France: Collusion in the French banking sector

01 September 2010

Michel Roseau

The French Competition Authority (“FCA”) has fined 11 French banks EUR 384.9 million for having charged unjustified interbank fees during the transition towards a new digital system for processing cheques.  This follows the opening of ex officio proceedings.

In 2002, when the new digital system for processing and clearing interbank cheques was set up, it appears that the main French banks met and colluded in defining rules and functioning details of the new system. In particular, they decided to raise several fees which were charged to clients since 2002.

Among such fees, an unjustified EUR 43c fee was charged on 80% of the cheques exchanged in France from 2002 to 2007.  Two other additional fees, still collected today, were charged for ‘related services’ (cancellation of cleared operations) that were not proportionate to the costs incurred by the banks. Six other fees for “related services” were also reviewed by the FCA which finally considered they were justified under competition law as they compensated for new services provided by certain banks to another banks as well as for the costs transfers incurred by the digitalization of the checks exchanges system.

Concerning the EUR 43c fee and the two “related services” fees, the FCA considered that there was no evidence showing that the digitalization process created losses for the banks involved. The compensation mechanism was unjustified as the losses caused by drawn cheques were balanced by fund profits on the remitted cheques and by costs savings resulting from the digitalization.  Whereas the digitalization of the interbank payment system allowed banks to realize significant savings, the interbank fees (in particular the EUR 43c fee) contributed to increase the cost of banking services since the banks have passed such fees on their clients, by increasing cheque remittance costs and/or price of other banking services.

Moreover, the FCA underlined the fact that such practices affect one of the most popular means of payment in France (26% of bank payments were made by cheque in 2006) and occur in a market where competition is already weak because of the structure of the banking market and its opacity.

For determining the amount of the fine, the FCA took into consideration, on the one hand, the gravity of the practice (horizontal agreement), its duration (5 years) and the damage to the economy (over the period analysed, for each cent passed on to the consumer, the increase in prices paid by consumers amounts to 220 million Euros) and on the other hand, mitigating circumstances (practices did not directly concern final prices). The individual situation of each bank was also taken into account (market power as well as the role played in the collusion).

The banks have one month to appeal this decision but their practices are still under scrutiny by the FCA. Indeed, in 2009, the “Fédération des entreprises du commerce et de la distribution” lodged a complaint before the FCA concerning multilateral credit interbank fees. The investigation is underway and the decision is expected by 2011.

Source: Decision of the French Competition Authority No 10-D-28 of September 20, 2010