Note: Where available, the PDF/Word icon below is provided to view the complete and fully formatted document
ACCC alleges price fix by bank.

Download PDFDownload PDF

ACCC Alleges Price Fix by Bank The Australian Competition and Consumer Commission has instituted proceedings in the Federal Court against National Australia Bank Limited for alleged price fixing in breach of the Trade Practices Act 1974.

After an extensive investigation, the ACCC formed the view that:

- since at least the early 1990s, various financial institutions, as members of the credit card schemes, have agreed on the level of interchange fees to be levied under those schemes, and are giving effect to these agreements by charging these fees;

- the agreements have the effect or likely effect of controlling or maintaining the level of merchant service fees that these financial institutions, in their role as merchant acquirers, charge to their merchant customers in exchange for supplying credit card transaction facilities; and

- as a result, the agreements on the level of interchange fees are unlawful in that they breach the provisions of Section 45A of the Act which prohibits contracts, arrangements or understandings between competitors which have the purpose or effect of fixing, controlling or maintaining a price.

The ACCC commenced its current investigation of this issue in response to a complaint in October 1997 and sought information and submissions from banks in April 1998. In September 1999 the ACCC used its compulsory powers under the Act to seek further detailed information from banks and credit card schemes.

The ACCC informed the banks and credit card schemes in March 2000 that it believed that the process for setting interchange fees was a breach of the Act. The ACCC then commenced negotiations with the banks and credit card schemes with a view to reforming the schemes' rules that the ACCC could authorise on the basis of public benefit. While the banks had offered to review some issues of concern to the ACCC, they were not prepared to agree to review arrangements in each of the areas which, in the ACCC's view, have a bearing on the costs of participating in credit card schemes and interchange fees. In the ACCC's view the current arrangements created costs to merchants which are passed on to consumers, and restrictions on membership which prevented new entrants into the system which may have increased efficiency and lowered costs. Overall the system has resulted in higher costs to merchants and higher costs to consumers. It is estimated that banks charge interchange fees alone of approximately $600 million per annum.

The ACCC has instituted against NAB and is prepared to continue discussions with other banks.

The ACCC is seeking court orders including:

- a declaration that NAB has breached the relevant provisions of the Trade Practices Act;

- pecuniary penalties;

- an injunction restraining NAB from engaging in similar conduct in the future;

- an order requiring NAB to make fair and just restitution for the benefits derived from the alleged breach; and

- findings of fact.

The ACCC is not opposed to a credit card interchange system and believes that an authorised joint system would be of benefit to Australian consumers. However, there are aspects of the current scheme that it believes are unlawful.

A directions hearing for the matter is listed for 11 October 2000 at the Federal Court in Sydney.

The ACCC's investigation has been conducted separately from the joint study of interchange fees and access in debit and credit card schemes currently being undertaken by the ACCC and the Reserve Bank in line with the recommendations of the Financial System Inquiry (Wallis Committee).

MR 238/00 4 September 2000


A typical credit card transaction involves four parties: (i) the Card Holder; (ii) the Card Holder's bank (known as the "Card Issuer"); (iii) the Merchant; and (iv) the Merchant's bank (known as the "Merchant Acquirer").

The steps involved in a typical transaction can be briefly described as follows. The Card Holder initiates a credit card transaction by making a purchase from the Merchant with his or her credit card. The Merchant transmits the details of this transaction to its bank (the Merchant Acquirer) who reimburses the Merchant.

The Merchant Acquirer transmits the details of the transaction to the Card Holder's bank (the Card Issuer). The Card Issuer then reimburses the Merchant Acquirer, bills the Card Holder and debits the Card Holder's account (i.e. its customer's account). The Card Issuer guarantees payment of the debt to the Merchant Acquirer and has the burden of recovering the debt from the Card Holder.

'Interchange' describes the transaction between the Merchant Acquirer bank and the Card Issuer bank. This is the process by which the Merchant Acquirer transmits the details of the transaction to the Card Issuer, who then processes these details and reimburses the Merchant Acquirer. The 'Interchange Fee' is the fee charged by the Card Issuer to the Merchant Acquirer for undertaking this process. The Interchange Fee comprises a significant part of the Merchant Service Fees charged by Merchant Acquirers to Merchants.

Each of the major banks acts as both Card Issuers and Merchant Acquirers. This means that they all pay and receive Interchange Fees. However, in relation to any single credit card transaction, one bank will be the Card Issuer while the another will be the Merchant Acquirer. The exception is where both the Card Holder and the Merchant are customers of the one bank. The relevant bank processes such transactions in house and a nominal Interchange Fee is imposed on the transaction.