New rules will ban all credit card fees next year, the government announced this week.
Times Money has long been campaigning for fairer credit card fees. Our Troubleshooter column in February heard from a man who had been charged more than £90 (2.5 per cent of his deposit) to pay for a cruise for three people with Readers Offers Limited. ROL refunded the fee as a “goodwill gesture” when contacted by Times Money, but said that it had been necessary to cover “all costs associated with processing the transaction”.
Ricky Knox, the founder of Tandem, an online money management service, said that the change had been a long time coming. “Many of these cards offer rewards and cashback on purchases, but the fundamental barrier of charging for the method of payment is counterintuitive.”
“Previous action to protect consumers from excessive card surcharges has been difficult to enforce
What is happening?
The new rules, which stem from EU legislation, will outlaw “surcharging” in Britain. This is a common practice where consumers are charged extra for paying with a credit or debit card. An investigation by this newspaper last year found that charges of 3.5 per cent were widespread. The fee can be as high as 12 per cent and can be levied anywhere from a local newsagents to holiday booking websites and takeaway apps. It is also sometimes applied when customers pay online using systems such as PayPal. The Office of Fair Trading estimates that Britons spend £300 million on credit card surcharges in the airline industry alone.
When will it happen?
The new fees ban will be enforced from January 13 next year and will include online payments systems such as PayPal and Apple Pay.
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Why do the fees exist?
Like ROL, many companies argue that they cover transaction costs. The transaction fee is made up of two parts: the interchange fee, levied by the card issuer such as MasterCard or Visa (capped by law at 0.3 per cent) and the merchant fee, charged by the bank for handling each payment. The merchant fee is not capped, although for large businesses it should not amount to more than 0.3 per cent. Businesses sometimes argue that transaction costs can also include staff time and IT processes. This was the explanation offered by the DVLA after it was found to have made more than £42 million from the fees since 2012.
Didn’t something change a few years ago?
Sort of. In April 2012 charging “excessive” fees was banned. Companies and shops are now supposed to pass on to the customer only charges they have incurred. Which?, the consumer group, has been campaigning for an end to the charges for years. Gareth Shaw of Which? says: “Previous action to protect consumers from excessive card surcharges has been difficult to enforce, leaving consumers paying over the odds just for paying by card. These new rules will finally put an end to this.”
The Treasury said: “While many industries have acted to absorb the cost and not pass these on to consumers, these rules will bring an end to the practice entirely.”
Will costs in shops and for holidays go up?
Some people are worried that the new rules could cause retailers to push up prices. Which? says that those companies that have already reduced fees have not increased prices. This includes Virgin, which scrapped a 1.5 per cent surcharge on flights, and British Airways, which replaced a £5 charge per flight with a 1 per cent fee.