'Rip off' card surcharges to be banned from January

19 July 2017, 15:13   By Thomas Henry

THE Government have announced they are to ban credit and debit card surcharges, which can add as much as 20% extra to what a customer pays for airline flights or fast-food delivered via an app.

credit card
Credit: dean bertoncelj/Shutterstock.com

Announced via the Treasury, the prohibition is scheduled to come into effect from January, when businesses will have to find some other means of covering the costs of processing card transactions.

It's feared that companies will respond to the ban simply by increasing their prices, meaning that customers will still end up having to cover the estimated £473 million expense of handling card payments.

However, given that this will involve making such costs more upfront and transparent, it's likely that it will allow customers to make more informed purchase decisions, well aware of the full costs they'll face.

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The Treasury's announcement follows several years during which both the UK Government and the European Union have sought to gradually reduce and stamp out card surcharges.

As far back as 2011, the Office of Fair Trading began the fight against unfair surcharges by threatening to "take enforcement action against any businesses" that charge more than processing a card payment actually costs them.

This was followed by respective UK Government and EU moves in 2013 and 2014 to ban this practice, so that firms could add a surcharge no greater than their own costs.

More recently, the EU passed what is known as the Payment Service Directive 2 (PSDII), which from January 2016 legislated for the "removal of surcharges for the use of a consumer credit or debit card".

Given that the UK is still in the EU (at least for now), it unsurprisingly has to comply with such legislation, yet customers will be pleased to know that the Government has actually gone a step further than the EU by also announcing the banning of surcharges for using PayPal and American Express.

Given that the likes of Ryanair are known for charging customers 2% for using PayPal, this will in theory enable the UK public to save even more money.

Speaking of its potential for helping the consumer, the Economic Secretary of the Treasury, Stephen Barclay, said, "These small charges can really add up and this change will mean shoppers across the country have that bit of extra cash to spend on the things that matter to them".

The catch?

Of course, the potential problem here is that, as was discovered when the capping of interchange fees led to the ending of such perks as cashback, everything has to be paid for by the customer.

In this case, what this means is that unless businesses are willing to accept a fractional dip in profit margins, the customer may end up funding the change in the law themselves by paying a tiny bit extra for flight tickets or food deliveries.

Rip-off charges have no place in a modern Britain and that's why card charging in Britain is about to come to an end
Stephen Barclay, Her Majesty's Treasury

That said, even if prices do go up, this would still have the advantage of allowing customers to see the full cost of their potential purchases upfront.

In other words, it would allow them to exercise choice in a more informed way. As Stephen Barclay asserted, "This is about fairness and transparency, and so from next year there will be no more nasty surprises for people".

And given that everything will be upfront, it will potentially save customers money insofar as it will make them think more carefully about making a purchase, which in turn will make businesses work harder to entice them by becoming more competitive.


One question that remains regarding the ban, however, is whether it will stay after the UK completes its exit of the EU.

In view of how the Treasury's announcement is essentially a response to the EU's PSDII, it's conceivable that they may lift the ban in two years' time, supposing enough businesses complain about it.

However, this isn't particularly likely. For one, the fact that the UK has gone a step further in extending the surcharge ban to PayPal and Amex would suggest that the Government has in a sense taken 'ownership' of the legislation to some degree, and will choose to keep it in place even after it exits the EU's jurisdiction.

And lastly, even if businesses complain about increased costs as a result of not being able to place surcharges on purchases, the Government is more likely to cap or remove the business-to-business cost of payment transactions than to reinstate them on a business-to-customer level.

As the Treasury say in their press release, "The government has previously capped the costs that businesses face for processing card payments, and will engage with retailers to asses if there is any more that can be done to help".

Put differently, surcharges are indeed on their way out, and as the UK moves more towards becoming a cashless society, the most likely outcome is that customers will benefit.

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