MEPs put an end to opaque card payment fees

The European Parliament has passed a deal to cap the fees that banks charge retailers to process shoppers’ payments.

The cap, which will apply to both cross-border and domestic card-based payments, is expected to result in lower costs for card users.

The EP passed the bill with 621 votes for, 26 against and 29 abstentions and the law is expected to take effect in October. The European Commission said that the law will result in annual savings of €6 billion for businesses and €730 for consumers.

For cross-border debit card transactions, the agreed fee cap is 0.2% of the transaction value. The same cap will apply for domestic debit card transactions after a five-year transition period. For domestic debit card transactions, the same 0.2% cap will apply after a five-year transition period in which EU member states may cap fees at 0.2% of the annual weighted average transaction value of all domestic transactions within the card scheme.

For smaller domestic debit card transactions, member states may also set a maximum fixed fee of €0.05 per transaction, after the five-year transition period.

For credit card transactions, fees will be capped at 0.3% of transaction value and member states can set a lower fee cap for domestic credit card transactions.

“I am hopeful that this will result in savings for the consumer and retailers alike, small businesses in particular,” MEP Roberta Metsola said of the credit card transaction capping. “This will apply also for online transactions and so will provide a much-needed boost for the digital economy.”

HOTREC, the association of European hotels and restaurants, described the law as a decisive move in favour of competition and transparency in the EU card market.

“Lower interchange fees and more transparency will bring more competition on the card market, therefore lowering business costs and enabling lower prices,” HOTREC chief executive Christian de Barrin said. “This is a win-win result for both consumers and businesses.

"This legislation, combined with the upcoming Payment Services Directive, will establish a level playing field for payments across Europe,” said MEP Pablo Zalba who steered the proposal through Parliament. “It should enhance fee transparency, stimulate competition and enable both retailers and users to choose the card schemes that offer them the best terms.”

Today retailers are often obliged to accept all cards at conditions set by the card issuers. Under the new rules, retailers who choose a card scheme will have to accept only cards within that scheme that are subject to these fee-capping rules.
If they exercise this right, then shoppers may find that retailers accept a smaller range of cards, but capped fees should result in lower costs for both retailers and shoppers.

The new rules will not apply to so-called “three-party” card schemes such as Diners and American Express (involving only one bank) provided the card is both issued and processed within the same scheme. Commercial cards used only to pay business expenses will also be exempt.

After three years, the rules will also apply to three-party card schemes that licence other parties to issue cards and thus circumvent the law by effectively operating as four-party ones.

The capping rules do not affect ATM cash withdrawals.

Following Parliament's vote, the rules will need to be officially endorsed by the Council of Ministers before they can take effect, six months after the legislation enters into force.