UPDATE 2-EU executive softens stance on payment card fees

(Recasts, adds lawyer comment)

By Huw Jones

BRUSSELS, Sept 4 (Reuters) - The European Commission urged banks on Thursday to launch new pan-EU direct debit services for consumers using a fee structure it said last year violated the bloc's competition law.

The European Union executive and the European Central Bank said in a joint statement they would be prepared to support the idea of a so-called multilateral interchange fee (MIF) on cross-border direct debits on condition such fees were justified and temporary.

The fee is paid by retailers to banks that issue the cards.

The backtracking by the Commission underlines its concern over the lack of progress in introducing pan-European direct debit payments services, seen as a key tool in promoting cross-border competition in goods and services to cut prices for consumers.

In December last year, EU Competition Commissioner Neelie Kroes gave MasterCard (MA.N) six months to change its multilateral interchange fee structure on international card transactions, saying they violated EU rules on fair competition.

This decision, which MasterCard is appealing, left banks confused about what sort of business model would be profitable for pan-EU payment cards to rival MasterCard and Visa Europe. Visa Europe is also negotiating with the European Commission over its international card fee structure.

"It may prove necessary to have a multilateral interchange fee for cross-border single euro payments area direct debits in the very initial stage," Kroes said in a statement on Thursday.

"But we will have to be convinced that these fees will be strictly limited in time and objectively justified, that is not aimed at providing additional profits to banks," Kroes said.

At the end of the transitional phase there would no longer be any transaction-based multilateral interchange fee at national or cross-border levels, the Commission said.

Some lawyers accused Brussels of confusing matters.

"How will the EU reason that a temporary MIF may be justified but a permanent MIF is not?" said Andrew Chandler, a partner at Eversheds law firm.

"The EU's statement muddies the water on this complex issue even further and MasterCard will no doubt seek to make mileage of this apparent concession in defending its cross border MIF," Chandler said.

Retailers say the fee is a tax on consumption.

"EuroCommerce would be very interested to see what justifications could be given for such MIFs," said Cecile Gregoire, an adviser to the EU retailer lobby.

"It is hard to believe that while banks claim to be such an innovative sector, they cannot implement SEPA direct debits in time without interchange," Gregoire said.

The European Payments Council, a banking association that is introducing SEPA, MasterCard and VisaEurope had no immediate comment.

ECB Executive Board Member Gertrude Tumpel-Gugerell said it would be unacceptable if banks were not able to offer pan-EU direct debits from the target date of November 2009. (Reporting by Huw Jones, editing by Will Waterman/Elaine Hardcastle/Rory Channing)