/ Money

The death of the rip-off card surcharge

Paying on card

Thank you to over 40,000 of our supporters who backed our campaign to end rip-off card charges. These sneaky fees for using credit and debit cards finally get the chop. Have you been stung by a card surcharge when making a payment?

A long-standing Which? campaign had a big win today as rip-off credit and debit card surcharges have been banned once and for all by the government.

Today’s announcement from the Treasury is an extension of the revised EU Payment Services Directive (PSD II). The ban will bring an end to retailers adding extra charges at the checkout for all card payments, including credit and debit cards as well as digital payment services like ApplePay and PayPal.

Sneaky card charges

Back in March 2011, we used our legal powers to submit a super-complaint to the Office of Fair Trading (OFT) to force an investigation into card surcharges. Our super-complaint came after we found that these charges were often far in excess of what it cost companies to process card transactions.

The OFT investigated the issue and upheld our complaint. It then began to look into what could be done to stop unfair debit and credit card surcharges. As a result, in December 2011, the government agreed to take action and confirmed it would ban excessive surcharges. This ban came in to force in April 2012.

But these rules meant that surcharges weren’t banned, but must reflect the cost incurred to the firm for processing the payment.

We estimated that it would be no more than 50p per transaction for debit card payments or 2% of the total transaction price for credit card payments. While it’s difficult to gather a full picture of how much card surcharges cost each and every business, it makes the justification to add charges of up to £10 for bigger transactions, such as for travel bookings, somewhat questionable.

And while some companies have dropped or reduced their charges over recent years, there are still many that haven’t. For example, an investigation by The Times last year revealed that Queen Mary University of London charged 2% on tuition fees in certain circumstances, Eurostar a £3 flat fee and Everyman Cinema 75p per ticket.

A real ban?

This new blanket ban on surcharges for all payment instruments will come into force in January 2018, but the question now is whether or not companies will absorb the cost and not pass them onto consumers in other ways.

Have you been charged unexpected fees for paying via credit or debit card? Do you think this ban will help you?

Comments

I don’t want to introduce felines among the avian friends, Lauren, but are those regulations solely UK government, as the header suggests, and are they entirely the result of Which? pressure? There’s a small sentence in the linked article: “The government is implementing a new set of rules on payments written in the EU, meaning that surcharges will be scrapped in all member states next year, too.” The Scotsmans also leads with this: “it should be pointed out that the measure is the result of an EU directive. And when Stephen Barclay, Economic Secretary to the Treasury, preaches “fairness and transparency” and promises “no more nasty surprises”, let it not escape anyone’s notice that HMRC, a public agency, levies a charge on those who pay their tax bill by credit card”. As, of course, does DVLA.

That’s interesting, Lauren. When something like this is announced the politicians will be falling over themselves to claim credit. The detail you’ve given shows this is far from the case. Thanks.

These aspects of the EU being useful rarely enjoyed much publicity in the UK. It is a shame that the BUEC site [consumer groups in Europe] is not linked directly to Which? and a commentary made on EU decisions which affect UK citizens also.

Improved payments law: down with surcharges, up with safety

PRESS STATEMENT – 08.10.2015

With today’s vote in the European Parliament, the final hurdle to an upgraded EU payment services law that aims to make payment transactions safer and terminate card surcharges has been cleared.

The way people make payments is changing fast – increasingly payments are made via other providers than one’s bank (so-called third party providers).

Consumers will benefit in the following ways:

Surcharges for the use of debit and credit cards (for example when booking a flight or hotel) will be banned;
The consumer’s personal liability in case of fraudulent payments (for example with a stolen card) will be reduced from €150 to a maximum of €50. This amount can be further decreased if for instance the consumer did not act negligently;
Consumers are entitled to a direct refund from their bank in the case of an unauthorised transaction when using third party providers (for example Sofort or Trustly);
Security breaches or data losses must be communicated immediately to the users of payment services.

