Thursday, 21 August 2014

Spain leads the charge to limit bank card fees

Banks say banning card fees would increase costs for the consumer. David Ortega, of CI Member OCU, explains why Spain and the EU disagree.

The Spanish government, as part of a package of measures to boost the economy which should enter into force on 1 September, has decided to limit the fees for payments with credits or debit cards: to 0.3% for credit card payments and 0.2% for debit card payments.

As an additional constraint, a maximum fee of seven cents is foreseen for debit payments, to avoid cases where the new scenario could generate higher commissions than today.

For small payments, of up to 20 euros, these commissions are set at a lower level: 0.2% to 0.1% for credit and debit cards.

These regulations shall apply to all payments made at points of sale in Spain in which at least one Spanish provider of payment takes part. This also includes e-commerce transactions.

Business cards, corporate or cash withdrawals at ATMs are excluded.

Spain  is effectively  putting into practice the proposed regulation of the European Commission on interchange fees, which aims at regulating maximum fees as a measure to promote the internal market.

The current economic context, the gradual economic recovery and the need to invigorate consumption across all channels - including the electronic one - call for the availability of safe, efficient and competitive electronic payments.

But how does this work? A multilateral interchange fee (MIF) is a fee that a retailer's bank must pay to a consumer’s bank for each card payment.

MIFs typically involve four parties: two banks, a consumer (the cardholder) and a retailer (merchant accepting a card payment). For every individual card payment the retailer pays a charge to its bank called a Merchant Service Charge (MSC), most of which the retailer’s bank passes on to the consumer’s bank under the name of a MIF.

As a result, the final amount received by the retailer is less than the amount paid by the consumer. To compensate this loss of income, retailers usually add up these fees to the final price paid by consumers. Hence the consumer detriment.

Through the legislative process at EU level, there has been heavy lobbying by some card issuers and some banks to stop this initiative.

According to the evidence presented by these groups, the proposed limits would indefectibly lead to an increase of bank fees in general (e.g. in the form of card issuance fees).

Part of the evidence used by these companies would be based on Spanish figures.

According to them, since Spain adopted the first MIF limitation measures back in 2006, bank fees have not ceased to increase. Perhaps.

However, nobody has been able to substantiate that such increase is solely or mainly due to the MIF limitation measures.

In the meantime, the credit crunch and the burst of the real estate bubble in Spain have ravaged the Spanish banking system.

In this context, can anybody seriously argue that the reason why Spanish banks have consistently increased their fees is due to the MIFs limitations?

How can that be deducted from the banks’ accounts?

Moreover there are still commission free cards on the market, which proves that the alleged causal link is hard to prove.

OCU and BEUC reject these arguments and support the European proposal which should  boost the internal market for consumers.

Spain is the proof that such a ban or limitation is possible, without the catastrophic consequences for consumers that some lobbyists seem to find so inevitable.

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