Ban on 'rip-off' card surcharges for paying with debit or credit cards to take effect

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Posted on Jan 13 2018 - 3:00pm by admin

Pound coins and notes and card payment in processGETTY

Extra charges are typically around 2 per cent but can be as high as 20 per cent of the final bill

The extra charges are typically around 2 per cent but can be as high as 20 per cent of the final bill and can particularly take online customers by surprise when they are just about to complete a purchase.

Some retailers add charges which are far higher than what they pay to process card payments and surcharges cost Britons an estimated £166million in 2015.

The ban being introduced from today applies to any transaction where an extra fee is linked to the use of a credit or debit card.

Although it derives from a European Union law on card payments, Britain has gone further than Brussels required by closing loopholes through including linked payment methods such as PayPal and Apple Pay, and it will remain law here after Brexit. 

As we build a fairer society, this added transparency ensures buyers can make informed choices about how they spend their hard-earned money

Treasury Minister John Glen

It applies to credit transfers and direct debits as well as online and other payments.

Treasury Minister John Glen said: “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.

“As we build a fairer society, this added transparency ensures buyers can make informed choices about how they spend their hard-earned money.”

The move will ban practices such as British Airways charging a 1 per cent fee of up to £20 on credit cards, Ryanair charging 2 per cent on such payments and surcharges levied by councils and government agencies like the DVLA, which charges a £2.50 fee. 

Person at the supermarket's till about to payGETTY

The ban does not include other fees which are not linked to the method of payment

As announced in October, HM Revenue and Customs from today will no longer accept personal credit cards for tax payments, on grounds it can longer pass on bank charges for processing and it would be “unfair” to load the cost onto the general taxpayer.

However the ban does not include other fees which are not linked to the method of payment, such as booking charges for theatre, concert and cinema tickets or for using certain cash machines, and firms can still set minimum price thresholds for accepting card payments.

Consumer groups have welcomed the move but shoppers are also warned against retailers pushing up prices to offset the change.

For example, takeaway firm Just Eat has just replaced its 50p charge for card payments with a 50p “service charge” on all orders.

Gareth Shaw, from Which? Money, said: “This ban should finally stop consumers being penalised simply for using their card.  

“However, people will be wary if it results in price increases, minimum spend limits or even cards being refused by retailers.

“The Government and regulator need to closely monitor the effectiveness of the ban – and the fees banks charge retailers for card payments – to ensure that it has the positive impact for consumers originally intended.”

Some small firms fear the move will add to their costs, and encourage more to accept cash payments only.

Federation of Small Businesses national chairman Mike Cherry said: “The proportion of small firms reporting a rise in operating costs is now at a five-year high.

“Removing their freedom to share the burden of card payment fees will give them yet another outgoing to worry about.   

Person paying with contactless cardGETTY

The change could give lenders quicker and more accurate information about customers’ spending habits

“Today’s changes make insisting on payment by cash all the more appealing.”

However, he added: “With access to cash restricted by a rapidly diminishing bank branch network and threats to ATM funding, small firms now find themselves between a rock and a hard place when it comes to customer payments.”

But the FSB welcomed today’s introduction of “open banking” under which people can let approved third parties other than their own banks – such  as price comparison websites – securely access their current accounts, without having to reveal their passwords.

The aim is to usher in a “revolution” to make it easier for consumers to compare products and thus boost competition in financial and other services. 

The change could also help people to budget and save, and give lenders quicker and more accurate information about customers’ spending habits.

It will affect only people who actively give their consent to firms and follows a finding by competition authorities in 2016 that older and larger banks did not have to compete hard enough for customers and many people paid more than they should for their accounts.

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