closing the case without addressing retrospective harm could be viewed as failing to consider relevant factors, such as:
-
- Compensation for businesses impacted by excessive MIFs.
- Visa and MasterCard’s market dominance beyond the scope of the IFR.
Ultravires – Acting Outside the Scope of Power: The CMA’s decision to close the investigations was made within its statutory powers. It acted under its broad discretion to set priorities and allocate resources. However:
- If it is now proven that Visa and MasterCard abused their dominant positions, questions arise as to whether the CMA failed to act within the scope of its duties under Article 102 TFEU and Chapter II of the Competition Act 1998.
- The CMA’s reliance on legislative intervention alone may not fulfill its duty to ensure effective competition.
Key Legal Issues for 2024
Given the findings in 2024 that Visa and MasterCard abused their dominant positions:
- The CMA could face accusations of failing to adequately assess the persistence of harm in 2015.
- Businesses harmed by the excessive fees may now pursue private actions against Visa, MasterCard, and potentially question the CMA’s regulatory oversight.
- The CMA’s decision could be reviewed for failing to:
- Take appropriate enforcement action under Article 102 TFEU, and
- Protect competition and consumers retrospectively and prospectively.
Conclusion
- No Ultra Vires: The CMA did not act outside its powers in 2015.
- Potential Abuse of Discretion: The CMA’s failure to address retrospective harm or revisit Visa and MasterCard’s market dominance post-IFR could constitute an abuse of discretion.
- Breach of Duty: If the CMA failed to monitor Visa and MasterCard’s compliance or underestimated the risk of ongoing anti-competitive practices, it may have breached its statutory duty to enforce competition law effectively.
The 2024 findings demand a closer look at the CMA’s original rationale and subsequent actions. A review of the CMA’s enforcement priorities and decision-making process is warranted to ensure effective oversight and protection of competition in payment systems
THE CMA HAS, IN THE PAST, OPENED 7 cases RELATED TO VISA AND/OR MASTERCARD. IN THESE WE CAN SEE HOW THE CMA HAS NOT BLOCKED ANY MERGER WHERE EITHER MASTERCARD OR VISA WAS INVOLVED. THIS HAS CONTINUED TO INCREASE THE CONSOLIDATION IN THIS MARKET AND INDUSTRY:
SUMMARY of history
- The UK’s Competition and Markets Authority (CMA) decided to close its investigations into MasterCard’s and Visa’s multilateral interchange fee (MIF) arrangements on the grounds of administrative priority.
- Interchange Fee Regulation (IFR):
- The European Interchange Fee Regulation (IFR) was approved by the Council of the European Union in April 2015.
- The regulation caps interchange fees for consumer card-based transactions:
- Credit cards: Maximum 0.3% of the transaction value.
- Debit cards: Maximum 0.2% of the transaction value.
- Reason for Investigation Closure: The UK’s Competition and Markets Authority (CMA) decided to close its investigations into MasterCard’s and Visa’s multilateral interchange fee (MIF) arrangements on the grounds of administrative priority.
- Interchange Fee Regulation (IFR):
- The European Interchange Fee Regulation (IFR) was approved by the Council of the European Union in April 2015.
- The regulation caps interchange fees for consumer card-based transactions:
- Credit cards: Maximum 0.3% of the transaction value. Debit cards: Maximum 0.2% of the transaction value.
- These caps would become enforceable six months after IFR’s implementation, which made the CMA’s enforcement redundant.
- Administrative Priorities:
- The CMA concluded that pursuing formal enforcement action would be resource-intensive and offer limited additional benefit, as the IFR would resolve the concerns faster and more comprehensively.
- The Payment Systems Regulator was appointed to monitor and enforce IFR compliance in the UK.
- Background:
- The investigations were initially triggered by suspected harm to merchants and consumers caused by excessive MIFs.
- The CMA paused the investigations in 2014, awaiting the IFR’s implementation, and reassessed the decision once the regulation was formalized.
Insights as a Competition Lawyer:
- Regulatory Harmonization: IFR demonstrates the EU’s capacity to implement systemic solutions across member states.
- Efficiency vs. Redress: The CMA’s prioritization highlights an efficiency-focused regulatory approach but may sideline retrospective harm.
- Private Enforcement: Businesses can still explore compensation avenues for excessive fees incurred before IFR enforcement.
- Future Monitoring: Post-Brexit, the CMA and the Payment Systems Regulator must ensure no backsliding occurs in interchange fee compliance
Impact of IFR:
-
- The IFR represents a significant shift in regulating payment card interchange fees, aiming to reduce transaction costs for merchants and, indirectly, prices for consumers.
- The CMA’s reliance on European Union regulations showcases regulatory efficiency but also raises questions about the UK’s post-Brexit enforcement framework for similar issues.
- Resource Allocation:
- The CMA’s closure decision illustrates a broader regulatory principle: administrative priorities must balance enforcement efforts against imminent legislative solutions.
