credit Card Interchange Fees Must Be Cut
A coalition of U.S. merchants opposed to unfair credit card fees (unfaircreditcardfees.com) welcomed a ruling by the European Union (EU) Competition Commission that MasterCard’s credit card interchange fees for consumers must be cut across the 26 member nations of the European community.
Calling the MasterCard credit card interchange fee system illegal and an unfair burden on European consumers and merchants, EU Competition Commissioner Neelie Kroes said “Consumers foot the bill, as they risk paying twice for payment cards: once through annual fees to their banks and a second time through inflated retail prices paid not only by card users but also by customers paying cash.”
“The EU commission report underscores that Visa and MasterCard hit consumers coming and going. Cutting credit card interchange fees is an important victory for Europeans as well as for anyone traveling there,” said Tim Hammonds, President and CEO of the Food Marketing Institute, a Merchants Payments Coalition (MPC) executive committee member. “But American consumers and merchants pay more than twice as much as Europeans – two dollars out of every $100 directly to Visa and MasterCard issuers. These exorbitant hidden fees are out of proportion to the amount that would be paid in a competitive market,” added Hammonds.
The EU competition commission concluded that MasterCard abused its dominant position in the market by setting credit card interchange fee levels too high. In January, Commissioner Kroes referred to Visa Europe and MasterCard as “an effective duopoly” that make “outrageous profits,” and that consumers are being “ripped off” by card fees.
“Global recognition that Visa and MasterCard engage in illegal price fixing is a call to action for the Congress in 2008,” said Hammonds, referring to moves by Britain and Australia that have dramatically reduced credit card interchange fees in those countries as well in recent years. Credit card interchange fees paid by U.S. consumers and merchants to Visa, MasterCard and their member banks is expected to total more $40 billion dollars this year.
Credit card interchange fees in the United States, ultimately paid by American consumers, are currently more than twice as much on average as they are in Europe — the same credit card interchange fees just ruled too high by EU Commissioner Kroes. U.S. interchange fees on average are about 2 percent, while Visa Europe rates, for example, are capped at 0.7 percent.
Raising hidden credit card interchange fees is how Visa and MasterCard encourage banks to issue more credit and debit cards – as long as rising rates are kept secret, consumers have no way of knowing the extra costs they are paying. “That’s why U.S. interchange rates are among the highest in the developed world,” said Hammonds.
In fact, Visa and MasterCard still treat American merchants and consumers the same way they used to treat the Europeans. Here, credit card interchange fees are set in secret and credit card company rules make it practically impossible for merchants to tell customers how much they are really paying.
Interchange rates in the United States are now approximately two percent; in other words, two dollars out of every $100 spent on credit and debit cards goes to the credit card companies and consumers who pay whether they use plastic, checks, or cash. In the United States, interchange fees are the biggest credit card fee you have never heard of, dwarfing all the other credit card fees: late fees, over-the-limit fees, balance transfer fees, annual fees, inactivity fees, penalty interest fees, universal default, and even ATM bank fees.
The MPC is a group of retailers, supermarkets, drug stores, convenience stores, fuel stations, on-line merchants and other businesses who are fighting against unfair credit card fees and fighting for a more competitive and transparent card system that works better for consumers and merchants alike. The coalition’s member associations collectively represent about 2.7 million stores with approximately 50 million employees. For further information, please visit http://www.unfaircreditcardfees.com