Credit card surcharge changes you need to be aware of

Passing on credit card surcharges to customers has been common practice in many businesses but excessive surcharging will soon be a thing of the past as new regulations roll out. We give you the lowdown to make sure you’re aware of the new rules and their timing.

It’s official. The Reserve Bank of Australia has bowed to public pressure and has introduced tough new laws on credit card surcharges. And for large businesses the changes come into effect from today.

While it is common practice for businesses to pass on credit card surcharges to their customers when they opt to pay by credit card, some businesses have chosen to add a ‘service fee’ to the surcharge. In the last few years consumers have become increasingly agitated by such surcharges, aware that they are higher than the fee the business actually pays. Airlines have come under the strongest fire, with Choice suggesting that the Jetstar surcharge of $8.50 was a 1187% mark-up on the actual cost to the airline.

What are the changes?

As of 1 September this year, all large businesses will be banned from passing on any more than the actual cost of the payment service. A large business is defined as one that satisfies at least two of the following thresholds:

  • consolidated gross revenue for financial year ending 30 June 2015 of $25 million or more
  • value of consolidated gross assets at 30 June 2015 of $12.5 million or more
  • 50 or more employees (whether full time, part time, casual or otherwise) at 30 June 2015.

All other smaller businesses will be required to comply by 1 September 2017.

The rules, developed by the Reserve Bank of Australia and policed by the Australian Competition and Consumer Commission (ACCC), in a nutshell say that no business is allowed to pass on to customers any more than the actual cost of the payment service.

From mid 2017, banks will provide to businesses an annual statement showing average percentage cost over the year for each type of card they accept, says Dr Michael Schaper, Deputy Chair of the ACCC.

“That amount is what you will be able to pass on to customers, but only if you want to pass it on,” he says.

And that is an important point, Dr Schaper says. There is absolutely no obligation to pass the surcharge on. “We don’t want to cause prices to rise,” he says. “We are simply putting rules around how much a customer can be charged as a result of a specific fee.”

What happens if I don’t comply?

Penalties for overcharging credit card fees will be high. Listed corporations can be hit with infringement notices of up to $108,000, other incorporated businesses can be fined up to $10,800 and smaller businesses up to $2,160. If court action is required, pecuniary penalties can be as high as $1,164,780 for a body corporate or $233,100 for any other entity.

Another important point is the fact that a business is likely charged different fees for different cards. So if fees are 1 per cent for Visa Debit, 1.5 per cent for Visa Credit and 2.5 per cent for American Express, you cannot average the fees out to create a single surcharge. Instead you must have three different surcharges, or a single surcharge that is equal to the lowest. In this case, the single surcharge would have to be 1 per cent.

“The message really has two parts,” Dr Schaper says. “One is to be aware of when you will need to comply. The other is to realise that you have the right to ask your bank why they are charging you a high credit card fee. Businesses should check whether they are being overcharged by their financial institutions.”

For more information, see the ACCC’s payment surcharges information pack here.

Payment without surcharges

Online customers always appreciate having payment choices, particularly when there is a surcharge-free option. POLi, a business of Australia Post, offers an online payment option facilitating a Pay Anyone internet banking payment from a customer’s bank account to a merchant. POLi does not charge customers a fee and for merchants a standard rate of 1 per cent (capped at $3) applies. It is a practical alternative for customers without credit cards or for those who prefer not to use credit cards online. Find out more here.

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