The EU General Court in Luxembourg confirmed that “multilateral interchange fees” were “contrary” to European competition law.  MIFs are the fees charged by a consumer’s bank to a foreign merchant for processing a cross-border retail transaction.

In 2007 the European Commission said MIFs effectively set a price floor on what merchants were charged, which limited competition on card services offered to retailers. The commission then ordered MasterCard to stop charging the fees or face fines of 3.5% of the daily worldwide turnover, according to court documents.

MasterCard--supported by Banco Santander, Royal Bank of Scotland, HSBC, Bank of Scotland, Lloyds TSB Bank and MBNA Europe--appealed the decision to the General Court, claiming that the minimum prices were needed to offset the costs of maintaining its network and to ensure that banks would earn enough revenue to continue participating in the MasterCard network.

The European Commission was supported by two merchants groups, the British Retail Consortium and EuroCommerce.

In its ruling on Thursday, the General Court said “the methods of setting the MIF tended to overestimate the costs borne by the financial institutions on issuing payment cards,” and that even without the fees it was “unlikely” banks would curtail their use of the MasterCard system.

in a press statement following the court decision, the office of European competition commission Joaquín Almunia said: “The judgment confirms that banks, in the framework of a card payment scheme, cannot restrict competition by agreeing on certain charges to the detriment of consumers,” and thus inflate merchant costs that are ultimately passed on to consumers.

On the other hand, the ruling “threaten[s] the continued delivery of the most advanced electronic payment technologies in Europe which, in turn, are essential to facilitating business and driving economic growth,” Javier Perez, president of MasterCard Europe countered in his press statement.

Although the cross-border fees banned by the decision only account for a small portion of banks’ card revenue, the General Court ruling could encourage the European Commission to examine domestic fees more closely.

Speaking to the Financial Times, Christian Verschueren of EuroCommerce, said the European Commission should “follow this up with radical and decisive regulatory solutions to make payments in Europe truly competitive.”

At the same time, the ruling is also “a blueprint” for domestic competition agencies, Emanuela Lecchi, a lawyer at Watson, Farley & Williams in London, told Bloomberg News. “There is a lot less work for the national authorities because this European decision can be easily replicated.”

MasterCard said it would appeal the ruling to the European Court of Justice, which also is based in Luxembourg.