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Legal aspects of surcharging for specific payment methods—more consistent rules needed!

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Abstract

At European Union level, agreements between payment services providers and merchants regarding whether and/or the extent to which the merchant is allowed to request surcharges for the use of certain payment methods from its customers have been much debated, especially since the enactment of the Payment Services Directive (PSD). The current regulatory framework in the European Union has led to considerable uncertainty about the extent to which agreements restricting surcharging are lawful. The planned recasting of the Payment Services Directive provides justification for looking at the European Union system in more detail.

Surcharging is a multi-dimensional topic, raising questions under payment services, consumer protection and antitrust rules. As this contribution will show, there is a patchwork of rules which are not necessarily compatible with one another, although they should ultimately aim at achieving the same goal, namely increased consumer welfare. We will therefore suggest how this goal can be achieved with simple and consistent rules on surcharging.

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Notes

  1. Directive 2007/64/EC of the European Parliament and of the Council of 13 November 2007 on payment services in the internal market (OJ 5 December 2007, L319/1).

  2. Concerning the scope of the PSD, recently T-mobile Austria’s paper-payment fees have been under scrutiny at the European Court of Justice. T-mobile Austria surcharges customers who pay their bills with paper transfer forms with €3. In this context the question arose whether or not paper forms were to be seen as a payment instrument according to Article 4(23) PSD, which reads: “any personalized device(s) and/or set of procedures agreed between the payment service user and the payment service provider and used by the payment service user in order to initiate a payment order”. See European Court of Justice, Case C-616/11 (decision pending).

  3. See below under Sect. 2.3.

  4. See online at: http://ec.europa.eu/internal_market/payments/docs/framework/transposition/france_en.pdf.

  5. See online at: http://ec.europa.eu/internal_market/payments/docs/framework/transposition/germany_en.pdf.

  6. Case C-91/92 Faccini Dori [1994] I-3347.

  7. Case C-106/89 Marleasing [1990] I-4135.

  8. Similar in the German version of the PSD: “darf […] nicht verwehren” and in the French version “n’empêche pas”.

  9. Directive 2011/83/EU of the European Parliament and of the Council of 25 October 2011 on consumer rights (OJ 22 November 2011, L 304/64).

  10. Case T-516/11.

  11. See Newman, Matthew, “MasterCard asks EU court to force disclosure of study on payment costs”, mlex EU Antitrust Intelligence of 4 February 2014.

  12. Translation from http://www.gesetze-im-internet.de/englisch_bgb/englisch_bgb.html#p2799.

  13. See Sprau, in: Palandt, BGB-Commentary, Sect. 675f, ¶ 20.

  14. See BT Drs. 16/13669, p. 124.

  15. The law on general terms and conditions in sections 305 et seq. of the German Civil Code contains, inter alia, special provisions on the consumer’s protection.

  16. Section 307 of the German Civil Code.

  17. In the only German court ruling regarding surcharging, the Federal Court of Justice held clauses to be illegal which stipulated that only payments with one specific card scheme were free of surcharges because they would create an unfair disadvantage for consumers who do not possess this scheme’s cards. (See decision of the Federal Court of Justice of 20 May 2010, case Xa ZR 68/09.) However, the Court explicitly left open the question whether or not a parity surcharging agreement would be lawful.

  18. The Commission’s package also contains a proposal for a regulation on multilateral interchange fees. These are collectively agreed inter-bank fees, which only feature in four-party-schemes and which are very often passed on directly to the merchant. So far there has been no explicit regulation on interchange fees in national legislation. The proposal followed Commission’s investigations against Visa (since 2012) and MasterCard (since April 2013). It does not apply for three-party-scheme cards, cash-withdrawals at ATMs, and for commercial cards, Article 1(2) Multilateral Interchange Fees Regulation. Importantly, on 3 April 2014, the European Parliament adopted changes to the Multilateral Interchange Fees Regulation proposed by the European Committee for Economic and Monetary Affairs (“ECON”), concerning Article 1(3) point c) and 2(15) of the Multilateral Interchange Fees Regulation. Under the original Article 1(3) point c) of the proposed Multilateral Interchange Fees Regulation, three-party schemes as defined in Article 2(15) were exempted from interchange fee caps, which meant that Article 55(4) of the draft PSD II would not apply to them and hence, surcharging would not be prohibited by the PSD II for such three-party-schemes. The recent changes to Article 1(3) point c) and 2(15) of the Multilateral Interchange Fees Regulation expand the interchange fee caps to three-party schemes the “volume” of which exceeds “a certain threshold set by the Commission”, and certain additional types of three-party schemes that shall be deemed four-party schemes. The background documents are available online at: http://www.europarl.europa.eu/oeil/popups/ficheprocedure.do?reference=2013/0265%28COD%29&l=en.

