European commission proposes cap on card fees

A European Commission proposal to cap fees for processing credit and debit card transactions says consumers have been shouldering the cost of lucrative fees. "High [fees] paid by merchants result in higher final prices for goods and services, which are all paid by consumers," says a proposal that would cap transaction processing fees in Europe. The Financial Times reported Tuesday that the proposal would put a cap on processing fees at 0.2 percent for debit card and credit card transactions after a two-year grace period in which the caps would apply only to fees on transactions that involved cards used in foreign countries. The fees would apply only to "cross-border" transactions for two years, the Times said. The European Commission estimates the law would drop fees for processing debit card transactions from $6.3 billion per year to $3.2 billion. It would drop fees fir credit card transactions from $7.4 billion to $4.6 billion, the commission said. The proposal would also even out fee rates that vary around Europe. Currently fees range from 0.1 percent in Denmark to 1.6 percent in Poland, the Times said. While some were hoping for a law that would eliminate the fees altogether, the proposal is based on antitrust concerns regarding Visa and MasterCard. Visa currently controls 41.6 percent of the market, while MasterCard handles 48.9 percent. Banks and payment companies say that the caps would hurt consumers, as the use of cards would decline and other fees would rise. Customer loyalty programs would also be scaled back, the financial firms warn.