With the Office of Fair Trading's statement this month that credit card interchange fees breach both U.K., and European Union competition laws, the regulator has recommended a reduction be made in the fees charged. If changed, a forced reduction is likely to impact U.K. credit card ABS trust yields and excess spread, as interchange fees typically contribute between 50 and 200 basis points to total portfolio yield.

The Office of Fair Trade issued its statement of objections against Visa and its members earlier this month. In an almost identical case, it issued a ruling against MasterCard last month. Visa has approximately 43 million cards in the U.K., according to market reports. If the Office of Fair Trade upholds its objections, Visa could be forced to reduce the fees or face fines. Barclays Capital's Paul Geertsema said that while this reduction in yield could drive originators to revise pricing, this re-pricing would be selective and may not fully compensate for the loss of interchange fees.

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