The European Parliament has today voted to cap the charges paid by retailers to card firms when debit and credit cards are used. But there are fears the savings will be pocketed by retailers rather than being passed on to consumers and that the cap could scale down cashback and reward card deals.
MoneySavingExpert.com warned in December 2013 that a cap could result in credit card rewards and 0% deals being scrapped as card firms could potentially try to recoup the lost revenue from lower fees.
Every time you use your debit or credit card to make a payment, retailers are charged a fee by the card issuer, known as an interchange fee.
Typically this can add around 8p per transaction for debit card payments and around 0.8% of the transaction for credit card payments. These fees are often unseen by consumers, but ultimately we all pay for them as retailers include them in the prices they charge for goods and services.
Today, MEPs have voted 621 to 26 in favour of bringing in a cap of 0.2% of the value of the transaction on debit cards and 0.3% of the value of the transaction for credit cards.
How will the caps work and when will they come in?
The rules still need to be officially endorsed by the Council of Ministers before they can take effect, although a set date for this has yet to be confirmed. The legislation will come into force for all retailers, both in-store and online in Europe around six months after this.
The new regulations mean:
- For all credit card transactions, fees will be capped at 0.3% of the transaction value, although the UK Government (and each individual member state) can set a lower fee cap for credit card transactions made in their own countries.
- When you use your debit card overseas the fee will be capped at 0.2% of the transaction value.
- When you use your debit card in the UK (or your own member state) the fees will also be capped at 0.2% of the transaction value. However after a five-year transition period, for smaller transactions only, member states can choose to set a maximum fixed fee of €0.05 (4p) per transaction instead of a 0.2% fee. There's no definition of what a 'smaller' transaction is, this will be up to the UK Government and each individual member state to decide.
The cap will not affect ATM cash withdrawals and it also won't apply to 'third party' card schemes such as Diners, American Express and commercial cards used only to pay business expenses.
After three years, the rules will however apply to third-party card schemes that licence other parties to issue cards, for example Amex licences MBNA and other providers to issue its cards.
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Savings may not be passed on to consumers
Today's vote follows a European Commission report published in July 2013, which proposed that interchange fees should be regulated and also recommended a cap of 0.2% for debit card transactions and 0.3% for credit card transactions.
However in a joint statement published in December 2013 by MoneySavingExpert.com, Christians Against Poverty, Center for responsible credit, Money Advice Trust, The Money Charity and Toynbee Hall, concerns were raised that the gains for retailers wouldn't be passed on to consumers in lower prices.
In addition the groups were worried that a cap had the potential to result in card rewards and 0% deals being scrapped, the introduction of account charges and an increase in interest rates in order for credit card firms to recover lost revenues.
Richard Koch, head of policy at the UK Cards Association, which has also challenged the Commission's proposals, today says: "The overall effects of these proposals could mean a card payments system which, in the future, looks and feels very different, with potentially less to invest in fraud prevention, innovation and competitive offers for consumers."
The European Parliament on the other hand expects the cap to result in lower costs for both retailers and shoppers.
'Level playing field for payments across Europe'
Pablo Zalba, who steered the proposal through Parliament says: "This legislation, combined with the upcoming Payment Services Directive, will establish a level playing field for payments across Europe. It should enhance fee transparency, stimulate competition and enable both retailers and users to choose the card schemes that offer them the best terms."