MasterCard today expressed "strong disagreement" with the conclusions of an Office of Fair Trading (OFT) investigation into the credit card company’s charges.

The investigation centred on the interchange fee, which is levied on most purchases made in the UK using a MasterCard. The fee is charged as a percentage of the transaction and is paid by the retailer making the sale.

But the OFT found that the collective agreement over the fees between the group and the MasterCard Members Forum breached competition law.

The regulator said between March 2000 and November 2004 banks were setting the fee too high and were using it to recover costs associated with other things, such as the interest-free period offered on credit cards.

The OFT said these higher fees amounted to a tax on consumers, as they were being passed back to retailers, leading to higher prices in shops.

"The collective agreement deterred issuers of MasterCard cards and merchant acquirers of MasterCard transactions from competing by negotiating their own interchange fees," the regulator said, noting that in 2004, more than 700 million purchase transactions worth £42.7 billion were made in the UK using MasterCards.

But John Bushby, general manager of MasterCard Northern Europe, said he was "very disappointed" by the OFT’s decision.

"We have consistently shown not only that default interchange fees have paved the way for a large number of new entrants into the UK credit card business over the past decade, but also that the UK payment system is one of the most competitive in the world," he said.

"For the OFT to claim that the interchange fee agreement either reduced competition or disadvantaged consumers or retailers is simply wrong.

"Consumers benefit from greater choice as more retailers accept credit cards, and retailers of all sizes benefit as card usage expands. As such, today’s OFT ruling is bad news for both healthy competition and the economy," he added.

Since last November MasterCard has introduced new arrangements for setting the fees, but the OFT said it still had concerns that these were being set to include extra costs. It expects to start another investigation unless MasterCard addresses its concerns.

If the OFT starts a second investigation and it finds against MasterCard, the regulator could potentially levy a fine of up to 10 per cent of the group’s worldwide turnover.

MasterCard said it believed that the OFT’s decision, in addition to jeopardising competition would, if allowed to stand, lead to reduced services to cardholders and to an increase in cardholder fees and charges, and may even make it difficult for many consumers to get credit cards.

MasterCard plans to appeal the decision.

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