17 July 2007

Hungary looks into card fees as EC works on MasterCard decision

The Hungarian Competition Authority is poised to launch a formal investigation into payment card fees by the likes of Visa and MasterCard, having sent out questionnaires to a slew of retailers to gather information on suspected excessive pricing.

Letters sent out in June asked retailers to provide data on so-called “interchange fees” – the payments made between a cardholder's bank and a retailer's bank to balance transactions – which have long been in the cross-hairs of DG Competition.

The data will contribute to a study to be completed by mid-to-late August. The Hungarian authority will then decide on the basis of this whether to launch a formal investigation.

While a formal probe remains a likely outcome, there are indications that some banks may wish to negotiate fee reductions voluntarily to avoid a protracted case. This was the model recently adopted by banks in Italy where they agreed to cut debit card fees by between 11 and 64 percent (see the MLex article [here]).

Although the move by Hungary adds momentum to the wide-spread belief that interchange is excessive and often abusive, the multiplicity of jurisdictions looking at varying national payments systems risks complicating the legal landscape for the European Commission. The latter is working on its final decision against MasterCard having issued its first Statement of Objections in 2002 before following this in 2006 with a supplementary one.

Earlier this year the commission sent the firm a 'Letter of Facts' (see the MLex article [here]) to steel its case before a final decision which is likely to appear in October.

The timing of the MasterCard decision has two immediate consequences: firstly, for rival Visa, and secondly for the increasing number of national cases.

Visa pursued a different strategy from MasterCard in 2002, negotiating voluntary decreases in their card fees step-by-step over several years. This agreement expires at the end of 2007 and the company is desperate for guidance about what the commission's stance will be on the charges. That clarity should be contained in the MasterCard decision, says the commission.

Despite expectations that the decision might have come in June, as the months roll on the window of negotiation is closing, leaving Visa to face the scenario where MasterCard appeals its decision and then the European courts rule on whether the conditions on interchange fees must be applied pending the appeal. Such a ruling would most likely come next year: i.e. well after the expiry of Visa's settlement.

But, while the commission finalises its decision, there is plenty happening at national level to keep the banks and card companies on their toes as they face more immediate fire-fighting troubles in a range of member states.

As outlined above, Hungary is poised to launch an enquiry; Italy settled its case earlier in the year; in the Netherlands there has already been a decision; in Poland the banks are appealing a fine from a January ruling; and authorities in Spain, Portugal and Sweden are all at different stages of investigations.

Some cases, such as the UK's probe conducted by the Office of Fair Trading, are directly in line with the commission's work and are proceeding on parallel tracks. Others are more or less advanced and waiting for some guidance from the commission.

In Germany, for example, the Bundeskartellamt is weighing up whether to act on a complaint from the national retailers' association over the fees, but its timeline seems to be slipping in step with the commission's work, meaning a decision in Germany is unlikely to come before the MasterCard decision appears.

Meanwhile, other competition authorities, such as the Irish, are understood not to be pursuing investigations at this stage. The OFT is expected to issue new Statements of Objections in 2008.

By Lewis Crofts

© MLex