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OFT considers Mastercard/Europay rules may involve excessive fees

25 September 2001

The OFT proposes to make a decision that agreement among MasterCard/Europay members on the level of certain fees in their UK Domestic Rules infringes UK competition law and does not qualify for an exemption. The parties now have the opportunity to make written and oral representations on this view which will be taken into account in a final decision or to amend the fees to comply with the law.

The Rules were notified to the OFT by the parties who wanted a decision as to whether they infringed Chapters I and II of the Competition Act 1998 and, if so, whether they could obtain an individual exemption.

The OFT has today written to MasterCard/Europay UK Ltd, (MEPUK) and the UK licensees of Europay International S.A. (EPI) and MasterCard International Inc. (MCI), saying why it believes the current rules on the level of fees may not comply with competition law.

The Office of Fair Trading considers that the agreement on the level of two fees may infringe the Chapter I prohibition of anti-competitive agreements:

The multilateral interchange fee - this is a fee paid by merchant acquiring banks to card issuing banks when a MasterCard branded card is used to purchase goods and services

The multilateral service fee - this is the fee paid by issuing banks to acquiring banks when a customer uses a MasterCard branded card either at an ATM or over the counter to obtain a cash advance.

The OFT considers that the agreements regarding these fees increase retail costs and the prices paid by consumers for goods and services. The OFT provisionally considers that neither agreement currently fulfils the conditions for exemption from the prohibition of anti-competitive agreements in the Competition Act.

The Office of Fair Trading has not yet reached a preliminary conclusion on whether Chapter II has been infringed.

NOTES

1. MEPUK members and shareholders are the majority of the UK banks which issue MasterCard/Europay payment instruments and which are licensed to use the trade and service marks of MasterCard and Europay in the UK. The purpose of MEPUK is to enable its members as issuers of MasterCard and Europay payment instruments and/or acquirers of transactions undertaken using such instruments to liaise over issues relating to the development of the payment schemes of MasterCard and Europay in the UK and world-wide as they affect its members and to present their position regarding such issues to MasterCard and Europay. MEPUK is responsible for the adoption of rules specific to the UK relating to the Eurocard/MasterCard product (UK Domestic Rules). On 1 March 2000, MEPUK notified its Memorandum and Articles of Association and UK Domestic Rules to the Office for a decision under the Competition Act 1998.

2. Powers under the Competition Act 1998

The Competition Act 1998 gives the Director General powers to investigate suspected infringements of the Act's Chapter I and Chapter II prohibitions:

i) Chapter I prohibits agreements between undertakings, decisions by associations of undertakings or concerted practices which have the object or effect of preventing, restricting or distorting competition in the UK (or any part of it) and which may affect trade within the UK or (any part of it); and

ii) Chapter II prohibits conduct by one or more undertakings which amounts to the abuse of a dominant position in a market if it may affect trade within the UK (or any part of it).

3. A party to an agreement who thinks that it may infringe the Chapter I prohibition or a person who thinks that their conduct may infringe the Chapter II prohibition may notify the Director General of the agreement or conduct and apply to him for a decision. A summary of notifications for a decision is maintained in the Competition Act 1998 public register. This is available for public inspection on the website and at the OFT.

4. An individual exemption may be granted in respect of an agreement where it can be shown to contribute to improving production or distribution, or to promoting technical or economic progress, and which allows consumers a fair share of the resulting benefit. Any restrictions contained in the agreement must be indispensable to the attainment of those objectives, and the overall agreement must not afford the possibility of eliminating competition in a substantial part of the products concerned. An agreement must be notified to the Director General in order to receive an individual exemption.

5. In cases where the Director General proposes to make a decision that the Chapter I or Chapter II prohibition has been infringed, where an application has been made he shall give written notice to the applicant, and to those persons whom the applicant has identified in the application as being the other parties to the agreement, which the Director General considers has led to the infringement. A written notice shall state the facts on which the Director General relies, the matters to which he has taken objection, the action he proposes and his reasons for it.

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