17 November 2008

MLex - More confusion for card fees as Polish authority's decision overturned

A Polish court overturned a decision by the national competition authority against 20 banks for jointly setting charges on MasterCard and Visa cards, which may risk further fragmenting the treatment of so-called 'interchange fees'.

The regulatory approach to payment card fees has suffered another blow after a Polish court overturned a decision by the national competition authority against 20 banks – including the Polish arms of Fortis, HSBC and Deutsche Bank – for jointly setting charges on MasterCard and Visa cards. 

 

The Court of Competition and Consumer Protection overturned the decision last Wednesday – a judgment which came as a massive shock to the national regulator, which had consulted the European Commission in formulating its case, and had hit the banks with a total of 164 million euros in fines. 

 

The court is said to have considered interchange – a fee to balance card transactions – as a service worth paying for and not as a “cartel plot” as posited by the regulator and the Polish Organisation of Trade and Distribution, the complainant in the case.

 

According to the trade association, the court made a “narrow” interpretation of the competition authority's decision, and looked only at the acquirer's position in the payment system. Others from the banking community refute this and see the judgment as a broader vindication of the fees.

 

The Polish competition authority is still waiting for notification of the judgment and must then decide within a fortnight if it will appeal to a higher court. Another option being considered is whether to start over again and launch a fresh case against the fees. This would echo similar steps taken by the UK’s Office of Fair Trading which lost a case on the card fees and responded by launching a second investigation.

 

The Polish banking association views this as unlikely since the court made its judgment on the merits of the case under Article 81 of the EU treaty and its Polish equivalent, and not on procedural aspects.

 

Although MasterCard is still waiting to see the judgment, it cautiously welcomed the ruling as “very good news”. It has taken the European Commission to the Court of First Instance (here) to challenge the December 2007 decision which ruled its fees illegal on the basis of Article 81. 

 

“This is now the second time that a decision of a national competition authority on the legality interchange fees under domestic and European competition laws has been overturned on appeal,” added the company. 

 

While the case in the CFI will be judged on its merits, the developments in Poland this week show the threats of a fragmented approach to interchange fees across Europe, with competition authorities in Germany, the UK, Norway, Portugal and elsewhere looking at the fees. 

 

Some of the authorities are said to be waiting for the outcome of the CFI appeal in the MasterCard case before proceeding further. 

 

Such a fragmented approach poses not just regulatory questions for those dealing with compliance but also raises the threat of shackling investment as financial services companies look to build a single area for payments in Europe.

 

The Polish decision was adopted in January 2007 (here) shortly before the commission unveiled its own report into the payments cards markets. Its investigation lasted five years and was prompted by a complaint from the Polish Organization of Trade and Distribution, one of the members of retailers' association Eurocommerce.

 

According to the authority, its investigation “showed that the level of the interchange fee was not based on objective criteria, such as costs borne by banks for the development and functioning of the payment system, but was determined by way of an agreement of entrepreneurs who communicated with each other in order to obtain additional revenue from each transaction made with Visa and MasterCard cards.” 

 

The resulting fines were levied on banks such as Nordea Bank Polska, Pekao, ING Bank Slaski and HSBC Bank Polska.

 

By Lewis Crofts

 

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