Monique Goyens, Director General of The European Consumer Organisation (BEUC), commented:

“Card fraud for euro payments amounts to €1.4 billion1. With new payment players entering the market, it is paramount that security is continuously being strengthened which is why, the upgrade of the EU’s payments law is a positive development.

“Having your bank card or bank details stolen is a very stressful experience. And being forced to pay hefty personal liability fees is just adding insult to injury for the victim. This law will substantially bring down consumers’ personal liability.

“In addition, surcharges for card payments are finally becoming history. They are often excessive and unjustified, and banning them in Europe is a great achievement for consumers.”

1 European Central Bank, https://www.ecb.europa.eu/pub/pdf/other/4th_card_fraud_report.en.pdf

Traders will not willingly take a drop in income, especially where they do face merchant charges from the card industry. Perhaps the cards will have to lower their expectations as well and reduce their handling costs and charges. For companies like travel operators who have done very nicely out of card charges it is almost certain they will spread the cost of not recouping them in future across all their customers. This will mean that those who up to now have settled without the use of a card will end up paying more because the fees will have to be incorporated in the headline prices without discrimination between cash- and card-paying customers. And if we all decide to pay by card in the future traders will incur even higher merchant charges which they will pass on to all customers. This is a win for consumers?

I welcome the end of these charges which can often be disproportionate and unfair. However, I am also concerned John that higher merchant charges will be passed on to customers who will then be worse off in the long run. A somewhat hollow victory.

I agree that this sounds like a rather hollow victory for consumers. A bit like “now you can borrow enough to get completely out of debt…”

If charges are passed on the customers from the outset regardless of how they ultimately pay, it is possible that if spread over all they could represent only an extra few pence/a quid/couple of quid per purchase. As charges currently seem to vary wildly from company to company and you only find out at the moment of paying, price comparison can be a real bother.

Thank you Lauren. I agree with you, and it also should eliminate the profit element inherent in the present situation and leave that money in customers’ hands. Whether, because they are treading on a false margin, any companies would go to the wall as a result remains to be seen, but I tend to take Sophie’s view that averaged out across all purchases it would be infinitessimal and most companies should be able to cover it through efficiency and productivity improvements.Nevertheless, there is a risk of price inflation and I glad that Which? is going to keep an eye on it.

I meant “trading”, not “treading”, in the third sentence.

If we want organisations to handle our transactions by providing credit, as those cards do, then a cost will be incurred. I use my card, pay it off in full monthly, and get up to 2 months free credit. How to pay for this service? Either make a direct transaction cost to the customer, use the interest others pay, or spread the cost over all purchasers. Either way we will pay.

I prefer a system where we pay for a service openly. My local computer supplier charges £2 to handle a cheque, 2.5% for a credit card, nothing extra for cash or a bank transfer/debit card. Seems sensible to me.

It’s all really a bit of smoke and mirrors – we pay in the end.

I am a carpet retailer. A husband & wife partnership that makes little profit but we are working. (One camping holiday per year & a very basic lifestyle).
We take cards & only charge what we need to cover the merchant chges. Credit card sales @2% (& VAT paid out of that) does not fully cover the chg to us. No chg for cash, BACS or Debit cards. This is NOT ripping customers off in any way. Since charging for credit cards only, their use has dropped by 80%, saving us chges during the dire recession. Trade is still not the same as pre-recession.
I agree the ‘ripping off’ does occur & good strategic law should cover this. But in Jan ’18, the baby is being thrown out with the bath water & careful customers (debit, cash or bacs payers) WILL pay for those who use credit cards with abandon. Maybe the merchants companies should be stopped charging me for the debit & contactless transactions? See how that goes down?
Blanket law is as bad as no law. Why can’t the lawmakers/writers (who no doubt earn far more than i do) devise good, strategic, common sense law to cover this. Is this beyond the ‘wit of (well paid) man’? ?
We are not a Limited business & we cannot afford to sub customers’ credit habits. We personally do not use credit cards. But we do get stung by small shops that unfairly refuse debit cards on sales under £5 or£10. We cannot afford foreign holidays but I know people are also ripped on travel chges when using debit cards too. This is where the law should level the ground, not throw a ‘grenade’ at it!

