UK Competition and Market Authority Shuts Down MasterCard and Visa Probes Following Approval of European Interchange Fees Regulation

A View from Constantine Cannon’s London Office

By Yulia Tosheva and James Ashe-Taylor

The UK Competition and Markets Authority (“CMA”) announced on Wednesday that it is closing its investigations into MasterCard’s and Visa’s multilateral interchange fees (“MIF”) on the grounds of administrative priorities.

The CMA reached its UK domestic decision in light of the approval by the Council of the European Union of the long-awaited Interchange Fee Regulation (“IFR”) on April 20, 2015.  The IFR will become effective 20 days after its publication in the Official Journal.

The introduction of the IFR follows a number of investigations into MasterCard’s and Visa’s MIF by the European Commission (“EC”) and national competition authorities (including those in the UK, Poland, Hungary, Italy, Latvia, Germany and France).  The CMA’s predecessor, the Office of Fair Trading (“OFT”), opened its investigations into Visa’s and MasterCard’s MIF in 2004 and 2005 respectively, before the EC itself initiated action.  Moreover, the OFT was particularly active in making the case for the establishment of the UK Payment Systems Regulator, which will be the competent authority for the monitoring and enforcement of compliance with the IFR in the UK.

Back in December 2007, the EC decided that MasterCard’s MIF violated European competition rules by inflating the cost of card acceptance by retailers.  In February 2014, the EC accepted commitments offered by Visa Europe to cut its MIF significantly for credit card payments and to reform its rules in order to facilitate cross-border competition.  Most recently, in September 2014, following a seven-year legal battle, the European Court of Justice dismissed MasterCard’s appeal against the EC’s December 2007 findings and confirmed that MasterCard’s MIF are anti-competitive.

Under the IFR, interchange fees will be capped at 0.2% of the transaction value for consumer debit cards and at 0.3% for consumer credit cards.  For consumer debit cards, Member States will have the flexibility to define lower percentage caps and impose maximum fee amounts.  The EC estimates that the implementation of the IFR will lead to a reduction of about six billion euros annually in hidden fees for consumer cards.  The caps on the levels of the interchange fees will take effect at the end of the current year (i.e., six months after the IFR enters into force).

Besides capping interchange fees, the IFR increases transparency for card transactions, encourages technological innovation in the payment sector and helps new entrants join the payment card market.  Competition Commissioner Margrethe Vestager said: “This legislation will put a cap on interchange fees, make them more transparent and remove a hurdle to rolling out innovative payment technologies.  It is good for consumers, good for business and good for innovation and growth in Europe.  As cards are the most widely used means of online payment, this Regulation is also an important building block to complete the European Digital Single Market.”

Both MasterCard and Visa are currently facing a number of competition claims for damages across the EU from major retailers including the UK high-street giants Asda, Next, Debenhams and Arcadia.  Although proceedings are still at an early stage, it is clear that there is a serious prospect of very significant awards of damages (or settlements).

– Edited by Gary J. Malone