(Adds reaction from European Central Bank)
By Huw Jones
LONDON, Dec 16 (Reuters) - Bank charges on direct debit transactions would be banned from 2012 under a draft European law that targets France, Italy and Spain as part of efforts to cut the cost of paying bills for consumers and businesses.
EU Internal Market Commissioner Michel Barnier unveiled a draft law on Thursday to set deadlines for migrating 27 national payments systems to a single euro payments area (SEPA).
Fixing a date rachets up pressure on banks to update their systems and speed up the move to SEPA that began in 2008. The regulation is expected to be approved by EU states and the European Parliament into law, though minor changes are possible.
"The proposal adopted today fixes end-dates to make this pan-European system a reality, hopefully as early as 2012," Barnier said.
Under the SEPA system, a consumer or business with one euro-denominated bank account will be able to make credit transfers and direct debits in euros domestically or to any other EU country.
The draft measure proposes banning interchange fees for national and cross-border direct debits after the end of October 2012.
Banking systems in Spain, France, Sweden, Belgium, Portugal and Italy oblige a payee, such as a utility company, to pay the bank of the consumer or business a hidden fee for direct debit transactions.
"As they are agreed collectively between banks and have an impact on prices, these multilateral interchange fees raise concerns about their effect on competition," the European Commission said in a memo.
There is no sufficient evidence to support the view of banks in the six member states that the fees encourage consumers to use direct debit, the Commissions said.
The Commission has a long-running battle with banks and credit card firms over interchange fees and has already been pushing them lower over time.
It dropped antitrust charges against Visa Europe this month
in return for a pledge to cut debit card fees. Mastercard
The European Central Bank has long pushed for a fixed deadline to complete the move to SEPA, suggesting late 2013.
"Almost ten years after the introduction of euro banknotes and coins, using common payment instruments will be an important further step to integrate the financial services in Europe and complement the single market for goods and services," Gertrude Tumpel-Gugerell, member of the ECB's Executive Board, said.
Once final approval is given to the new regulation, banks and other parts of the payment systems will have about 30 months to make credit transfers SEPA compliant, and 42 months for direct debits.
A study for the Commission estimated that SEPA will save the EU economy 123 billion euros ($163 billion) over six years.
Some of the savings are set to come from greater competition in retail banking to end wide differences such as customers in Italy paying 253 euros a year for basic banking services, while those in the Netherlands pay 46 euros.
SEPA also seeks to boost competition in cross-border credit cards, a niche dominated by Visa Europe and Mastercard. ($1 = 0.7559 euro) (Editing by Sophie Walker)