  19. See online at: http://europa.eu/rapid/press-release_MEMO-13-719_en.htm?locale=en.

  20. See on these goals also the recitals of the PSD II proposal, pp. 4 and 8, online at: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2013:0547:FIN:EN:PDF.

  21. Examples of such services are “SOFORT” in Germany, “IDeal” in the Netherlands or “Trustly” in Scandinavia.

  22. On 3 April 2014, the European Parliament adopted the insertion of the word “direct” prior to costs (see amendment 111.), which had been proposed by ECON. Further, the European Parliament followed the ECON proposal in adopting a new paragraph 4a reading: “Notwithstanding paragraph 4, Member States may provide that the payee does not request any charge for the use of any payment instrument.” (See amendment 112.) The ECON report on the proposal is available online at: http://www.europarl.europa.eu/document/activities/cont/201403/20140312ATT80964/20140312ATT80964EN.pdf.

  23. In this context again the precise definition of costs is not clear, which leads to some uncertainty on the question as to how high surcharges actually may be. Apparently, ECON and the European Parliament have also identified this problem and try to solve it by the insertion of the word “direct” (see footnote 22). However, this amendment does little to reduce uncertainty, as it is not clear what “direct costs” means.

  24. According to the Commission’s official memo, available online at: http://europa.eu/rapid/press-release_MEMO-13-719_en.htm?locale=en.

  25. See the Commission’s official memo, available online at: http://europa.eu/rapid/press-release_MEMO-13-719_en.htm?locale=en.

  26. Available online at: http://europa.eu/rapid/press-release_SPEECH-13-660_en.htm.

  27. The question of whether non-discrimination rules (another term being used for parity surcharging agreements) comply with the PSD is briefly discussed in the Commission’s Questions and Answers on the PSD, available online at: http://ec.europa.eu/internal_market/payments/docs/framework/transposition/faq_en.pdf. In its answer to question 167 (p. 150), the Commission states that non-discrimination rules are incompatible with the PSD, but seems to confuse non-discrimination rules with the prohibition on surcharging altogether.

  28. The term is borrowed from the field of international trade relations and politics, where it describes a status awarded to a country which may not be treated less advantageously than any other country, e.g., in terms of low tariffs or quotas. The earliest form of the most favoured nation status can be found as early as in the eleventh century. The more modern concept of MFN clauses first appeared in the eighteenth century, on a dual-party basis. One of the most famous examples is the Jay Treaty of 1794, by which the United States granted MFN status to Great Britain.

  29. This is different to outright prohibitions of surcharging, which should not raise any issues under competition law, at least not under Article 101 TFEU.

  30. See Salop/Scott Morton [4], p. 15.

  31. See, i.a., Scott Morton [5], p. 73.

  32. Available online at: http://www.learlab.com/pdf/oft1438_1347291420.pdf.

  33. A more detailed overview on the different types of PRAs within the LEAR report is provided by Hinchliffe [5], p. 30. Within the German literature on most favoured nation clauses, some authors also distinguish between genuine and imitated most favoured nation clauses, with (i) genuine most favoured nation clauses being clauses that oblige the other side not to offer better prices to any competitor and (ii) imitated most favoured nation clauses which are clauses containing the obligation to offer a better price, if such a price is offered to a competitor. See on this distinction Grave/Klauß [2], pp. 470 et seq.

  34. Decision of the European Commission, COMP/39.847, of 12 December 2012—E-books.

  35. Whereas E-books were traditionally sold under the “wholesale model”, by which publishing houses sold their books to online platforms such as Amazon, which then resold the books to the end customers, the “agency model” now made it possible for publishing houses to sell their books directly to end customers via the Apple iBookstore. Accordingly, any kind of parity agreement could only work after the publishing houses had moved to the agency model.

