Crackdown on Card Surcharges



From Saturday April 6 new rules came into force protecting UK consumers from excessive service surcharges on credit and debit card payments. Retailers and online businesses will now be legally bound to ensure that their charges are reasonable and fair, and accurately reflect the true processing cost of whatever payment method is used.

The new regulations have been under development for several years, and were announced back in December 2011 in response to recommendations from the Office of Fair Trading (OFT), which were originally prompted by a so-called ‘super-complaint’ from consumer organisation Which? The complaint highlighted consumer concerns about all kinds excessive payment surcharges, but reserved its harshest criticism for airlines, where the practice of surcharging was particularly noticeable.

OFT Headquarters

We have all had that exasperating experience of buying flights online. You start off thinking you have bagged a great bargain only to be hit with all sorts of ‘ extra ‘ costs – luggage, a seat, on-board refreshments - which accumulate during the online booking process. Then right at the end wham! You get hit with another surcharge for the privilege of paying by card. This practice is known as ‘drip-pricing’, and the OFT rightly suggest that most of us put up with it because by the time we realise we have been ripped off, we have expended so much time and effort on the transaction we can’t be bothered to abandon it and start again.

According to the OFT these payment surcharges by airlines cost consumers around £300 million in 2010. Which? estimated that it only cost 10-20 pence to process a debit card payment, but observed that airlines and retailers were often charging far more. Consumer Minister Jo Swinson commented:

“The practice of excessive payment surcharges has been ripping off consumers for far too long", and said that the new rules should mean fewer ‘nasty surprises’ for consumers paying for goods and services online.

 Airlines are not the only offenders. Was it only coincidence that Rolling Stones tickets for the July 6 concert in Hyde Park went on sale on Friday April 5, the day before the new regulations? Those tickets were subject to a recorded delivery surcharge of £19 and a further delivery charge of £5.50. I am an ardent Stones fan myself, but come on, this is out of order. I will not be going to that concert!

 The OFT acknowledges that there are costs to the retailer to process payment by card, including

• Merchant Service Charge
• IT Costs
• Risk Management
• Fraud Losses
• Operations

and agrees that it is entirely reasonable for traders to recoup theses costs by using surcharges. From now on, however, these surcharges will have to reflect the actual cost to the retailer of processing the transaction.

How much should a fair card surcharge cost? In the BIS September 2012 document ‘Consultation on the Early Implementation of a Ban on Above Cost Payment Surcharges ‘, the OFT provides some illustrative card processing costs. For a payment of £100 they quote these costs:-

• Credit card £2.10
• Charge Card £2.84
• Debit Card £0.53

 For consumers the new regulations will bring not only lower and more reasonable costs, but increased transparency, allowing them them to compare the costs of using different methods of payment more easily and accurately. It may also increase competition between payment providers, who may lower their service charges to try and attract more customers.

The UK rules are in step with the rest of Europe. The EU is also working on a Consumer Rights Directive that includes a ban on“above-cost” surcharges on any form of payment from mid-2014.