Some of use use credit cards not “with abandon” but because of Section 75. Please see MoneySavingExpert.com or our very own ?Which.

“What is Section 75?

It’s a vital law made in the UK in the 1970s that means your credit provider must take the same responsibility a retailer does if things go wrong with a purchase. In a nutshell…

Pay for something costing between £100 and £30,000 on credit and the provider’s equally liable if something goes wrong.

This isn’t the credit provider being nice. It’s a legal protection put in place so that you’re never in the position of paying off debt for something you didn’t receive or wasn’t as it should’ve been. Whether it’s a flight, kitchen, computer or anything else, pay on a credit card, store card or with store instalment credit and the credit provider’s responsible too.”

I mentioned Section 75 earlier, Sophie, but have never used it and apart from a couple of people who have posted on Which? Convo, I don’t know anyone who has. It would be interesting to know how many claims are made each year and how many are successful. The Which? website also refers to ‘chargeback’ claims that can be made for goods purchased using a debit card and there is no requirement to spend a minimum of £100: http://www.which.co.uk/consumer-rights/advice/how-do-i-use-chargeback

I would expect after the new regulation comes into force to substitute a credit card for a debit card when making any purchase over £100 where a surcharge would otherwise have applied. I expect many other customers would do the same so there will be an increase in unmet costs that ultimately would have to be recovered through the price [or through increased sales within the same overhead – which in recessionary times probably means knocking out some competition].

Obviously some shops would just stop accepting credit card payments and risk losing business. Some might be open to negotiation in some way that provided the cash buyer with a discount or a superior service but be unable to negotiate with a credit card purchaser; some ingenuity might be required to work around any legal stumbling blocks but it should be within the competence of the average British shopkeeper who is generally quite adroit in these matters.

If I was in business I would assume that the customer would pay by credit card and set prices accordingly. I could then offer a small discount to those customers who payed by debit card or bank transfer. Have I overlooked something?

I am not sure Wavechange. I haven’t read a reliable comment on whether that is regarded in law as effectively a surcharge by another name frustrating the point of the EU’s regulation. That is why I suggested a degree of creative subterfuge where some other form of value was introduced into the transaction for cash customers. Perhaps Which? can advise.

I don’t think I would have fared well in business, John.

I always check for card surcharges but have never found a company or other organisation that has not been upfront about card charges.

Paying by credit card gives protection under Section 75 of the Consumer Credits Act, for purchases over £100. I have never made use of this, but would do so if let down by a retailer. I pay my credit card bills in full by direct debit and benefit from a period of free credit. It’s obvious that I should contribute to these benefits and it would be fairer if I did so if it cut down the interest charges for those who do not pay their bills in full.

denton davies says:
20 July 2017

Having read in one of the daily National papers this week, that they are fighting to do away with our currency en block in the very near future, its alarming to read of such idiotic ideas in my mind. When one of the largest targets for Fraud is by targeting these card payments.

I hope this will also apply to the government charges when renewing my road tax (vehicle excise duty). You can only currently pay by Debit Card for free but have a charge if you pay using a Credit Card. I like to use my Credit Card because I get points which can be turned into other ‘money off’ vouchers etc.

Linda Dawson says:
20 July 2017

Fantastic……

Tom Dyson says:
20 July 2017

Excellent result – and how about theatres which charge a ” booking fee” of two pounds or more, per ticket, even when you are standing in front of them at the booking office desk with cash?

Yes, why not indeed. There many other examples one of which comes to mind is trainline .com charges a fee for buying rail tickets.

I have not used Trainline since I discovered that I could book the same trains via another company and not paid a booking fee of £1. I see that Trainline have dropped their fee to 75p, but that’s 75p too much when others don’t make a charge.

