EU Officials Agree to Cap Interchange Fees (Dec. 18, 2014)
Members of the Economic and Monetary Affairs Committee and European Union Council negotiators yesterday agreed to cap the interchange fees on cross-border and domestic card-based payments, ensuring uniform rules across the EU.
Under the agreement, cross-border debit card transactions would be capped at 0.2 percent of the transaction value. For domestic transactions, EU members can apply the cap of 0.2 percent to the annual weighted average transaction value of all domestic transactions within the card scheme, according to a European Parliament announcement. The system of applying the cap on a weighted average basis would apply for five years, and then interchange fees for domestic transactions would be subject to simpler rules where the cap for a domestic transaction is 0.2 percent of the transaction value, or set at a fixed fee of at most five cents per transaction. Interchange fees for credit card transactions would be capped at 0.3 percent of the transaction value. The new rules also would enable retailers to choose which cards to accept, unless they’re subject to the same interchange fee. Today retailers often are obliged to accept all cards.
The rules would not apply to three-party card schemes, provided the card is issued and processed within the same scheme. Commercial cards used only for business expenses also would be exempt from the rules, according to the announcement. The agreement also states that, in three years, the rules also would apply to three-party card schemes that license other parties to issue cards, thus operating as four-party schemes, to avoid unfair competition.
Whether the caps translate to cost saving for consumers or more profits for retailers remains a subject of debate, according to reports. The deal needs to be endorsed by EU member states before being put to a vote by the full Parliament next year. If approved, the caps would take effect six months after the legislation is enacted. The European Parliament also is in the midst of debate on the revised Payment Services Directive (PSD2). Interchange legislation and PSD2 are collectively known as the Payments Package, and some industry experts believe that competitive issues might arise if interchange or PSD2 rules are approved and implemented at different times.
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