10 December 2005

Competition: Australian Retailers Association v Reserve Bank of Australia

A couple of months ago I commented on the OFT (Office of Fair Trading) finding on MasterCard's Interchange fees. There is now an interesting case from Australia on a similar subject. In Australian Retailers Association v Reserve Bank of Australia [2005] FCA 1707 (28 Nov 2005), the case was an application by a group of merchants for judicial review of the decision of the Australian central bank to designate the EFTPOS (electronic funds transfer at the point-of-sale) payments system under the federal Payment Systems (Regulation) Act 1998.

This statute enables the central bank to "designate" a payment system if it considers it to be in the "public interest" to do so and to lay down standards that must be complied with once the designation has been made. Factors to be taken into account when determining whether something is in the "public interest", include the system's efficiency and competitiveness.

An "interchange fee" is a payment by a consumer for clearing an inter-bank electronic funds transfer. Those fees had hitherto been negotiated by the banks without any input from the central bank or other regulator. A likely consequence of the designation of EFTPOS was a reduction of interchange fees. The merchants feared that interchange lower fees from consumers would mean higher contributions from the merchants. Hence the challenge by judicial review.

The judge, Weinberg J, dismissed the application because Australian law requires an applicant to prove error of law. It is not enough to show that the bank exercised its discretion unreasonably. That the merchants were unable to do.

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