Banks join interchange settlement party

Monday 5th October 2009

The seven financial institutions facing legal action over alleged price-fixing and cost-smearing to cover banks' credit card transaction costs have settled with the Commerce Commission.

Retailers are set to save more than $20 million a year as a result of the changes to interchange fees, according to commission chair Mark Berry.

The regulator reached separate agreements with each of the institutions after Visa's and MasterCard's multi-million dollar settlements in August, which will result in "significantly" lower fees for retailers.

"We expect the savings to retailers over the next three years as a result of these settlements to be in the order of $70 to 80 million," Berry said in a statement. "The significant fee reductions that will be delivered through the settlements will achieve this on an industry-wide basis such that retailers, and ultimately consumers, will enjoy the tangible benefits of competition."

In August, Visa and MasterCard settled with the Commerce Commission for $2.6 million and $3 million respectively and agreed to alter the way the scheme rules apply in New Zealand, giving vendors more flexibility to set a surcharge in credit card payments, and issuers the ability to set interchange fees.

Interchange fees have routinely been smeared across all methods of payment, including cash and EFTPOS.

Like the credit card companies, none of the financial institutions accepted any liability for the alleged price fixing, but all except the Warehouse Financial Services paid costs to the commission. ANZ National Bank, ASB, Bank of New Zealand and Westpac Banking Corp. each paid $150,000 to the regulator, while Kiwibank and TSB paid $50,000 each.

The Commerce Commission recovered $6.3 million from the settlements, leaving a shortfall of some $300,000 in court-related costs.

In 2007, the competition watchdog took action against a number of banks and other related parties over interchange fees, accusing them of fixing prices for the charges in 2004. Credit card transactions for that year were some $19 billion.

It later dropped charges against HSBC finding it had limited involvement and after the other defendants agreed. The Commission never alleged collusion between MasterCard and Visa. Separately, MasterCard settled with a group of retailers that planned to sue the credit card company over their inability to set interchange fees.

The agreement reaffirms the right of retailers to pass on costs associated with credit cards secured under the regulator's settlement.

Businesswire.co.nz

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