- However, this leaves open the question of whether pre-IFR harm to merchants was adequately addressed.
- Competition Law Enforcement:
- The CMA’s decision reflects a trend in competition law where structural remedies (like IFR) supersede protracted enforcement processes.
- This could set a precedent for future decisions where pending legislative measures make formal investigations less impactful.
- Private Actions:
- While the IFR resolved forward-looking harm, businesses that suffered from historically excessive interchange fees might still pursue private enforcement actions to recover damages under competition law frameworks (Chapter I of the Competition Act 1998 or Article 101 TFEU).
- Similar cases have occurred globally, such as in the US and Australia, where excessive interchange fees faced scrutiny.
- The regulation of card schemes like Visa and MasterCard remains a contentious area due to their market power and the network effects inherent to payment systems
>> While the IFR resolved forward-looking harm, businesses that suffered from historically excessive interchange fees might still pursue private enforcement actions to recover damages under competition law frameworks (Chapter I of the Competition Act 1998 or Article 101 TFEU)
-Failure to Address Retrospective Harm: The IFR addressed future harm but did not compensate businesses and consumers for historic excessive fees.-Lack of Vigilance: Subsequent evidence (2024 findings) showing abuse of dominance by Visa and MasterCard raises doubts about whether the CMA acted too hastily in relying on the IFR.
(November 12, 2024, 13:44 GMT | Insight) — Scrutiny for Mastercard and Visa from the European Commission over shifting card charges for merchants and acquirers includes regulators asking market players whether intervention is needed over “continuous” fee changes, a lack of transparency or difficulties in negotiation.
It emerged earlier this month that the EU antitrust regulator sent questions in August to the two major payment card scheme operators as well as retailers and banks that handle merchants’ payments, drilling into seven years of conduct to see how the fee landscape has changed — and if customers are suffering (see here).
In its detailed questions to market players, seen by MLex, the commission picks apart the various fees that merchants and acquirers pay — from core fees, to non-compliance charges and optional card scheme fees — to see how easy the system is to navigate.
The commission is gathering data on the period from 2016, the first year after the introduction of EU caps on certain fees, up to 2023. Legislation known as the Interchange Fee Regulation, passed in 2015, limited certain charges on debit and credit card transactions, but retailers have long complained that Mastercard and Visa are circumventing the law by raising other charges.
The questionnaires from the EU’s antitrust department seek data on processing fees, scheme fees for acquirers and fees for so-called “market development funds.” The commission wants those to be broken down further to cover mandatory fees, optional fees and fees for not complying with the system rules.
Generally, the commission seems to be looking into whether the fees are lower when Visa and Mastercard face competition in a particular country by a national card scheme.
More specifically, the regulator devotes significant enquiry into how transparent fee structures are. Does the “continuous introduction of the new fees and deletion of existing fees” harm customers, it asks.
Do merchants or acquirers get consulted before fees change and how could the system be made simpler, the commission inquires. Furthermore, are higher fees passed on from acquiring banks to merchants?
Officials dedicate a long line of questioning to fees imposed by card schemes based on certain kinds of behavior or not complying with scheme rules. For example, if merchants agree to enable Click-to-Pay functionality or supply more data on transactions they can benefit from lower fees.
The questions indicate the commission wants more transparency on the level of non-compliance fines and their increases, the justification for their imposition, the process for warning merchants or granting any payment flexibility, and whether retailers can appeal against the fines.
Further clarity is sought on “optional fees” and whether they are truly optional for merchants, as well as how retailers can really negotiate fees. “Are individual fees negotiable, or is negotiation taking place on a package of fees including through the granting of rebates or incentives?” the commission asks.
— Landscape —
Retailers have long pushed for action against Visa and Mastercard and today welcomed the investigation.
“We have seen how scheme fee increases and the introduction of new scheme fees have increased our costs without it being clear what value or costs are behind them,” said Atze Faas, payments adviser at Eurocommerce.
“Ultimately consumers are paying the price for something they and we have no influence on. All that money is flowing to the US, weaking European competitiveness.”
Both Visa and Mastercard confirmed receipt of questionnaires from the commission in August. They said they were cooperating with the regulator.
While the interchange fee regulation puts a ban on attempts to circumvent its fee caps by raising other fees, EU competition law can also clamp down on certain kinds of loyalty-inducing behavior.
The commission asks if negotiations on fees are “conditioned” on accepting certain cards or signing up to other services from the scheme. Equally, such terms could exclude other providers, such as a national scheme operator, according to the line of questioning.
After decades of antitrust investigation, the interchange law from 2015 was designed to set the clear rules of the market for card schemes, capping fees at maximum levels. These limits were then retained after an initial review into the functioning of the law.
Since then the commission’s scrutiny of payments markets has been low-key, steering clear of antitrust investigation and letting the interchange fee regulation do its job. The intense engagement heralded by the latest round of questions hints that this might be about to change.
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