Copenhagen - A shock April 2014 decision by the European Parliament to cap interchange fees on commercial credit cards at 0.3 percent is likely to be reversed but with a major condition attached that could affect thousands of corporate card agreements, senior payment company executives told BTN here during an Association of Corporate Travel Executives conference. According to AirPlus International and MasterCard, European Union member states have prepared draft amendments to restore an exemption for commercial cards from the 0.3 percent cap expected to take effect next year. However, the amendments also newly define commercial card agreements as contracts that are based on corporate liability.
AirPlus managing director and chairman Patrick Diemer said roughly half his company's corporate card contracts (as opposed to centrally billed accounts) are based on individual liability, which would not be covered. "We are more hopeful now [of a cap exemption] because we have received support from subject matter experts in various governments," said Diemer. "As things stand, they are intending to keep corporate cards out of the regulation, but a corporate card will only be considered a corporate card if there is corporate liability. Individual pay [in which the cardholder settles directly with the issuer] will be permitted, but personal liability cards are out of scope.
"This is a change the industry could live with," Diemer continued. "We believe joint and several liability [in which the cardholder is initially liable but their employer assumes the liability if the cardholder does not pay up] will be a way to manage the risk. Given the potential risks of this legislation, I believe it is the least impactful."
MasterCard group head for global T&E products and solutions Richard Crum took a similar view, but warned of complications. "The original definition, that the ultimate purpose of the card is business expenses, was much simpler," he said. "That would be my ideal. [The intention of basing the definition on] corporate liability is to avoid consumers getting commercial cards when they shouldn't. We would have to understand what is meant by a liability. There is often a combination of liabilities in a program. Could we live with it? Yes, but it introduces a nuance that isn't helpful. There would be a lot of questions involved."
This yo-yoing story started in late 2013 when the European Commission published a draft regulation to cap interchange fees but recommended exemption for commercial cards. However, in April the European Parliament unexpectedly jettisoned the exemption when voting to approve the regulation. Card providers warned of significant consequences, including higher annual fees and the end of rebates for larger clients.
Privately, some card executives concede commercial card interchange fees are likely to be capped within the next few years—not only in Europe but also in the United States. But they were particularly alarmed by the European Parliament vote effectively allowing "three-party" schemes, such as American Express and Diners Club, to avoid the cap, though not Visa and MasterCard. Ultimately, their greatest concern is not whether there is regulation, but that it covers all issuers equally.
Diemer told ACTE conference delegates that the European Council of Ministers is scheduled to decide by Christmas whether to ratify the European Parliament's approved version of the regulation. If the council takes a different view, as Diemer and Crum expect, the two institutions along with the European Commission would attempt to resolve the issue through what is known as a trialogue, with a final decision expected in the first half of 2015. "The commission is on our side, the Council of Ministers is on our side and we think Parliament would vote with us next time," said Diemer. Added Crum: "There is an appreciation of the complexities of commercial cards which maybe wasn't there a few months ago."
Approached by BTN for comment, American Express issued a statement indicating it "understands that negotiations on the draft EU 'payments package' are ongoing and that the Council has yet to finalize its position, including on the treatment of commercial cards. Once the Council has an agreed position, a further round of discussions with the other EU institutions will commence. We will of course comply with whatever the final legislation says."