Consumer fears stall credit card shake-up

Date: 26/06/1997

By Chris Johnstone

A SPLIT within the European Commission is threatening to wreck long-running attempts by competition officials to allow shops to charge customers for using credit cards.

Competition Commissioner Karel van Miert has postponed a planned attack on the credit card companies. He is fine-tuning his arguments for a change in the rules after running into outright opposition from officials in the Directorate-General for consumer affairs (DGXXIV) and caution from other departments.

No fresh moves are now expected before the Commission's summer break on a proposal which would affect almost every high street in Europe, with no clear sign as to when this explosive and highly sensitive dossier will resurface.

Competition officials are pressing for an end to existing rules which, among other things, ban shops from charging a fee for handling credit cards.

The non-discrimination rule, which demands that plastic cards should be treated like cash, is imposed on shops by all the big credit card companies including European market leaders Europay International (which is owned by Europe's biggest banks and is behind Eurocard and Mastercard) and rival Visa.

The Directorate-General for competition (DGIV) was originally expected to decide in April whether to launch a formal assault on the credit card companies by issuing a statement of objections against the current payment rules.

But a decision was postponed amid mounting worries that Van Miert would not win enough support from his Commission colleagues if he pressed the issue.

“Van Miert is in a fairly minority position on this issue,” said a source.

“Economics Commissioner Yves-Thibault de Silguy is opposing any changes because it would cause ripples ahead of the introduction of a single currency,” said another. “They would like to get the euro out of the way first.”

Officials in the Directorate-General for consumer affairs are concerned that abolition of the existing no-charge regime could cause confusion among shoppers, with retailers able to add whatever surcharge they saw fit for handling credit cards. This would make it difficult for shoppers to know the final price of the goods they were buying when paying with plastic.

They dismiss the argument that the proposed change would boost competition, claiming Eurocard and Visa have such a market lead over their rivals that they already have an effective duopoly which would not be altered.

Credit card companies are fighting hard to avoid any amendment to the existing rules.

But EuroCommerce, the lobby group for EU retailers, argues that the current system is unfair and should be changed now, and claims its campaign is backed by hotels and travel agents.

The group stepped up the pressure last month by lodging a formal complaint with DGIV against the charging regime for credit cards. This focused on the non-discrimination rule and the inter-bank settlement system under which the retailer's bank is charged by the buyer's bank for the transaction.

“Under the current system you are getting a service and someone else is paying,” said EuroCommerce head Henrik Kroner, who argues that this has also led to inequity between shops, with the biggest retailers able to negotiate rebates on the credit card charges while their smaller rivals face the full fee of around 4&percent; of the payment price.

National members of European consumers' lobby BEUC have mixed opinions on the issue, with the Brussels-based organisation saying changes could boost competition but risk confusing buyers.

BEUC stresses that any dismantling of the existing regime would have to be accompanied by safeguards to ensure that the charges for using any payment system were spelt out to buyers.