Issued by authority of the Parliamentary Secretary to the Treasurer

Payment Systems (Regulation) Act 1998

Payment Systems (Regulation) Regulations 2006

Section 32 of the Payment Systems (Regulation) Act 1998 (the Act) provides that the Governor-General may make regulations, not inconsistent with the Act, prescribing matters required or permitted by the Act to be prescribed, or necessary or convenient for carrying out or giving effect to the Act.

The Act provides for the regulation of payment systems and purchased payment facilities. Subsection 11(1) of the Act provides that the Reserve Bank of Australia (RBA) has the power to “designate” a payment system if it considers that it is in the public interest to do so, and subsection 18(1) of the Act provides that the RBA may determine standards to be complied with by participants in a designated payment system.

Part IV of the Trade Practices Act 1974 (TPA) describes and prohibits various restrictive trade practices. However, subparagraphs 51(1)(a)(i) and (ii) of the TPA provide that anything specified in, and specifically authorised by an Act or regulations made under an Act, respectively, is exempted from the operation of Part IV.

Interchange fees are the fees paid between the cardholder’s bank and the merchant’s bank when a card transaction is undertaken. The RBA has remade a Standard for interchange fees for the designated credit card payment schemes of Visa, MasterCard and Bankcard which came into force on 1 July 2006. This Standard replaces a Standard made by the RBA in 2003. The RBA has also determined a Standard on the setting of interchange fees to apply to participants in the designated Visa Debit payment system, which came into force on 7 July 2006.

To ensure that the setting of interchange fees is transparent and promotes efficiency and competition, these Standards require that the fees be set subject to an objective and transparent benchmark and be regularly reviewed. However, setting fees pursuant to the Standards may run the risk of contravening Part IV of the TPA on the grounds of being a restrictive trade practice.

To remove this risk, the regulations made under section 18A of the Act authorise, for the purpose of subparagraph 51(1)(a)(i) of the TPA, conduct required in order to comply with the RBA’s Standards on interchange fees in the credit card and Visa Debit systems. The effect of section 18A is therefore to ensure that, in complying with the Standards setting interchange fees, participants in these systems are not at risk of breaching the TPA.

The Regulations:

•                authorise, under section 18A of the Act, the conduct required in order to comply with the remade Standard for the setting of interchange fees in designated credit card schemes and the Standard for the setting of interchange fees in the Visa Debit payment system; and

•                repeal the Payments System (Regulation) Regulations 2003.

–               Prior to the recent insertion of section 18A in the Act, the Payments System (Regulation) Regulations 2003 provided relief from liability under Part IV of the TPA when complying with the RBA’s interchange fee Standards. These regulations only applied until 30 June 2005, are now inoperative.

Consultation on the Regulations has been undertaken with the RBA. The regulations are machinery in nature and broader consultation with industry was not deemed required.

An exemption from the Regulation Impact Statement requirements has been granted from the Office of Regulation Review.

The Regulations are a legislative instrument for the purposes of the Legislative Instruments Act 2003.

Details of the Regulations are set out in the Attachment.

The Regulations commenced on the day after they were registered on the Federal Register of Legislative Instruments.

ATTACHMENT

PAYMENT SYSTEMS (REGULATION) REGULATIONS 2006

Regulation 1 Name of Regulations

Regulation 1 provides that the name of the regulations is the Payment Systems (Regulation) Regulations 2006 (the Regulations).

Regulation 2 Commencement

Regulation 2 provides for the commencement of the Regulations on the day after they are registered.

Regulation 3 Repeal

Regulation 3 provides that the Payment Systems (Regulation) Regulations 2003, which were effectively the predecessor to the Regulations, are repealed.

Regulation 4 Definition

Regulation 4 specifies the definition of “Act” as the Payment Systems (Regulation) Act 1998.

Regulation 5 Specified standards

Regulation 5 provides participants in credit card schemes protection from Part IV of the Trade Practices Act 1974 (TPA) when complying with the new Reserve Bank of Australia (RBA) credit card interchange fee Standard. The Regulations also extend protection to participants in the designated Visa Debit payment system.

Under subsection 11(1) of the Act, the RBA has the power to determine standards for designated payment systems.

The RBA has made a Standard ‘The Setting of Wholesale Fees in the Designated Credit Card Schemes’ that applies to all participants of the designated credit card schemes. In addition, the RBA has made a separate Standard on the setting of interchange fees that applies to participants in the Visa Debit payment system.

The setting of interchange fees pursuant to the standards runs the risk of contravening Section IV of the TPA on the grounds of being a restrictive trade practice. To remove this risk, section 18A of the Payment Systems (Regulation) Act 1998 authorises, for the purpose of subparagraph 51(1)(a)(i) of the TPA, the conduct required in order to comply with the RBA’s standards for interchange fees in the designated credit card and Visa Debit systems. The Regulations therefore ensure that when setting interchange fees pursuant to the Standards, participants are not in breach of the TPA.