Regardless. who ,which body, which directive pressurised this govt, it was the common consumer one way or another helped to bring about the desired result. The consumer now benefits as will all with their own agendas too.
Thank you “Which”

SJ says:
20 July 2017

I work a few hours in a little village shop. There is a cashpoint outside (which recently, with increasing frequency, is out of use) and a post office inside. The shop currently charges 50p for any card purchase – debit/credit/contactless – under £10. Over £10 there is no charge. I encourage customers (not spoken about, but I believe frowned upon) with a spend of less than £10 to either use the cashpoint (24 hrs), or post office (only 08:30-18:00), or top up their spend to the magical £10. It’s worth having a packet of chewing gum (urgh!) costing 50p to avoid a 50p charge. I think. I feel dreadful charging 50p for a £9.99 spend. Some people use a card incurring the 50p charge on spends under £3.00! Crazy. For my own interest, I tried researching the actual cost of accepting a card payment, but gave up because it was just too complicated.
I wonder what will happen from January. I cannot see the shop absorbing the charge to them when they will be unable to recover it. Interesting times.

What is amused me, is that business practice to charge a customer some extra for using debit/credit card, and not to offer any discount for paying by cash. Odd, isn’t? Oh, yes, the business is charged by its bank for bringing them stack of cash too! OK, what about this: these payments are clearly is the business expenses, which are deducted from their accounts before profit calculation. So, how ethical is the practice to charge a customer today, or spread such a cost in the future? – The answer is: GREED!

Ian Howitt says:
20 July 2017

Thank you for your excellent work regarding this. However I fear the costs will just be added to the product being purchased, thus absorbed another way.

Wendy Hartle says:
20 July 2017

These charges are totally unfair & must be removed immediately!
As should charges for printing out our own tickets!!!!!!

This ridiculous EU directive is not going to save the consumer one penny, in fact charges across the board will only increase. Those of us who pay by debit card, bank transfer or cash will now be paying a lot more to cover those who elect to pay by credit card. Hotel Bookings, Air Flights, Road Fund License and all manner of other things will now increase in price for every one of us.

I deal in antiques and collectables, when conducting a sale there is usually some negotiating involved regarding the price of an item, I will now need to verify what payment method the customer will be using before finalizing the sale, I certainly cannot give the discount twice by absorbing the charges levied by the bank, the only other alternative is not to accept credit cards.

In business, I purchase and sell items at auction, the buyer’s premium and sellers commission is between 10% and 15% plus vat depending on the auction house. If a customer elects to pay by credit card, a fee of 2-3% is levied to cover the charges made by the bank, the auction house cannot absorb the 2-3% card processing fee so they will have to increase the buyer’s premium and sellers commission by the equivalent amount, that also increases the amount of vat due and so the consumer is worse off, it’s a loose, loose situation. Another EU own goal, when will they ever learn!

Surely they will just CHANGE THE NAME and call it TRANSACTION charges or somesuch. They are beyond sneaky at getting around these rules and are a very powerful lobby. Am I being cynical?

Very useful change. It brings up to date across Europe the conditions for using cash or credit cards indifferently for transactions. What it does not do is to prevent sellers from insisting on transactions by credit/debit card thus thwarting the use of cash (coins of the realm or bank notes) which I would have thought is the legal requirement for the settling of payments. I say this as the recent experience at a mobile telephone store was anything but pleasant with a tug of war on the basis of ‘take it or leave it’.

This is both good and bad news I fear, especially for those flying EasyJet – they will just increase prices to compensate!

Oxford City Council is charging a fee at their car park pay stations for using a card of any sort. However I know this is not strictly a retailer but it seems a bit mean these days.

Not so sure this is a good thing. It’s the card issuers that should be being tackled, not the companies who now have an additional cost to absorb whilst the mess we’re all still suffering from which was created by the banks and they’ve got of scott free. Sorry Which but you have got this completely wrong. lets get card issuers to drop charges to businesses now that would be a win!

Corner shops are the most notorious appliers of rip-off charges.
I would like to support local businesses, but as they apply those robbery charges, I have no choice but to keep using supermarkets

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Jim McGivney says:
20 July 2017

Pity proper prominence isn’t given to the fact that this is an EU initiative which the UK government is only falling in line with (cf roaming charges, etc).