European Commission Limits Bans' Charges

Beginning on July 1 of this year, banks that are in the euro-zone may not charge more for cross-border transactions involving ATM withdrawals and POS payments than for domestic transactions. Further, beginning July 1, 2003, the same restrictions apply to credit transactions. Presently, French cardholders, for example, are not charged for a POS transaction at their banks. But cross-border POS transactions incur charges of three to four percent. However, after July 1, 2003, French banks will have to either charge their citizens three or four percent or eliminate the charges on cross-border transactions.

Since this is a "regulation," rather than a "directive," it does not have to be approved by the legislatures of the EU community. However, French banks have already announced that they will appeal the regulation in French courts. In the meantime, they must obey the regulation. The Head of European and Regulatory Affairs at Europay International is quoted in the article in European Card Review: "It's a direct intervention in their [the banks'] pricing policy, which hasn't happened in any other industry."

Under present arrangements, if a consumer uses a debit card issued by a US bank at an ATM in Europe, the owner of the POS or ATM charges a service fee to the U.S. bank that issued the card. In turn, the bank passes the fee on to the cardholder. Under the new regulation, from July 1, 2003, the bank could not pass the fee on to the cardholder. Some US banks are considering assessing an annual fee on cardholders that use their cards outside of the US. Some banks in the EU are considering an annual fee for cardholders using their cards outside the EU. In Belgium, France and the Netherlands each has a single ATM network that is free to domestic users. They face an interesting dilemma under the new regulation. Do they now charge their residents a fee, or extend the free usage to non-residents? Bankers in Europe and the US and others involved in the current payments system in Europe are actively seeking ways to respond to the new regulation.