BRUSSELS — A European Union court Thursday rejected a legal challenge by MasterCard Inc. (MA) of a 2007 European Union ruling over its fees, in a case seen as a key test on the levies card companies can impose in Europe.
The General Court in Luxembourg, the EU's second-highest court, said it upheld a decision by the European Commission that the world's second largest card company's multilateral interchange fees, or MIFs, on cross-border transactions flouted competition rules.
These fees are charged by a cardholder's bank to a merchant's bank for each transaction made with a card. The commission says they prompt retailers to charge higher prices to cover the cost of the fees. MasterCard doesn't make money out of them, but higher fees give banks an incentive to issue its cards.
While MasterCard did subsequently agree to change its charges in 2009 to avoid a daily penalty of as much as 3.5% of sales, it asked the court to quash the EU antitrust authority's findings.
"In its judgment delivered today, the General Court dismisses that action and confirms the Commission's decision," the court said in a statement. It said it "does not accept the arguments relating to the objective necessity of the MIF to the operation of the MasterCard payment system."
In a statement released after the ruling, the company expressed its disagreement with it. MasterCard can now appeal the ruling, which it said would ultimately make payments more expensive for consumers.
"MasterCard balances the interests of both consumers and retailers," Javier Perez, the president of MasterCard Europe said. The ruling "if it stands, would upset that sharing and tip the balance decidedly against consumers."
Retail groups, which have long complained that the fees eat into their profits, hailed the Court's decision Thursday.
"We are delighted with this decision, which wholly vindicates retail's ten year campaign against these anti-competitive fees," said Christian Verschueren, Director General of EuroCommerce, which represents retail, wholesale and international trade sectors in Europe. "We now call on the Commission to follow this up with radical and decisive regulatory solutions to make payments in Europe truly competitive."
Indeed the ruling is likely to have an impact on how national regulators across Europe wage their own legal battles against card providers.
The EU's anti-trust chief Joaquin Almunia will also take comfort from the ruling in his own fight to bring down card-transaction costs in Europe. Earlier this month, he said fees charged by credit and debit card companies were "still too high and too unequal." He added, "We are now conducting a study which will give us a better picture of the merchants' actual costs and benefits of accepting cards as compared to other means of payment."
The fees work like this: A shopper buys EUR100 of groceries with a MasterCard credit or debit card. The bank that issued that card sends EUR99 to the supermarket's bank after deducting a EUR1 interchange fee. The supermarket ends up with a bit less than EUR99 after a small processing fee.
Some retail organizations have estimated that banks make upwards of EUR10 billion in profit from interchange fees.
The Court said it supported the commission's view that MasterCard had overplayed the need for the fees. "The methods of setting the MIF tended to overestimate the costs borne by the financial institutions on issuing payment cards and, moreover, inadequately to assess the advantages which merchants derive from that form of payment," it said.
MasterCard launched the appeal with the support of Banco Santander SA, Royal Bank of Scotland Plc, HSBC Bank Plc, Bank of Scotland Plc, Lloyds TSB Bank Plc, MBNA Europe Bank Ltd.