OFT says MasterCard fee agreement anti-competitive Printer Friendly | Email Article | RSS By Steve Slater LONDON (Reuters) - The Office of Fair Trading said on Tuesday fees charged by members of credit card association MasterCard UK, including most major banks, infringed competition rules and resulted in higher retail prices. But MasterCard International said it strongly disagreed with the findings from the OFT and would appeal the decision. It said the decision, if allowed to stand, would lead to reduced services to cardholders and to an increase in cardholder fees and charges. It could also make it difficult for many consumers to get credit cards. The OFT said a collective agreement between the MasterCard UK Members Forum (MMF) setting the interchange fee -- charges paid by retailers to issuing banks -- on almost all purchases between March 2000 and November 2004 restricted competition. "The parties to this collective agreement set the interchange fee to derive revenues from retailers and their customers over and above the costs of providing the payment services," John Vickers, OFT chairman, said in a statement. "This unduly high interchange fee was like a tax on UK consumers." The OFT said consumers, including those who do not use MasterCard cards, ultimately picked up the cost for the higher interchange fee through higher retail prices. But MasterCard said it expected the ruling to be reversed. "For the OFT to claim that the interchange fee agreement either reduced competition or disadvantaged consumers or retailers is simply wrong," John Bushby, general manager of MasterCard Northern Europe, said in a statement. "Consumers benefit from greater choice as more retailers accept credit cards, and retailers of all sizes benefit as card usage expands. As such, today's OFT ruling is bad news for both healthy competition and the economy." MasterCard said the ruling failed to recognise that interchange fees had helped expand new technology and more secure means of payment. LONG-RUNNING DISPUTE The OFT has been investigating MasterCard's fees since 2000 and the results confirm preliminary findings announced last November, when the OFT also launched a probe into fees charged by Visa members. The MMF essentially includes all major British financial institutions, including leading credit card issuers Barclays and Royal Bank of Scotland. The OFT said it would not impose any penalties, but it still had concerns about new fee arrangements introduced by MasterCard in November 2004, and it expects to start an investigation unless the issue is addressed by MasterCard. MasterCard said if the OFT challenged the current arrangement it was confident it would be vindicated. Britain's credit card issuers have come under increased scrutiny in recent years amid uncertainty about fees charged and as consumers continue to put record amounts on their cards, despite a slowdown in overall spending. The latest official figures showed Britons owed more than 55 billion pounds in credit card debt in July. Over 700 million transactions were made on MasterCard cards last year, worth 42.7 billion pounds. Credit card companies do not release their payment structure, but a 2000 government study found that interchange fees amounted to about 1.1 percent of the purchase price. The OFT said it would pay particular attention to credit card markets in the next three years.
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The United Kingdom's Office of Fair Trading accused the credit card association MasterCard UK, which includes most major British banks, of overcharging customers between March 2000 and November 2004.

The OFT found that an agreement between MasterCard UK members, setting the so-called 'interchange fee' - a charge paid to banks by retailers - caused high cost for UK consumers and was against competition regulations. The British watchdog said that the interchange fee was too high and forced the UK retail sector to raise prices.

MasterCard UK disagreed with the OFT and announced that it would appeal the decision. The company said that British consumers benefit from the agreement, as more retail stores accepted credit cards.

MasterCard has changed its fee policy last November, but the change has not satisfied the OFT. If the company cannot prove the new fees do not violate competition rules, it may be found guilty and fined up to 10% of its annual worldwide turnover.

The OFT is also investigating MasterCard's biggest rival, Visa, in the same case.