Notice of intention to revoke the Credit Cards (Price Discrimination ...

Notice of intention to revoke the Credit Cards (Price Discrimination) Order
1990 made pursuant to the Fair Trading Act 1973
Introduction
1. In 1989, the Monopolies and Mergers Commission (MMC) published a report of its
investigation of the credit cards market 1 (the 1989 report), which identified certain
adverse effects on competition. The MMC found that monopoly situations existed and
that, among other things, the rule commonly used by credit card providers to ensure
that merchants could not surcharge customers for making credit card transactions
was ‘undesirable’. 2 This was because the MMC found that this so-called ‘No
Discrimination’ rule restricted the freedom of retailers to set their own prices. The
MMC recommended that credit card issuers and acquirers should no longer require
traders to comply with the No Discrimination rule. 3
2. On 31 October 1990, the Secretary of State for Trade and Industry, exercising the
power in section 56 and in accordance with the procedure in section 91(2) of the Fair
Trading Act 1973 (FTA), made the Credit Cards (Price Discrimination) Order 1990
(the Credit Cards Order) 4 to remedy the adverse effects identified and put in place by
the recommendations in the 1989 report. The Credit Cards Order was laid before
Parliament on 1 November 1990 and came into force on 28 February 1991.
Change of circumstances identified by the Office of Fair Trading
3. The Office of Fair Trading (OFT) has a duty to consider whether, by reason of any
change of circumstances, an enforcement order is no longer appropriate and needs
to be varied or revoked. The Enterprise Act 2002 (the Act) provided for the continued
1 Credit Card Services—a report on the supply of credit card services in the United Kingdom, dated August 1989.
http://www.competition-commission.org.uk/rep_pub/reports/1989/255creditcard.htm#full.
2 1989 report, paragraph 7.94.
3 1989 report, paragraph 7.113 (a).
4 The Credit Cards Order is a Statutory Instrument (SI) – SI 1990 No.2159.
(http://www.legislation.gov.uk/uksi/1990/2159/made). Under the FTA, an order made by the Secretary of State was laid before
Parliament and took the form of an SI.
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enforcement of undertakings and orders made under the FTA and the transfer of
responsibility for enforcement to the competition authorities when the FTA was
superseded. 5
4. In September 2011, the OFT published its advice (the OFT’s advice) 6 to the
Competition Commission (CC) that the coming into force of the European Union’s
Payment Services Directive (PSD) 7 and its transposition into UK law by the Payment
Services Regulations 2009 (PSR) 8 on 1 November 2009 constituted a change of
circumstances in accordance with section 162 of the Act by reason of which it may
be appropriate to vary or revoke the Credit Cards Order.
5. The PSD is a maximum harmonization directive, with certain limited exceptions. This
means that member states are unable to maintain or introduce in their national law
provisions which diverge from the provisions in the directive for matters falling within
the scope of the relevant directive. Where no harmonized provisions exist, or where
there is an explicit derogation from maximum harmonization, member states may
maintain or introduce national provisions provided that these are compatible with any
of the provisions of the relevant directive.
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6. The OFT’s advice was that, because the PSD and the Credit Cards Order both deal
with the same subject (ie credit card payments) and the PSD is a maximum
harmonization directive, the provisions of the PSD supersede those in the Credit
Cards Order.
5 In this instance, the Act provides in Schedule 24, paragraph 17(1) that orders made under section 56 of the FTA and specified
in an order made by the Secretary of State under the Act may be varied or revoked by an order made by the Competition
Commission. The Credit Cards Order was specified for the purposes of the Act in SI 2004 No.2181, which also transferred
responsibility for enforcement to the OFT. http://www.legislation.gov.uk/uksi/2004/2181/pdfs/uksi_20042181_en.pdf.
6 http://www.oft.gov.uk/shared_oft/register_of_orders_and_undertaki/Advice-to-the-CC-on-the-Cre2.pdf.
