On 16 November 2018, HM Treasury published a draft version of The Interchange Fee (Amendment) (EU Exit) Regulations 2018 (the draft Regulations) together with an explanatory memorandum.
The EU Interchange Fee Regulation (IFR) came into force on 8 June 2015, and through two main policy interventions introduced a harmonised EU regime for interchange fees:
- the IFR imposes caps on the interchange fees that can be set. These are set at 0.2% of the total value of the transaction for consumer debit cards (including prepaid cards) and 0.3% for credit cards. Commercial cards (used for business expenses) and cash withdrawals using debit or credit cards are excluded from the caps; and
- the IFR imposes a number of rules on card schemes, card issuers, acquirers and merchants, including: requiring the separation of the card schemes and the processing entities; allowing merchants to decide what kind of cards they want to accept; and limiting “blending”, the practice by acquirers of charging merchants a single price for all card transactions.
The draft Regulations seek to amend the retained EU law related to the IFR to ensure that it continues to operate effectively once the UK leaves the EU.
Once the UK leaves the EU, the scope of the IFR will no longer include the UK, and scheme operators will be able to set higher interchange fees for cross border transactions. EEA card issuers may therefore receive more interchange fees from transactions that involve a UK acquirer, and similarly UK card issuers may receive higher interchange fees from transactions that involve EEA acquirers.
Similarly, the draft Regulations reduce the scope of the IFR applied in UK legislation from the EEA to the UK. The result of this is that transactions which take place solely within the UK (where both the acquirer and the card issuer are located in the UK) would continue to be covered by the IFR, but cross-border card payments between the UK and the EU or EEA will no longer be within scope of the onshored UK IFR or the EU IFR. The practical impact of this is that payments made within the UK (with a UK-based merchant acquirer, and a UK-based card issuer) will continue to have caps on interchange fees. However, payments where either the acquirer or the card issuer is based outside of the UK, including in the EEA, would no longer be subject to the caps and the card issuer may receive interchange fees in excess of the caps.
Regulations 6 and 7 amend Articles 3 and 4 of the IFR to allow HM Treasury to set lower caps on UK debit and credit card transactions respectively, as well as to set a maximum cap for UK debit card transactions. Regulation 9 transfers the function for making regulatory technical standards regarding the requirements for separation of card schemes and processing entities (Article 7 of the EU IFR) from the European Commission to the Payment Systems Regulator (PSR).
The draft Regulations delegate responsibility to the Payments Systems Regulator for fixing deficiencies in regulatory technical standards made under the IFR. The PSR will be consulting on its proposed changes.