UPDATE 1-Europe to cut the cost of paying by card
* EU Commission outlines new rules to limit fees
* Law would cap interbank charges, prevent surcharges
* Retail lobby EuroCommerce says proposal too soft
BRUSSELS, July 24 (Reuters) - The European Commission proposed on Wednesday to cap fees banks charge when processing card payments, potentially cutting costs for shoppers.
The draft legislation will also prevent companies such as airlines, for example, from imposing a surcharge when customers pay for flights using certain cards.
The savings from restricting such surcharges will save consumers 730 million euros ($964.94 million) annually while the broader caps on interbank fees will bring savings of 6 billion euros for retailers, the Commission said.
The rules, which the Commission hopes will widen retailers' acceptance of cards, envisage limiting the fee charged by banks to 0.2 percent on the value of a debit card transaction and 0.3 percent on credit cards. The fee is now as high as 1.5 percent.
"The interchange fees paid by retailers end up on consumers' bills," said Joaquin Almunia, the EU Commissioner in charge of antitrust enforcement, who announced the measures.
"Retailers will make big savings by paying lower fees to their banks, and consumers will benefit through lower retail prices," he said.
A roll-out of the cap could begin from around the end of next year, after the conclusion of negotiations with the European Parliament and European Union countries.
But retailers said the draft rules did not go far enough.
Ruth Milligan of EuroCommerce, a retail lobby group that has campaigned for cuts in the charges, said the fee should reflect the "tiny" actual costs involved.
"It should be a fixed fee," said Milligan. "There is no reason for it to be a percentage fee. Because the electronic system is already in place, it's a tiny cost, something like 1 cent per transaction."
"There has been a political compromise in the Commission with a lot of pressure from the banking sector and the card schemes," she said, adding that the levels of the cap had been chosen without input from merchants or consumers.
The cap, which is in line with measures demanded by the Commission's antitrust officials, will apply initially for cross-border transactions - for example, when an Irish card-holder uses their card in France.
After almost two years, this limit would be extended to the so-called interchange fees on domestic payments using all cards.