New EU rules could mean the end of free banking

Caps on interchange fees are good for business, but could mean banks pass the cost on to customers

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Consumers could soon be forced to pay to have a current account and withdraw money from cash machines due to new European Commission regulations.

The regulations aim to cap interchange fees – the fee paid by businesses to banks for card transactions – which has experts warning that the costs could be passed on to the customer.

The commission has proposed the cap at 0.2 per cent for debit card transactions and 0.3 per cent for credit card sales, a move welcomed by business leaders who say it will save UK businesses up to £1bn a year and allow them to pass the savings on to customers.

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Currently, UK retailers pay on average 9p per card transaction for debit cards and there is a 0.7 per cent charge for credit cards.

"Capping these excessive and anti-competitive fees will support the UK retail industry and others, boosting our ability to invest and innovate while continuing to deliver lower prices and values for customers," Helen Dickinson, the director general of the British Retail Consortium told The Times.

A report by the research group Europe Economics has estimated that the cap will lead to banks losing out on £785m a year, a cost they warn will simply be passed on to customers in the form of bank charges.

"The British are used to, and like, free banking," Richard Koch, a senior executive at the Cards Association, which represents all major credit, debit and charge card issuers in the UK told the Daily Telegraph. "The commission's model would impact on the card issuers' ability to continue that."

This has been witnessed in countries such as Spain and Australia where similar caps have been introduced.

"The regulation of interchange fees in Australia has been great news for retailers and bad news for banks, but it is consumers who've had the worst deal," said Koch. "It is wrong to assume that what looks bad for banks is always good for consumers."

Changes were approved by the European Council earlier this year and are expected to get the final go-ahead next week.

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