Saturday, 12 April 2014

CJEU: EU-MS may prohibit charges for the use of cashless payment methods

The Court of Justice of the EU (CJEU) ruled in its judgment of 9 April 2014 (case C-616/11) that under Directive 2007/64/EC on payment services a Member State (MS) may prohibit charges for cashless payments levied by traders to customers. This ruling entails that EU-MS may, in full accordance with EU law, prohibit airline transaction fees charged to customers (e.g. credit card fees). 

Τhe CJEU had to clarify the meaning of Articles 4.23 and 52 (3) of Directive 2007/64/EC on payment services. As to Art. 4.23, the question was whether a direct payment order and an e-banking order are “payment instruments” within the Directive’s meaning. The question on Art. 52 (3) regarded if the Directive entitles EU Member States (EU-MS) to generally prohibit to traders (“payees”) levying charges on customers (“payers”) for the use of any payment instrument. Note here that Art. 52 (3) does not refer to charges raised by providers of financial services to their customers, e.g. fees raised by the bank that issued the credit card to the credit card owner.

The Court held that the meaning of a “payment instrument” under the Directive includes direct payment orders as well as e-banking payment orders. Actually, the Court confirmed that the Directive regulates the most usual cashless payment methods (prominent exceptions are cheques). In addition, the Court found that Art. 52 (3) of the Directive enables EU-MS to prohibit transaction fees, at least concerning the relationship of a trader with its customer.

Some EU-MS, e.g. Austria and Greece have prohibited such charges. Others, like Germany and the UK, permit them. The Court’s ruling made clear that both practices comply with EU law.

Concerning booking of airline tickets, this judgment may raise challenging legal issues. Charging credit card fees, which is very common in ticket bookings, may be illegal in the State of the passenger’s residence, but legal in the State of the carrier’s principal place of business and vice versa. The issue of legality will be judged according to the law applicable to the contract.

In the EU, questions of the applicable law in contract are addressed in Regulation (EC) Nr. 593/2008 (Rome I Regulation). The exact details would be too cumbersome to mention in this post; however, in general, the final answer on the applicable law (and on the legality of transaction fees) will depend on three factors: (1) the existence of a choice-of-law clause, (2) whether the passenger is a “consumer”, i.e. acting outside his/her professional capacity, (3) whether the flight is part of an organized travel, according to Directive 90/314/ΕΕC.

Note also that, regarding transaction fees charged to consumers, after 13 June 2014 the new EU Directive on consumer rights (Directive 2011/83/EU) will become effective, which allows traders to charge fees for the use of a payment method, only if these do not exceed the cost incurred by themselves for the use of such method.

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