European businesses and consumers are paying too much to use credit cards such as Visa and MasterCard, the European Commission warned yesterday.

Consumers pay twice as much for using MasterCard and Visa cards in some European Union countries than in others, a preliminary report by the Commission found.

The fees businesses are charged to take payments from customers can be six times higher in some member states than others for Visa and more than seven times higher for MasterCard.

"Portugal is the worst - people are paying an arm and a leg," a Commission spokesman said.

"Ireland is certainly not doing badly compared to Portugal but consumers and retailers in Ireland are not doing as well as their counterparts in Germany. In all member states we expect there to be improvements made by opening up this sector to competition."

The Irish Bankers' Federation (IBF) pointed out that the average annual fee charged in the EU for credit cards is €24 and €10 for debit cards, while no annual fees are imposed on either in Ireland. The IBF said Ireland is the only EU state to have stamp duty on payment cards.

The disparity has occurred because some local companies are preventing the development of competition and because the payment cards industry in Europe remains national, according to the Commission's report. The industry, consumers and other interested parties have 10 weeks to comment on the findings.

Competition Commissioner Neelie Kroes said the EU would take legal action using the anti-trust tools at her disposal to open up European markets to competition if companies and banks did not change the way they acted.

The Commission won't shame companies or countries by publishing the level of charges they levy on consumers until after the consultation process is finished, Ms Kroes said. However, she did say there is an adequate level of competition in Germany and the Netherlands. "I'm fed up when parties in the market don't behave as they should," she said at a press conference in Brussels. "The industry should rethink its pricing model."

The average European credit card holder could save hundreds of euro a year if there was a truly competitive market in Europe, Ms Kroes said.

Indeed, making all forms of cross-border payments as easy and affordable as domestic payments could save the EU economy as much as €100 billion a year, the report showed.

Gay Mitchell, Fine Gael MEP for Dublin, called on the Irish financial regulator to launch a new investigation into credit card fees after the Commission issued its report. About 23 billion card payments are made each year in the EU for purchases that amount to €1.35 trillion.

The Commission's report is part of a wider EU probe into competition in the retail banking sector. One of its goals is to establish a Single Euro Payment Area in the 12-state euro zone to enable Europeans pay as efficiently abroad as they do at home.