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LONDON - Britain's competition watchdog, the Office of Fair Trade, on Tuesday said that fees charged by members of credit card association MasterCard UK are effectively a tax on consumers' purchases and infringe anti-trust rules, Reuters reports.
The decision could force changes in the credit card industry in Britain and cost some card issuers millions of pounds.
The agreement between MasterCard and its members -- credit card companies and banks -- leads to high fees on every transaction made by a MasterCard credit or charge card, the OFT said.
"The cost of these fees is borne initially by retailers' banks, but is passed on to retailers and, in turn, to consumers through higher retail prices," it said in a statement.
"In effect, these fees act like a tax on retail transactions that is paid by all consumers in shops that accept credit cards," it said, adding its decision affected effectively all UK financial institutions.
The decision is preliminary, said the OFT. The regulator will give MasterCard UK the chance to justify the existing agreement or propose changes to it. If it does not do either, the OFT said it will make a final decision by spring 2003.
MasterCard and fellow credit card association Visa face legal action in the United States, in a class-action anti-trust suit brought by Wal-Mart Stores Inc. and four million other retailers.
The suit argues that the credit card companies leveraged their market power to promote their own systems in the growing debit card market, charging higher fees that were passed onto consumers.
In other related news, Monday's Wall Street Journal reported that Visa and MasterCard could face a bill of at least $500 million for poorly disclosing fees to people who use their cards overseas.
A California judge last week sided with plaintiffs in a suit against Visa International, Visa USA Inc. and MasterCard International Inc., which claims that currency-conversion fees imposed on foreign purchases weren't adequately disclosed to cardholders. The judge will issue a final decision once he has received further written and oral arguments from both sides in coming weeks, people familiar with the case said.
If the California judge affirms his opinion, the decision could have wide -- and expensive --ramifications for Visa and MasterCard, and could expose them to similar suits in other states.