Credit card fees: Six banks' proposal accepted

The Australian Competition and Consumer Commission has accepted a proposal from the Commonwealth Bank, ANZ, Westpac, BankWest, the Bank of Queensland and St George, for the banks to review the process and methodology of setting interchange fees and the restrictions on entry to credit card schemes imposed by existing membership rules.

The ACCC had informed the banks and credit card schemes in March 2000 that it believed that the process for setting interchange fees was a breach of the Trade Practices Act 1974.

The ACCC then commenced negotiations with the banks and credit card schemes with a view to reforming the schemes' rules that the ACCC could authorise* on the basis of public benefit. The ACCC is not opposed to a credit card interchange system and believes that an authorised joint system would likely to be of benefit to Australian consumers. However, there are aspects of the current scheme that the ACCC believes are unlawful and cannot continue without authorisation.

While the banks had offered to review some issues of concern to the ACCC, they were not prepared to agree to review arrangements in each of the areas which, in the ACCC's view, have a bearing on the costs of participating in credit card schemes and interchange fees. The ACCC has subsequently instituted proceedings against the National Australia Bank on 4 September.

Since 4 September the above six banks approached the ACCC and proposed a review that conformed with previous ACCC proposals. The review will examine:

• a methodology for setting interchange fees that is cost-based and takes into account the ability of banks to recover these costs from various other sources
• a process for setting interchange fees that is transparent and provides for regular review; and
• whether existing membership rules prevent new entrants from joining credit card schemes in a way that is unjustified.

"The proposal by the six banks meets the ACCC's concerns about the scope of the study", ACCC Chairman, Professor Allan Fels, said today.

The ACCC will not take court action against these banks while the review is proceeding in a satisfactory manner.

The review is expected to be completed mid-November with banks deciding their position on authorisation by mid-December. The ACCC continues to believe that authorisation would ultimately be the most appropriate and effective way to accommodate any public benefit if the banks adopt arrangements which may still breach the Act.

Proceedings in the case with the National Australia Bank will continue. However the ACCC remains willing to have discussions with the bank about its participation in the review.

*Authorisation is a process by which the ACCC can authorise arrangements under the Act where the public benefit outweighs the anti competitive detriment. Authorisation gives protection from any legal action by the ACCC or by any other party under the restrictive trade practices provisions of the Act.