European Parliament votes in favour of cap on card transaction fees

BRUSSELS, March 10 (Reuters) - The European Parliament on Tuesday voted in favour of a bill to cap the fees retailers pay to process debit and credit card transactions in a move supporters say should lower costs for customers and businesses.

The bill was passed with 621 votes for, 26 against, and 29 abstentions, and the law is expected to take effect in October.

It followed an agreement reached among EU governments in favour of the cap in December.

The cap will apply to cross-border and domestic card-based payments which the bill's backers say cost businesses across the EU around 10 billion euros ($10.75 billion) a year. The fees are opaque and differ from country to country.

Retailers are charged for every card transaction and add the costs to the prices of the goods or services they offer.

Pablo Zalba, the Spanish conservative lawmaker who steered the proposal through parliament, said in a statement that the law would set a level-playing field for payments across Europe.

"It should enhance fee transparency, stimulate competition and enable both retailers and users to choose the card schemes that offer them the best terms," he said after the bill was passed.

The fees that banks charge retailers for processing shopper's payments will be capped at 0.3 percent of the transaction value for credit cards and 0.2 percent for cross-border debit cards.

Domestic debit card fees will be capped at 0.2 percent of the annual weighted average transaction value of all domestic transactions within the card scheme.

Visa (Xetra: A0NC7B - news) has said clarity on the fees was welcome, but warned it could hurt the cards industry and said there was no guarantee that retailers would pass savings on to consumers.

Fees charged by banks belonging to card schemes such as Visa and MasterCard, so-called four-party schemes involving the bank that issued the card, the retailer, the retailer's bank and the card user, will be affected by the cap. They account for the lion's share of the market.

The price cap will not apply to so-called three-party card schemes, such as Diners and American Express (Swiss: AXP.SW - news) , which involve only one bank. Commercial cards used only for business expenses will also be exempt from the new price cap.

Retailers will also be free to choose which cards to accept, effectively ending the so-called 'Honour All Cards' rule.

Visa has said that could be bad for consumers if they are unsure if their card will be accepted.

Regulators in individual EU countries are also investigating the cards industry.

In Britain, where 70 percent of Europe's credit cards are held, the financial watchdog is assessing the way cards are sold amid concerns that poorer customers are trapped in a spiral of debt on their cards.

($1 = 0.9304 euros) (Reporting by Philip Blenkinsop; editing by Jason Neely)