OFT Objects To Visa Fee Structure

by Robin Pilgrim, LawAndTax-News.com, London

21 October 2005

The UK's Office of Fair Trading this week issued a statement of objections against Visa and its members, which includes most major banks, regarding an agreement on its domestic multilateral interchange fee (MIF) applicable to consumer credit card, charge card and deferred debit card transactions in the UK.

The OFT is of the view that the collective agreement between Visa and its member banks on the interchange fee charged between card issuing banks and merchant acquirers, on Visa card transactions taking place in the UK, restricts competition and infringes Article 81 of the EC Treaty and the Chapter I prohibition of the Competition Act.

The OFT believes that, like the MasterCard MIF agreement, the Visa MIF agreement leads to an unduly high fee being paid to card issuing banks by merchant acquirers on every Visa transaction. The cost of these fees is passed on to retailers and ultimately to consumers.

The parties now have an opportunity to make written and oral representations to the OFT.

Visa and its members comprise Visa UK, Visa Europe and Visa International and banks that issue Visa credit, charge or deferred debit cards in the UK or provide acquiring services for such cards to merchants in the UK.

Purchases using a credit or debit card in a four-party payment card system, such as Visa, involve the following steps:

• The cardholder purchases the goods or service from a retailer;
• the retailer sends the transaction details to its bank, the merchant acquirer;
• the merchant acquirer forwards the transaction details to the bank that issued the credit card, the card issuer;
• the card issuer pays the merchant acquirer the retail price of the goods or service less the interchange fee;
• the merchant acquirer pays the retailer the retail price less a merchant service charge and the issuer debits the retail price to the cardholder's account.

The EC Treaty and the Competition Act 1998 both prohibit anti-competitive agreements. Article 81 of the EC Treaty ('Article 81') and the Chapter I prohibition of the Competition Act ('the Chapter I prohibition') apply to agreements which prevent, restrict or distort competition. EC Regulation 1/2003 ('the Modernisation Regulation'), which entered into force on 1 May 2004, requires the OFT, as a national competition authority of a Member State, to apply Article 81, as well as the Chapter I prohibition, when the Chapter I prohibition is applied to agreements which may affect trade between Member States.

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