Fresh focus on MasterCard charges

Tuesday, 20 June 2006 12:00

The Office of Fair Trading (OFT) is focussing on MasterCard's current charges in an effort to bring down costs for consumers.

The government watchdog had previously been targeting charges levied by MasterCard between March 1st 2000 and November 18th 2004, but has dropped this investigation to look into the current situation. MasterCard had appealed against this previous inquiry.

The investigation centres around interchange fees. These are charged when a cardholder makes a purchase. A small percentage of the purchase value is paid by the shop to its bank, which then pays a fee (called the "interchange fee") to the cardholder's bank to cover the cost of billing the customer and transferring and holding money.

The OFT has argued that these fees can act as a "tax on consumers", but MasterCard said they were essential to the running of the UK credit card system.

The interchange fee was used to recover 'extraneous costs' including the cost of cardholder's interest-free periods, the OFT said, but it added that this money should only be used to cover the cost of transmitting payments.

Recovering extra costs through these fees meant the charge to shopkeepers was higher, leading to consumers paying higher prices - regardless of whether they were using a MasterCard or not.

In 2004 MasterCard changed its charging structure, and yesterday the OFT dropped its ruling that the old charges were too high. MasterCard had appealed this ruling to the Competition Appeal Tribunal (CAT).

But even after these changes, the watchdog thinks the company's interchange fees are excessive.

"We are proceeding with a second investigation into current arrangements for interchange fees," said an OFT spokesman.

The regulator hopes to publish a statement of objections to MasterCard's interchange fees during the first three months of 2007.

But MasterCard rejected the OFT's complaints.

"MasterCard believes that any further proceedings would be fruitless," the credit card firm said.

The OFT is also investigating interchange fees charged by rival credit card firm Visa.

• Tags:
• credit card charges
,
• credit cards
,
• news