Credit Card Surcharge Legislation: What Do You Need To Know?

Credit Card Surcharge Legislation: What Do You Need To Know?

“I was looking for a holiday and came across one that seemed to be a really excellent price. However, when I clicked through to the checkout I started to see more and more extra fees being thrown in. There were booking fees, credit card surcharges and who knows what else.

“By the time I was asked to enter my credit card number the price was nowhere near what it had been at the start — it was an absolute disgrace!”

If you’ve booked a holiday online over the past 10 or so years, that story probably sounds very familiar. The advertised price creeping up and up and up until you were hit with a final bill much higher than where you started.

One of the most common additional fees is are payment surcharges, which are theoretically charges to cover the cost of processing a payment.

However, many companies identified surcharges as a clear opportunity for profiteering and billed customers for amounts well in excess of the actual cost of payment processing.

If I were to book a London to Edinburgh return rail ticket with one of the worst rail offenders at a cost of £138, I would have to pay an extra £7.21 for the luxury of using a credit card — that’s an increase of 5.22% just for the luxury of paying!

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That all changed as of the 13th January 2018, when new legislation made it illegal for businesses to charge customers to pay using a credit card. Is it illegal to charge for using a debit card too? You ask. The short answer is yes – hidden surcharges for paying with a debit or credit card have been banned in the UK since 13th January 2018.

In this blog, we’ll look at what got us to that point and discuss whether merchants can legally surcharge customers under the new rules.

To prepare for the changes, we recommend you compare the merchant service deals on offer. Most people can save up to 40% on their current payment processing fees. So, jump over to our comparison engine and see what’s on offer today!


What is a surcharge?

What is a surcharge?

Before we dive into the legalities of surcharges, it’s probably a good idea to get a solid definition of what they are.

A surcharge is defined as:

An extra fee charged by a merchant when receiving a payment by cheque, credit card, charge card or debit card (but not cash) which at least covers the cost to the merchant of accepting that means of payment, such as the merchant service fee imposed by a credit card company.

That’s reasonably straightforward and if used correctly, allows a merchant to pass on the full cost of a transaction to a customer.

For example, if a customer wants to pay a bill using a credit card and it will cost £10 for the merchant to process that credit card transaction, the merchant could pass that £10 fee onto the consumer using a surcharge.

In their heyday, surcharges were big business, used by hundreds of thousands of businesses across the UK.

In 2010, the Office of Fair Trading (OFT) estimated that consumers shelled out an unbelievable £316 million for surcharges. By 2013, the airline industry alone was charging £300 million in surcharges!

However, that all changed on 6th April 2013 when merchants were banned from charging customers any more than their card processing fees. A further blow was dealt to merchants in early 2018 as new legislation made it illegal for merchants to apply any additional charges for customers paying with a debit/credit card.


What does the law say about surcharges?

What does the law say?

Since the government’s ban on surcharges on January 13th 2018, businesses cannot impose additional fees when customers use these different payment methods:

  • Consumer credit cards, debit cards or charge cards (does NOT include corporate credit cards)
  • Mobile phone payment methods including Apple Pay and Android Pay
  • Electronic payment services e.g. PayPal or Stripe

Surcharges are still authorised when it comes to other methods of payment such as cash or cheque. However, they tend to be subject to restrictions by the Consumer Rights (Payment Surcharges) Regulations 2012 (amended by the Payment Services Regulations 2017) when applied to consumers.

The ‘surcharging’ ban is enforced by Trading Standards who have the power to penalise any business/organisation who fail to comply with the legislation. Penalties may include a fine and/or imprisonment.

Economic Secretary to the Treasury, John Glen shared his views by stating:

“It’s completely unfair for someone to be hit by a hidden fee just before they are about to make a purchase, so by scrapping these rip-off charges we are helping to give power back to the consumer.”


How much can I surcharge?

Can businesses still apply surcharges?

If the customer pays for a product/service using an alternative payment method to the ones mentioned above, then yes, businesses can still apply surcharges.

It’s important to understand that it is the method of payment, rather than the status of the buyer, that determines whether or not a surcharge fee applies.

For example, if an employee is out for a work lunch and uses his personal credit card, the rule applies. Whereas, if that same employee used a corporate credit card to pay for his lunch, the rule does not apply.

Businesses are still permitted to apply additional surcharge fees for the following payment methods:

  • Cash
  • Cheques
  • Standing Orders & Direct Debits.
  • Corporate credit cards.

Although, in a bid to limit excessive surcharge fees, the Consumer Rights (Payment Surcharges) Regulations 2012 set a limit on the amount merchants can charge when their customers pay by these methods.

The legislation states that the surcharge must not be more than it costs for the business to process the method of payment. This is the same rule that applied to debit/credit card payments before it was abolished in 2018.


Will surcharges stay legal?

Will surcharges stay legal?

So, that is the background on surcharges. Now it’s time to look forward.

With new laws coming into fruition to support the consumers, there’s every chance that surcharge fees will be scrapped for the payment methods that still allow additional fees. In the meantime, it’s a wise investment to ensure that you use your credit/debit card to avoid any unnecessary hidden fees.

The cap on alternative payment methods should, in theory, decrease payment processing fees for merchants. With that in mind, it’s widely expected that EU/UK legislation will be introduced to eliminate surcharges on cards covered by the cap.

The logic is that the cap makes payment processing fees low enough for merchants to bear the cost themselves without passing onto cardholders.

It is worth noting, however, that the interchange cap does not cover all cards and cards that are not covered may still be liable for surcharges. Commercial credit cards, for example, are not covered and may still incur surcharges.

Precisely what will happen remains to be seen but we will endeavour to keep you up-to-date and informed of all the major developments.

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