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UK government to accelerate ban on excessive debit and credit card surcharges
At the end of this year the UK government is planning to ban surcharges imposed on consumers for debit and credit card transactions, which exceed the actual costs of handling the payment.
The prohibition reflects requirements of the EU Consumer Rights Directive and, although Member States have until January 2014 to implement the Directive, the UK government has decided to do so early, following an OFT report on surcharging practices in the passenger transport sector. While the OFT focused on the airline, ferry and rail sectors, the government's intention is that the ban will cover most retail sectors.
In March of last year the consumer body Which? submitted a super-complaint to the OFT, asking the regulator to investigate excessive credit and debit card surcharges and, in particular, to look into the manner in which businesses communicate the existence and amount of any surcharge, as well as the proportionality of the charge to the actual cost to the business of processing the payment. The OFT's subsequent investigation, which focussed on the passenger transport sector, found widespread evidence of "drip-pricing" practices, where the surcharge is added only after the customer has filled in many web pages. The OFT's view is that this tactic effectively makes the surcharge compulsory, especially where alternative, free payment mechanisms are not readily available to consumers. The OFT plans to tackle the transparency issue by enforcing businesses' obligations under the Consumer Protection from Unfair Trading Regulations 2008 (under which traders must not mislead consumers by omitting "material" information or by presenting such information in an ambiguous or untimely way). While the OFT also recommended that the government ban surcharges entirely on debit card transactions, the government, following adoption of the new EU Consumer Rights Directive, opted instead to bring forward implementation of the Directive's surcharging provisions.
The ban is particularly relevant to airlines; the OFT (basing its calculations on 10 major airlines operating in the UK) estimated that UK passengers spent around £300 million on payment surcharges in 2010. It is possible that, in light of the new legislation, airlines (and other businesses which rely on surcharges for profit) might look to increase other charges, such as charges for reserved seating, priority boarding, reissuing of boarding cards and luggage. One airline already argues that its admin fee relates to costs associated with its booking system, and is not a surcharge on the payment mechanism, and another has already (in response to the OFT report) replaced its booking charge on debit card purchases with a flat fee of £9.
The government will shortly publish a consultation on its implementation of the ban. One of the issues likely to come up is what constitutes the actual costs of handling a payment / which payment processing costs retailers will be allowed to include in the calculation and pass through to consumers (the OFT has already expressed concern that these costs should be defined tightly). We will be monitoring developments and issuing further alerters on the progress of the consultation and the legislation.
Robert Blamires is a Senior Associate, in the Technology and Outsourcing Group at Fieldfisher.