EU Get Tough On Credit Card Fees

Just a week after having their knuckles wrapped by the UK Office of Fair Trading, credit card firms have been told to reduce penalty fees. According to the EU penalty fees charged to consumers and businesses by both credit and debit cards are to blame for a 2.5% rise in the cost of goods throughout Europe.

The EU wants an overhaul of the European consumer credit market in order to prevent local operators making it difficult for new competition.

Neelie Kroes, EU competition commissioner, said, “ The payment cards industry in Europe remains national and some local players are preventing competition from developing. This pushes up payment card costs for new consumers and businesses. Competition law and sector regulation must work together to create a better environment for business.”

The degree in variation of fees paid by both consumers and businesses differs significantly depending on the location within Europe and the type of card used. This is of great concern to the EU and is partly what prompted the Commission to speak out.

According to the Commission’s report, businesses pay a higher fee on average when accepting credit cards as opposed to debit cards. For example, a trader in the UK can pay a fee five times higher on average for accepting a MasterCard credit card rather than a MasterCard debit card.

Europe’s payment card industry is massive, generating a monetary value of almost £1,000bn, with 23bn card transactions carried out annually in the 25 EU member states.

Ms Kroes believes, in the interests of competition, that a more integrated payment card industry may lead to improved services at lower prices. She added, “ Making all forms of cross-border payments, including payment cards, as easy and affordable as domestic payments could save the EU economy between £35bn and £70bn a year.”

The Commission’s report comes a week after the OFT (Office of Fair Trading) announced card companies should halve customer default fees to £12. This prompted fears that any loss of revenue sustained by card companies as a result of reduced fees may be passes on to consumers via annual credit card and bank account fees.

The Government welcomed the EU’s stance as it has been especially critical recently of the credit card industry and it’s contribution to the growing personal debt problem in the UK. It said, “ This is very much reinforces the argument to increase competition in the payments sector. This is good news for the UK and for consumers.”

Alisdair Milton
12/4/06

 

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