MasterCard's Fee Woes Far From Over

by Robin Pilgrim, LawAndTax-News.com, London

13 September 2005

The British Retail Consortium revealed this week that it is taking legal advice on whether credit card group, MasterCard acted legally when it changed its fee structure during an Office of Fair Trading Investigation into its charging practices.

The OFT announced last week that in its view, fees charged by MasterCard members are anti-competitive.

According to the OFT, the collective agreement between members of the MasterCard UK Members Forum (MMF), including most major banks, which set the multi-lateral interchange fee (the MMF MIF) paid on virtually all purchases in the UK made using UK-issued MasterCard credit and charge cards between 1 March 2000 and 18 November 2004, restricted competition and infringed Article 81 of the EC Treaty and the Chapter I prohibition of the Competition Act.

Although MasterCard introduced new arrangements for setting the interchange fee on 18 November 2004 which currently apply to all UK MasterCard transactions, the OFT has expressed concerns that under the new arrangements the interchange fee applying to UK transactions may still be set with reference to extraneous costs and used to recover these costs.

The OFT explained that it will commence an investigation into the new arrangements for setting the fallback interchange fee applying to UK MasterCard transactions unless this concern is addressed by MasterCard.

The BRC also argued that the fee structure introduced in November is no better than that which it was designed to replace.

Speaking to the Telegraph on Sunday, an unnamed executive close to the Consortium suggested that:

"MasterCard has been playing for time. It knows that a new investigation into its fee structure could take another five years, in which time they will continue to profit from the high fees.

MasterCard, meanwhile, has pledged to appeal the OFT ruling. In a statement released last week, its Northern Europe general manager, John Bushby argued that:

"For the OFT to claim that the interchange fee agreement either reduced competition or disadvantaged consumers or retailers is simply wrong. 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."

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