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Mastercard charged

THE Office of Fair Trading has ruled that some Mastercard fees have contravened the EC Treaty on competition.

According to the OFT, a collective agreement between members of MasterCard UK Members Forum (MMF), including most major banks, setting the multi-lateral interchange fee (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.

During 2004 more than 700 million purchase transactions were made in the UK using MasterCard with a total value of 42.7 billion [pounds sterling]. An interchange fee was charged on all these transactions as a percentage of total transaction value.

The OFT has found that the MMF MIF agreement had adverse effects on competition within the MasterCard scheme and also in relation to other payment systems.

Sir John Vickers, OFT chairman, said: "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. This unduly high interchange lee was like a tax on UK consumers."

According to the OFT ruling, the collective agreement deterred issuers of MasterCard cards and merchant acquirers of MasterCard transactions from competing by negotiating their own interchange fees, different from the MMF MIF.

The OFT also found that the MMF MIF was used to recover "extraneous costs" for services which were not necessary for the operation of the MasterCard scheme as a mechanism for transmitting payments, such as the costs of the interest-free periods provided by card issuers.

COPYRIGHT 2005 DMG World Media Ltd.
COPYRIGHT 2005 Gale Group