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Credit card payment surcharges soon to be tightly regulated

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By Jack Newton, Lawyer, MST Lawyers

For businesses that charge credit card or other payment surcharges, your conduct will soon be subject to tighter regulations.

From 25 February 2016, businesses are prohibited from charging an excessive payment surcharge.

What is a payment surcharge?

A payment surcharge is simply a fee that businesses impose when customers choose to pay by credit or debit card. The fee will either be a fixed dollar figure or a percentage of the total amount being paid.

Some examples are: 

  • Qantas charges a $7.00 fee for domestic bookings and a $30 fee for international bookings when customers pay by credit card only.
  • Ticketmaster charges a fee of 1.95% for payments by credit or debit card.
  • Telstra has a range of fees depending on the card provider – Mastercard, VISA, American Express and debit card customers must pay 1% plus GST, while Diners Club customers must pay 2% plus GST.
  • Cabcharge has a “service fee” of up to 10% plus GST. 

When is a payment surcharge “excessive”? 

A payment surcharge will be excessive (and in breach of the Act) if: 

(a)   The surcharge is covered by an Reserve Bank of Australia (RBA) standard (see below) or regulations; and

(b)   The amount of the surcharge exceeds the relevant standard.

The RBA standards are, as alluded to above, not yet finalised. A Consultation Paper was published in December 2015 which suggested that bank statements will now contain information about the average cost of each payment method, which will then be the maximum that a business can charge to a customer. In other words, take the actual cost a business pays for a particular payment method (for example, credit card) and that will then be used as the maximum permitted surcharge. This means that businesses will no longer be able to include a margin on payment surcharges.

The end result of this is that payment surcharges are all likely to be expressed as percentages once the RBA standard is finalised.

Australian Competition and Consumer Commission (ACCC) enforcement powers

The Act now provides the ACCC with specific payment surcharge enforcement powers. 

The ACCC can issue an Surcharge Information Notice to a business that requires the business to produce evidence of the amount of the payment surcharge and the actual cost to the business of processing the card payment. It is an offence not to comply with the notice with a penalty of $5,400. 

The ACCC can also issue Infringement Notices and initiate prosecutions of companies and individuals who do charge an excessive payment surcharge. Penalties range from $2,200 for individuals to $108,000 for listed corporations. 

Businesses will not be able to simply relabel payment surcharges as “Service Fee” or “Booking Fee” as to do so would be misleading and deceptive and would also contravene other consumer law requirements. 

For more information, please contact our Corporate Advisory team by email corporate@mst.com.au or by telephone +61 3 8540 0200.