Charging for credit and debit card use may become the norm under new surcharge rules


By Steve Worthington, Swinburne University of Technology

New standards on how much businesses can surcharge their customers for credit or debit card purchases start in September. However, it’s not clear how the rules will be policed and whether this will lead to all businesses enforcing a surcharge, rather than just those who choose to.

The Reserve Bank of Australia (RBA) has revised the regulations, aiming to limit the amount merchants can surcharge customers for paying by credit or debit cards. The new rules will initially apply to large merchants, defined as those employing over 50 staff, as these businesses are seen to be overcharging the most.

Businesses have been able to add on surcharges to these type of purchases in Australia since January 2003. This was part of RBA regulatory interventions in the first place, as it originally allowed merchants to surcharge in order to recover the costs of accepting card payments. The surcharges can be ad valorem (in proportion to the value of the transaction) or a fixed dollar amount.

A current example is that taxi fares using a Cabcharge terminal, whether they be paid by charge, credit or debit card, are surcharged at the same ad valorem level of 5%, as a processing fee. Not all the goods and services suppliers who accept card payments chose to impose surcharges on their customers, but a significant and seemingly ever increasing of them do surcharge.

The Australian airlines are well known for their fixed dollar surcharges. Qantas charges a card payment fee (per passenger, per booking) of $2.50 for debit and $7.00 for credit on domestic flights and $10 for debit and $30 for credit on international flights.

Jetstar charges a booking and service fee (per passenger, per flight) of $8.50 domestic and up to $12.50 for international, whilst Virgin charges a fee of $7.70 for payments made by credit or debit card. These examples of surcharging have caused much angst amongst consumers and the recent Financial System Inquiry had over 5,000 submissions to its final report complaining about surcharging, particularly by airlines.

What happens next

But how will the new standards be enforced? In February, The Australian Competition and Consumer Commission (ACCC) was given the power to issue infringement notices worth up to just over $100,000 to listed corporations that charge their customers excess payment card surcharges

These are defined as charges that exceed the costs of acceptance of payment cards. It remains to be seen if the size of these penalties deters merchants from excessive surcharging.

In May, the RBA published new standards as to the average cost a merchant is permitted to charge for accepting credit or debit cards. These apply to the following so-called card schemes issued by Australian banks: EFTPOS; MasterCard credit and debit; Visa credit and debit; and American Express companion cards.

Under the new rules the average cost of accepting a debit or credit card is defined in percentage terms of cost of the transaction. This will vary by merchant, but it means that merchants will not be able to levy fixed dollar surcharges.

The permitted surcharge for an individual merchant will be based on an average of their card costs over a 12 month period. In the interests of transparency, the financial institution that processes each merchant’s transactions, will be required to provide regular statements of the average cost of acceptance for each of the card schemes.

This information will of course also be important for the ACCC in any cases where enforcement is required if merchants are surcharging excessively.

Now that surcharges are well defined by the RBA, the risk is that surcharging will become a normal extra charge like GST, an unintended consequence of the new rules. Also why should merchants be allowed to charge their customer a surcharge for such payments, which are surely just another cost of doing business, just as is their utility bills and employee wages?

The ACCC is currently finalising guidance material for consumers and merchants which will provide further information on the ACCC’s enforcement role and how consumers can make complaints if they believe that a surcharge is excessive.

Surcharges on card payments have certainly already provoked rage amongst consumers. The final question is, will the next iteration of surcharge standards make surcharging the norm?

The Conversation

Steve Worthington is an adjunct professor at Swinburne University of Technology

This article was originally published on The Conversation. Read the original article.


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John Hutchinson
John Hutchinson
5 years ago

It’s a joke, any excuse to hit up customers for more Money. No consideration toward the amount of savings in labor and safety/insurance costs, by not having to count, store and deposit Cash, by having money electronically paid directly to a Bank Account.
It’s the perfect opportunity to get in now and introduce surcharges for Card usage, particularly when Westpac and ANZ have predicted that within 7 Years cash will be dead. “Let’s get our (dumb) customers used to paying a Surcharge now, so that they don’t bat an eyelid, when they have no alternative. Money, it is all we live for !!!

Michael Terceiro
Michael Terceiro
5 years ago

What most people don’t realise is that the maximum penalty for breaching the new surcharge law is actually 6,471 penalty units which at $180 per penalty unit is a whopping $1,164,780 for a corporation – see section 76(1A)(ba) of the Competition and Consumer Law 2010.

5 years ago

The writer forgets one thing. Yes, the penalty may well be regarded as being low but the cost of finding all the overcharges over a given period, recalculating and then refunding the clients involved will be significant. ASIC has already done this with a number of lenders. The penalty imposed was low but the cost of refunding all the clients sent both broke.
If Labor gets their way, that $1.1m penalty could rise to $10m.
If a company only accepts credit card payments, such as the airlines for their online bookings or booking firms likes of Ticketek, then the price stated should include any surcharge payable otherwise we are in to misleading and deceptive conduct if they offer no other fee-free way to pay.