(CN) – MasterCard illegally charges merchants to process credit card transactions, Europe’s highest court ruled Thursday – upholding a lower court’s ruling and findings by EU regulators.
Under the MasterCard system, a card-issuing bank retains part of all charges that a consumer applies to his payment cards. Since the merchant must swallow that loss, known as multilateral interchange fees, or MIFs, the European Commission found that it constituted a price-competition restriction.
The regulatory body ordered MasterCard to drop its MIF scheme in 2007 or face fines of up to 3.5 percent of its daily consolidated global turnover.
MasterCard and two of its subsidiaries appealed the commission’s decision to the EU’s general court, which rejected the company’s concern over lost revenue and upheld the order in 2012.
On appeal to the European Court of Justice, MasterCard again warned of its impending financial doom if the MIFs were taken away and argued the fees were necessary for its business model – despite the fact the company makes 90 percent of its money from credit card interest and only 10 percent from its various fees.
But the Luxembourg-based high court said “objective necessities” – even for the fiscal health of a behemoth like MasterCard – do not justify anticompetitive effects of the fees. And the lower court was right in accepting the commission’s analysis regarding the necessity of the MIFs rather than carrying out its own detailed examination, the court added.
The court acknowledged that cardholders benefit from the MIFs by shelling out less in transaction fees. But the few benefits do not outweigh the overall restriction of competition on the merchant side, the ruling stated.
“The general court concluded that there was no proof of the existence of objective advantages flowing from the MIF and enjoyed by merchants,” the court wrote. “In those circumstances, it was not necessary to examine the advantages flowing from the MIF to the cardholders since they cannot, by themselves, be of such a character as to compensate for the disadvantages resulting from those fees. The general court was therefore fully entitled to find that ‘MasterCard’s criticism that insufficient account was taken of the advantages of the MIF for cardholders is, in all events, ineffective.”
The commission praised the high court’s decision, which is final and binding. The agency said the ruling “endorses 20 years’ work by the commission and national competition authorities to create a well-functioning cards market in the EU.”
MasterCard faces ongoing scrutiny by the commission over other fees as well, including ones it charges to foreign tourists shopping in the EU. Regulators banned those interbank fees on all cross-border transactions by EU customers in 2007.
The credit card issuer’s main competition in Europe, Visa, agreed to cut its interbank fees to end its own antitrust woes earlier this year.
MasterCard reported revenue of nearly $7.4 billion in 2013, with a net income of just over $3 billion.
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