  36. See press release at the Federal Cartel Office website: www.bundeskartellamt.de/SharedDocs/Meldung/EN/Pressemitteilungen/2013/26_11_2013_Amazon-Verfahrenseinstellung.html;jsessionid=F500B50DA06D5F4B01DD7604D8E7E55C.1_cid371?nn=3599398.

  37. Case CE/2596-03. A case summary and related documents are available at: http://www.oft.gov.uk/OFTwork/competition-act-and-cartels/ca98/decisions/tobacco.

  38. See the Office of Fair Trading’s website at: http://www.oft.gov.uk/OFTwork/competition-act-and-cartels/ca98/closure/online-booking/.

  39. Federal Cartel Office decision of 20 December 2013, B9-66/10, available in German at: http://www.bundeskartellamt.de/SharedDocs/Entscheidung/DE/Entscheidungen/Kartellverbot/2013/B9-66-10.pdf?__blob=publicationFile&v=2. It is noteworthy that the Federal Cartel Office found the clause may have well been exempted under the BER, had HRS’s market share not exceeded 30 % (cf. Article 2 of the BER).

  40. See Federal Cartel Office press release of 20 December 2013, online at http://www.bundeskartellamt.de/SharedDocs/Meldung/EN/Pressemitteilungen/2013/20_12_2013_HRS.html. The Federal Cartel Office had already stated in 2010 that it would generally see MFN clauses as anti-competitive, if they were to lead to an agreement on prices, see “Rundschreiben 4/2010, Handreichung” of 19 May 2010, p. 12. The Austrian Competition Authority holds the same view in its proposal for a guideline on vertical price fixing of 13 June 2013, available online at: http://www.bwb.gv.at/Fachinformationen/Bu%C3%9Fgelder/Documents/L%20E%20I%20T%20F%20A%20D%20E%20N%20final%2012062013.pdf.

  41. See Hinchliffe [3], p. 28; also: Scott Morton [5], p. 73.

  42. See Scott Morton [5], p. 75, with further reference to economic studies.

  43. See Hinchliffe [5], p. 28.

  44. See on this, in the context of platform parity agreements, Hinchliffe [5], p. 30.

  45. Salop/Scott Morton [5], pp. 76/77.

  46. See Hinchliffe [5], p. 28.

  47. See Salop/Scott Morton [5], p. 18.

  48. See Salop/Scott Morton [5], p. 18.

  49. The wording of para. 48 of the European Commission’s Guidelines on Vertical Restraints makes it very clear that the presence of an MFN clause alone is not to be considered a prohibited resale price maintenance, although some national competition authorities have already held that MFN clauses may have similar effects to resale price maintenance. See on this in more detail Atlee/Bottemann [1]. See on this also Federal Cartel Office decision of 20 December 2013, B9-66/10—HRS, ¶¶ 185, 186, available in German at: http://www.bundeskartellamt.de/SharedDocs/Entscheidung/DE/Entscheidungen/Kartellverbot/2013/B9-66-10.pdf?__blob=publicationFile&v=2.

  50. They have, however, important negative effects as they subject such three-party schemes to interchange fee caps, which will also likely further strengthen the ubiquitous dominant four-party schemes as it will prevent three-party schemes from competing at the service, quality and innovation level by providing value-added services in exchange for higher fees. Therefore, we submit that these proposed amendments should not be adopted.

References

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  1. Cleary Gottlieb Steen & Hamilton LLP (Cologne Office), Cologne, Germany

    Tilman Kuhn & Henning Wegmann

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  1. Tilman Kuhn
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  2. Henning Wegmann
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Correspondence to Tilman Kuhn.

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All views expressed in this contribution are the authors’ personal views and do not reflect the views of either Cleary Gottlieb Steen & Hamilton LLP or any of its clients.

This contribution intentionally focuses solely on the legal situation in the EU.

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Kuhn, T., Wegmann, H. Legal aspects of surcharging for specific payment methods—more consistent rules needed!. ERA Forum 15, 243–262 (2014). https://doi.org/10.1007/s12027-014-0348-x

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