Shoppers get £1bn Christmas present after EU tells Mastercard to scrap illegal fees

The EU ruling should mean a fall in prices of up to £1billion a year in the UK.

Tesco alone pays £100million a year to the banks for processing credit and debit cards.

Brussels Competition Commissioner Neelie Kroes said she was delivering "an early Christmas present to consumers".

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Though her ruling came in an action involving MasterCard, it is sure to affect other issuers like Visa.

Banking chiefs were warned they could face fines of tens of millions if they do not comply.

The fees - branded an "unfair tax" on shoppers by the Office of Fair Trading and leading retailers - put up the price of everything on the High Street, from groceries to a restaurant meal.

Some small shops, which have to pay the banks a higher rate than mass-turnover rivals, ask consumers using cards for a fee to cover the charge.

Last night top retailers promised to pass on the savings that should flow from the Commission's action.

Furniture retailer Ikea said card schemes have made it and its customers pay "excessively high fees".

Chief executive Soren Hansen said: "It is incomprehensible that, despite all technological progress, accepting cash in our stores is still substantially more cost-efficient than accepting cards".

The ruling relates to card authorisation charges imposed on consumers travelling to other EU member states, which Brussels says violate rules on restrictive business practices.

But the decision sets a legal principle on people making purchases in their own country and Miss Kroes called on national regulators to follow her.

She said: "Consumers risk paying twice for their cards - once through annual fees to their bank and a second time through inflated retail prices."

In Britain, the OFT has already signalled that it believes the fees are unfair and is expected to implement the Commission's ruling within months.

Experts warned that previous efforts to crack down on unfair bank charges have seen the industry respond by introducing new fees or raising others.

The commissioner said she "sincerely hoped" that MasterCard, which was given six months to comply, would not do the same.

Kevin Hawkins, director general of the British Retail Consortium, said: "We applaud the Commission's - decision to put an end to this unfair tax on consumers.

"This has been a long fight for the retail industry. MasterCard has clearly been abusing its position to bolster its bottom line and retailers and their customers are bearing the cost."

He added: "The sooner Master-Card accepts this ruling the sooner customers will benefit from these cost reductions."

It is estimated that the charges cost the average household more than £40 a year.

MasterCard, which is owned by the world's big banks, said it would challenge the ruling in European Union courts.