7 Directive 2007/64/EC. http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2007:319:0001:01:EN:HTML.
8 SI 2009 No. 209. http://www.legislation.gov.uk/uksi/2009/209/pdfs/uksi_20090209_en.pdf.
9 See PSD Article 86(1).
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Our provisional decision
7. In light of the change of circumstances advised by the OFT, we have examined the
requirements of the Credit Cards Order and the requirements of the PSD and the
PSR to determine whether the Credit Cards Order is compatible with the
requirements of EU legislation.
8. In making our assessment, we have applied three principles: 10
(a) to revoke the requirements of an order which are in scope of and exceed the
requirements of the EU legislation;
(b) to revoke the requirements of an order which are in scope of and are duplicated
by or are duplicated in effect by the requirements of the EU legislation; and
(c) to retain the requirements of an order which are outside the scope of the EU
legislation, unless there are other regulations or voluntary arrangements which
are as effective as the order or there are reasons of practicability or
proportionality which mean that it is appropriate for those requirements to be
revoked.
9. Clauses 3 and 4 cover the requirements of the Credit Cards Order and we consider
each of them in turn.
Clause 3
10. The OFT advised that Article 52 of the PSD (and Regulation 54 of the PSR)
duplicated the provisions of clause 3 of the Credit Cards Order.
11. Clause 3 of the Credit Cards Order prohibits agreements relating to payment cards
which, among other things:
10 These same principles were applied in Review of the Northern Ireland Personal Current Account Banking Market
Investigation Order 2008, January 2011, see p5. http://www.competitioncommission.org.uk/inquiries/ref2010/ni_banks/pdf/110110_nibr_final_decision.pdf.
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(a) restrict or prohibit merchants from charging customers a fee for credit card
transactions that is different from those fees charged for other transactions; and
(b) require merchants to charge customers the same fee for credit card transactions
as for other transactions.
12. Article 52 of the PSD and regulation 54 of the PSR prohibits payment service
providers preventing merchants from charging a fee or offering a reduction for the
use of any type of payment instrument. The PSD and the PSR therefore permit
merchants to add a surcharge to any transaction made by credit card, regardless of
any attempts by acquirers to impose otherwise. We therefore agree with the OFT that
clause 3 of the Credit Cards Order is duplicated by Article 52 of the PSD and
regulation 54 of the PSR.
Clause 4
13. The OFT advised that clause 4(b) of the Credit Cards Order was in conflict with the
PSR and ‘there is a risk of confusion as long as the [Credit Cards] Order remains
in force’.
14. Clause 4(b) of the Credit Cards Order provides that an agreement to limit the amount
of charges for a credit card transaction at the fee agreed for processing the
transaction is not prohibited by clause 3. 11
15. Although the PSD in Article 52(3) contains a similar provision, the UK elected not to
transpose this provision in the PSR. In the response to consultation document on
implementing the PSD into UK law, HM Treasury said that: ‘There was broad support
for the Government not legislating to prohibit or limit the right of payees to request
charges when payers chose to use a certain payment instrument. The respondents
11 It is not necessary to consider clause 4(a) because it states that clause 3 does not apply to any requirement to comply with
any provision of UK law. It therefore has no effect if clause 3 falls away.
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elieved that charging was a commercial matter and that, through compliance with
transparency obligations, payment service users would be able to assess which
payment mechanism was best suited to their needs.’ 12
16. In our view, clause 4(b) permits an agreement to limit the maximum amount of price
difference for a credit card transaction to the amount of the fee agreed for processing
the transaction. We note that the issue of legislating to limit the amount of charges
was considered during the PSD implementation consultation and was rejected. We
accordingly agree with the OFT’s advice that clause 4(b) of the Credit Cards Order is
in conflict with regulation 54 of the PSR.
Revocation of the Credit Cards Order
17. Applying the principles in paragraph 8, we have therefore provisionally concluded
that the Credit Cards Order should be revoked because:
(a) the prohibition on price discrimination in clause 3 of the Credit Cards Order is
duplicated by the provision in the PSD (Article 52) and PSR (regulation 54);
(b) Clause 4(b) of the Credit Cards Order, which permits a limitation on charges, is in
conflict with the PSR (regulation 54); and
(c) by reason of practicality it is no longer appropriate to retain the remaining
provisions of the Credit Cards Order as they have no legal effect.
