From the Telegraph on the new EU regulations capping interchange costs:
“Consumers are still having to pay high fees when using credit cards despite new EU regulations that have capped transaction costs. At the same time, the rules have resulted in millions of cardholders losing popular perks such as cashback.
As of December 2015, the EU ruled that the “interchange fee” – paid in the first instance by the shop – on credit and debit cards could be no more than 0.3pc and 0.2pc respectively.
Up to then the typical fee was 0.8pc, with shops passing on the cost to customers either through higher prices or explicit credit card usage fees.
The intention of the EU’s new rules was to lower this cost and with the hope that consumers would benefit from lower prices and fees.
But many readers have contacted Telegraph Money confused as to why they continue to pay far more than 0.3pc when using a credit card. Airlines such as Ryanair and Easyjet still add a 2pc charge, for example, and some cinemas charge over 5pc –in the form of fixed-sum “card handling fees”.
Hold the phone. You’re saying that for-profit companies have chosen not to pass the savings from lower transactional fees on to consumers? Who could have possibly predicted this?
And if you’re a UK consumer, the news gets even worse.
“While the rules appear not to have stopped some firms from levying high card fees, they have had another distinctly negative impact. This is the dramatic decline in cashback and other cardholder perks.
Capital One, one of the biggest credit card providers, was the first to cut its cashback scheme.
It withdrew all of its reward cards in April 2015, saying the EU rules meant they were “no longer sustainable.
A month later, RBS and Natwest announced the end of the “YourPoints” scheme which gave customers one point per £1 spend.
Instead of reducing the cashback, some providers increased the annual credit card fee – Santander’s 123 credit card went from £2 to £3 a month in January.
Santander suggested the EU commission ruling was part of the decision.
It added: “ The European commission ruling on interchange has significantly reduced the fees banks receive.”
It’s perfectly rational for companies to quickly adjust pricing in response to revenue-reducing regulations. It’s also rational (if a bit disappointing) to see companies drag their collective feet when those same regulations drop a few extra pounds onto their bottom lines.
Overview by Alex Johnson, Director, Credit Advisory Service at Mercator Advisory Group
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