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ARLINGTON, Va. -- The European Commission yesterday delivered an "early Christmas present to consumers," as the Food Marketing Institute put it, in a ruling that abolishes MasterCard credit and debit card interchange fees. The National Grocers Association and National Retail Federation were among the other trade groups that hailed the decision.
Many in the industry consider interchange fees to be hidden charges that consumers are unaware of. They are also frustrated by the share retailers must pay to accept credit card payment in their stores.
Issuing the ruling, competition commissioner Neelie Kroes said: "Multilateral interchange fee agreements such as MasterCard's inflate the cost of card acceptance by 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 paid not only by card users but also by customers paying cash. The Commission will accept these fees only where they are clearly fostering innovation to the benefit of all users."
The fees in question range from 0.4 percent to 1.20 percent per transaction, considerably less than the rate in the U.S., noted FMI, which averages 2.14 percent. All consumers pay the fees, even those who use cash or checks, because card company rules force retailers to build the fees into all transactions, according to FMI.
Visa will have to stop charging interchange fees on these payments as well, according to the Commission, when its exemption from EU competition laws expires on Dec. 31, 2007. Visa Europe's interchange rate is currently 0.7 percent.
"The European Commission today moved aggressively to correct a long-standing abuse of European consumers," said Tim Hammonds, president and c.e.o. of FMI, in a statement. "By questioning whether interchange fees are justified at all, the door is finally open for bringing these outrageous fees into line with the actual costs of providing payment services."
N.G.A.'s President and CEO, Tom Zaucha said, "Clearly the message that is being heard around the world should be heard in the United States: the anticompetitive interchange fee system by MasterCard and Visa is in need of serious reform. It is clear that this decision by the EU reinforces the need for Congress to act now in reforming the broken interchange system in the U.S."
In the U.S., interchange fees cost $36.3 billion in 2006, according to FMI's estimations. At the current rate of increase, these fees will cost more than $40 billion in 2007 and cross the $50 billion mark in 2008.
Congress has already held three hearings on interchange fee issues, including one on July 19 by the House Judiciary Committee Antitrust Task Force and two in 2006 by the full Senate Judiciary Committee on July 19 and the House Commerce Subcommittee on Commerce, Trade, and Consumer Protection on Feb. 15.
The U.S. Justice Department revealed at the 2007 hearing that it is investigating interchange fee antitrust issues. Merchants are pursuing more than 50 lawsuits against credit card companies and banks, charging that interchange fees are fixed in violation of the antitrust laws.
FMI, NGA, and NRF are members of the Merchants Payments Coalition, a group of nearly 30 associations representing retailers, supermarkets, drug stores, convenience stores, fuel stations, online merchants, and other businesses that accept debit and credit cards. The MPC is fighting for a more competitive and transparent card system in which interchange fees are based on actual transaction costs.