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European Commission tells Mastercard to scrap illegal fees

Payments giant Mastercard has been told by The European Commission to slash the cross-border fees on credit and debit card transactions.

The Commission said that the fees unfairly inflated retailers'costs when shoppers used cards in foreign nations and declared if Mastercard did not get rid of the fees within six months, then it would levy daily fines worth up to 3.5% of global turnover.

The European Commission said that for 15 years MasterCard's multilateral interchange fee (MIF) on cross-border payment card transactions with MasterCard and Maestro cards broke EU rules aimed a stamping out restrictive business practices.

Mastercard controls about 45% of the European payments card market and about 85% of businesses accepting such cards in Europe will take Mastercard.

According to the Commission, consumers make over 23 billion payments each year with their cards, with a value greater than 1.35 trillion euros (1.94 trillion dollars).

Although the ruling relates to card authorisation charges imposed on consumers travelling to other EU member states, the decision sets a legal principle on people making purchases in their own country and EU Competition Commissioner Neelie Kroes has called on national regulators to follow her.

In the UK, the Office of Fair Trading has already indicated that it believes the fees are unfair and is expected to implement the Commission's ruling within months.

Leading retailers have promised to pass on the savings that should flow from the Commission's action to the consumer. The EU ruling could mean a fall in prices of up to 1billion a year in the UK.

Furniture retailer Ikea said card schemes have made it and its customers pay "excessively high fees". Tesco alone pays 100million a year to the banks for processing credit and debit cards.

Kevin Hawkins, director general of the British Retail Consortium, said: "We applaud the Commission's - decision to put an end to this unfair tax on consumers.

"This has been a long fight for the retail industry. MasterCard has clearly been abusing its position to bolster its bottom line and retailers and their customers are bearing the cost."

It is estimated that the charges cost the average household more than 40 a year.

MasterCard, which is owned by the world's big banks, said it would challenge the ruling in European Union courts.

MasterCard Europe said market forces, not regulation, should drive key decisions such as the setting of interchange fees and retailers' choices over which forms of payment to accept.

MasterCard Europe president Javier Perez said: "We are disappointed that ... the Commission failed to appreciate that without a mechanism to fairly share costs among all the participants in a payment system ... consumers will be hurt."