Notice of intention to revoke the Credit Cards Order
18. The CC now gives notice of the proposed Credit Card (Price Discrimination) Order
1990 Revocation Order 2012 (the Revocation Order) (see Annex A). The CC invites
written representations from any person or persons who wish to comment.
Representations should reach the CC by 6 January 2012 and should be addressed
12 HM Treasury June 2008 Implementation of the Payment Services Directive: a summary of consultation responses, p49.
http://webarchive.nationalarchives.gov.uk/20100407010852/http://www.hmtreasury.gov.uk/d/consult_paymentservicesdirective_response170608.pdf
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to: T J Oyler, Remedies Manager, Competition Commission, Victoria House,
Southampton Row, London, WC1 4AD; or by email to tim.oyler@cc.gsi.gov.uk.
19. The CC will have regard to any representations made in response to this Notice and
may make modifications to the proposed Revocation Order as a result. In the
absence of any written representations, or in the event that the CC decides on
consideration of representations made, not to amend the proposed Revocation
Order, the CC proposes to make the Revocation Order in its present form. If the CC
considers that any representation necessitates any material change to the proposed
Revocation Order the CC will give notice of the proposed modifications.
Roger Witcomb
Chairman
Competition Commission
7 December 2011
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ANNEX A
DRAFT
The Credit Cards (Price Discrimination) Order 1990
Revocation Order 2012
Background
1. In 1989, the MMC published a report of its investigation of the credit cards market,
which identified certain adverse effects on the public interest.
2. On 31 October 1990, the Secretary of State for Trade and Industry, in accordance
with section 56(2) of the FTA, made the Credit Cards Order as SI 1990 No.2159 to
remedy the adverse effects identified in the MMC’s report. The Credit Cards Order
was laid before Parliament on 1 November 1990 and came into force on 28 February
1991.
3. The OFT has a duty to consider whether, by reason of any change of circumstances,
an enforcement order is no longer appropriate and needs to be varied or revoked.
The Act provides in Schedule 24, paragraph 17(1) that orders made under the FTA
and specified in an order made by the Secretary of State under the Act, may be
varied or revoked by an order made by the CC. The Credit Cards Order was
specified for the purposes of the Act in SI 2004 No.2181.
4. The OFT advised the CC that the coming into force of the PSD constituted a change
of circumstances by reason of which it may be appropriate to vary or revoke the
Credit Cards Order. The PSD was transposed into UK law by the PSR which came
into force for most purposes on 1 November 2009.
5. The CC considered the OFT’s advice and found that it was appropriate to revoke the
Credit Cards Order.
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6. On 7 December 2011, the CC gave notice of its intention to revoke the Credit Cards
Order.
7. The CC has considered all the representations it has received following publication of
the Notice.
8. The CC makes this order exercising its powers under paragraph 17(1) of Schedule
24 to the Act for the purpose of revoking the Credit Cards Order.
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The Order
The CC makes this order exercising its powers under paragraph 17(1) of Schedule 24 to the
Enterprise Act 2002 for the purpose of revoking the Credit Cards Order. The Credit Cards
Order was made to remedy adverse effects identified in the report of the Monopolies and
Mergers Commission entitled Credit Card Services—a report on the supply of credit card
services in the United Kingdom (August 1989).
1. Citation, commencement and purpose
(1) This order may be cited as ‘the Credit Card (Price Discrimination) Order 1990
Revocation Order 2012’.
(2) This order shall come into force on [insert the date] which is the date this order
is signed.
(3) The purpose of this order is to revoke the Credit Cards Order.
2. Interpretation
(1) In this order:
(a) ‘The CC’ means the Competition Commission.
(b) ‘The Credit Cards Order’ means the Credit Card (Price Discrimination) Order
1990 (SI 1990 No.2159).
3. Revocation
(1) The Credit Cards Order is revoked.
Signed by authority of the CC
Roger Witcomb
Chairman
Competition Commission
[insert the date]
Explanatory Note
(This Note is not part of the Order)
This order revokes the Credit Cards Order.
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