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September 6, 2005

OFT says Mastercard overcharging

Link: OFT says Mastercard overcharging
Filed under: Ecommerce News

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The Office of Fair Trading (OFT) claims that Mastercard and the banks issuing its credit cards have been overcharging customers. The OFT says the fee levied on retailers to recover the costs of the card system - the interchange fee - was too high and therefore all Mastercard purchases in the UK between March 2000 and November 2004 were overcharged.

Mastercard has changed its fee charging practices, but could be fined by the OFT for up to 10% of its annual worldwide turnover.

According to the OFT, the interchange fee was set too high as a deliberate strategy to enable banks issuing Mastercards to recover extra costs, such as those of offering standard interest free periods.

In the year 2004 alone, UK Mastercard users spent £43bn in 700 million separate transactions. The interchange fee paid to the banks by the retailers averaged approximately 0.9%, or £400m.

The OFT said the collective agreement between Mastercard and its banks deterred them from negotiating their own fees with shops and their credit card companies. The excessive charge was simply passed on to retailers, who recovered it by increasing prices in their shops.

Mastercard said that the arrangement with its issuing banks was not against the public interest and did not disadvantage either consumers or retailers. It plans to appeal against the OFT’s decision.

The National Consumer Council welcomed the OFT’s ruling and said “Card interchange fee arrangements between banks are a tax on all consumers whether or not they use credit cards, because they push up shops’ prices as well as card charges.”

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