At the end of last year Prime Minister Malcolm Turnbull put credit card surcharges in the news with widespread calls for their reduction and more monitoring to stop excessive charges.
In December of last year the Reserve Bank of Australia published a new set of draft standards for card payments. Most notably for consumers the new standards include restrictions on surcharges that have long frustrated card holders. New legislation will ban surcharges that are in excess of what it costs the merchant to accept the payment.
“We think that consumers are entitled to a very fair deal here … to get exactly what they are being represented to be getting, which is an additional charge that recovers no more than the merchant’s costs,” Turnbull told ABC News last October in announcing the proposed changes.
Surcharges on credit card payments have always been widely unpopular. In 2010 a NSW Fair Trading Commission survey conducted by Choice found that 68% of respondents thought that retailers should not be able to charge any fees at all.
But some Australians and to an extent, the government, accept that surcharges are necessary to cover the costs of expensive payment methods that card providers such as American Express charge merchants.
When you pay in store with a credit card the retailer must pay the merchant a service fee that would otherwise not be charged if you had paid with debit card or cash. Without surcharges it’s likely some of our most frequented stores would stop accepting credit card payments, which would be inconvenient to say the least.
The alternative is for retailers to factor the costs into the price of the goods they are selling, penalising the people who choose to pay by cash and debit. So to an extent, by keeping surcharges as an optional extra, they illustrate to the customer that there are cheaper payment methods they can choose.
The problem however, is when merchants enforce surcharges that are in excess of the actual payment cost, a practice that has been prevalent in particular sectors such as the taxi and airline industries for years, enraging their customers to the point of protest.
The release of the RBA’s draft standards and proposed legislation changes seek to put an end to this sort of consumer exploitation. The proposed standard preserves the right of merchants to surcharge for more expensive payment methods but includes changes to enhance transparency and improve enforcement in cases where merchants are surcharging excessively.
The move has been met with widespread positivity with Money Editor at Ratecity.com.au, Sally Tindall commenting, “For too long retailers had almost free reign to charge consumers excess surcharges on credit card payments. Proposed changes to how much consumers can be charged for a transaction can only have a positive effect on consumer confidence.”
But how much is too much? According to the Federal Government sources, the average surcharges are 0.5 per cent for Visa and MasterCard, 1.8 per cent for American Express and Diners Club, and 12 cents for debit cards.
All retailers are required by law to tell customers if a surcharge will be applied and what that surcharge will be, so if it’s over these amounts, it’s wise to pay another way.
The proposed changes are still in a consultation stage and, if approved, won’t be in effect until the middle of 2016.