On 1 September 2017, a ban was imposed on the practice of charging customers excessive surcharges on card payments pursuant to Competition and Consumer Amendment (Payment Surcharges) Act 2016. It will affect all businesses operating in Australia or businesses utilising an Australian bank when charging customers payment surcharges for using a credit card or debit card for payment including EFTPOS, MasterCard, Visa and American Express issued by Australian banks.
Under the previous regime prior to the amendment, excessive surcharging by a business could only be prevented under contractual arrangements between the merchants and the particular payment system. Limits on surcharges were established by the rules of a particular card payment system which merchants could elect to adopt, however, the RBA could not oblige a particular card payment system to alter its rules to limit surcharges or to enforce rules that are in place.
Under the new prohibition, the intention is to ensure that businesses do not recover more than the applicable costs of accepting card payments from consumers.
The prohibition does not apply to some payment methods such as BPAY, PayPal, Diners Club and American Express cards issued directly by American Express, cash and cheques.
What is an excessive surcharge?
Payment surcharges will be “excessive” if the amount of the surcharge exceeds the permitted surcharge prescribed in the Reserve Bank standard which specifies a fixed amount for a particular payment method or a specific range of permitted input costs.
Businesses are not permitted to include internal administrative related costs in the surcharge. Any surcharge imposed on a card payment must be limited to the amount it costs the merchant to accept that type of card for that transaction.
Acceptable costs which can be included in a surcharge may include fees paid to the merchant’s acquirer (or other payments facilitator) and certain other observable costs paid to third parties for services directly related to accepting particular types of cards.
The extended definition of ‘payment surcharge’ is intended to also capture charges which may be characterised or described as being “unrelated” to a particular payment method such as charges described as ‘booking’, ‘service’, or ‘transaction’ fees which are in substance, imposed as a result of the payment being made by card rather than an alternative payment method such as cash or direct debit.
An example of a fee which is not caught by the prohibition and thus does not constitute a ‘payment surcharge’ is an additional fee:
- that is equally applied by the business regardless of payment method used by the consumer, and
- that is not intended to be a compensation for the cost of payment acceptance,
It is a common practice that a business will set a single card surcharge that applies to all payment methods made available to consumers. Under the new law, businesses must set the amount at the lowest cost of card acceptance rather than charging the average cost over multiple payment methods.
ACCC’s extended power
Under the new law, ACCC was given additional powers to:
- enforce the ban on excessive payment surcharges including to issue surcharge information notices requiring a business to provide evidence of the amount of payment surcharge and the actual costs of processing a payment; and
- take action against corporations (including listed entities) that engage in excessive surcharging.
If consumers consider a surcharge is excessive, a complaint can be made to the ACCC.
If a business decides to impose surcharges on card payments made by consumers then consumers must be confident that those surcharges represent the actual costs to the business.
We recommend that all businesses:
- review their surcharging practices to ensure that it is consistent with the fixed amount or range specified in the relevant Reserve Bank standard for that particular payment method;
- ensure that payment surcharges do not exceed the amount stated or calculated as the permitted surcharge;
- retain sufficient records of the actual cost of card acceptance for each payment method made available to consumers;
- provide easy-to-understand information to consumers about the costs of card payments.
For further advice on card payment surcharges or this ban please contact our Financial Services Principal Michael Bracken.