New ban on excessive payment surcharges

With retailers enjoying a surge in online sales this Christmas, many consumers will have incurred excessive payment surcharges to use their credit or debit cards online.

Why are payment surcharges a problem?

Payment surcharges are additional fees rendered to a consumer electing to use a certain means of payment, usually a credit or debt card.  The OFT and Department of Business, Innovation and Skills are concerned that these charges have become excessive as consumers are increasingly charged considerably more than retailers actually incur to process the payment.

Excessive payment surcharges are considered detriment because they can increase the total cost of products and services significantly and can be unavoidable, particularly for consumers paying online.  In addition, charges made during the end of the ordering process make it more difficult for consumers to accurately compare prices.

How is this being addressed?

From 6 April 2013 excessive surcharges will be prohibited under the Consumer Rights (Payment Surcharges) Regulations 2012 as traders will be banned from charging consumers ‘above-cost’ surcharges to pay by credit or debit card.

According to consumer group Which? a fairer charge for using a debit card would be between 10-20p and the real cost of processing a credit card transaction is no more than 2%.

The Regulations implement Article 19 of the EU Consumer Rights Directive but also extend to package holidays which are not covered by the Directive.

What are the likely implications?

The government’s objectives are to increase price transparency and competition as consumers will be better equipped to compare prices of products and services.

BIS has promised to publish guidance on how to comply with the Regulations but it is considered likely that retailers who currently charge above-cost payment surcharges will increase their prices to compensate for the lost revenue.

The remaining provisions of the EU Directive will be implemented in the UK by December 2013, covering such areas as excessive phone charges for consumers, cancellation rights, and consent for additional payments.

If you have any queries in relation to this blog please contact Stephen Welfare, of the Dispute Resolution department on 020 7583 2222 or [email protected]