From 6 April 2013 it will be unlawful for businesses to charge consumers fees for using a particular payment method that are higher than the costs to the trader of accepting that payment method.
This is a change in the law and traders will have to be careful to ensure that they do not include costs in their calculation of consumer fees that are not allowed by the law.
The Consumer Rights (Payment Surcharges) Regulations 2012 stop traders from charging consumers excessive fees for using a credit card or other means of payment. Under the Regulations it will still be permitted to impose surcharges for the use of particular forms of payment but the amount of the charge must reflect and be limited to the trader's costs.
The Regulations implement Article 19 of the European Union's Consumer Rights Directive and are intended to allow consumers to compare prices more easily, boosting competition in areas where payment surcharges are common.
The Regulations say that "a trader must not charge consumers, in respect of the use of a given means of payment, fees that exceed the cost borne by the trader for the use of that means".
There is no definition in the legislation of what exactly is meant by "the cost borne by the trader" but in a consultation on the Regulations the Department for Business, Innovation and Skills (BIS) said that the aim of the Consumer Rights Directive is not to prohibit traders from making payment surcharges, but to limit these to the direct costs borne by the trader for processing that particular form of payment.
BIS does not envisage that indirect costs such as administrative overheads should be included in calculating the costs borne by the trader, rather that these should be reflected in the headline price of the goods or services. This means that operational costs that can be separately identified as arising from activities dedicated exclusively to card payments may be included in the calculation of a payment surcharge. However, indirect costs, opportunity costs and costs voluntarily incurred by a trader as part of running their business more efficiently should not be included.
The Regulations are intended to apply only to payment surcharges, not to other forms of surcharge which are unrelated to the method of payment. This means that traders are free to continue charging administration charges, booking fees and so on, provided that they do not relate to the method of payment used.
The Regulations do not apply to 'excluded contracts'. Excluded contracts include sales made by automatic vending machines, rental of residential accommodation and contracts for financial services.
If a trader imposes a payment surcharge on a customer which exceeds the trader's costs related to the particular payment method, the trader may be required by the relevant enforcement authority to give a suitable undertaking or face injunction proceedings. The trader will also be liable to repay the excess to the customer.
The Surcharge Regulations are in addition to other consumer protection laws in the UK that apply to the pricing and marketing of goods and services, such as the Consumer Protection from Unfair Trading Regulations 2008 ("CPRs") and self-regulatory rules such as the CAP Code. The CPRs prohibit traders from influencing the purchasing decisions of customers by way of misleading actions or omissions (such as hidden cost information). The CAP code requires traders to specify which element of any quoted price comprises fees or charges.
Action to take
Traders may continue to levy payment surcharges provided that these are clear and upfront, and are set at a level which does not exceed the costs incurred by it in processing that method of payment. Traders may, in addition, charge customers surcharges which are unrelated to the payment method, but these must continue to comply with the CPRs and other applicable standards.
There are a number of options available to traders, in order to comply with the Surcharge Regulations. These include:
- abolishing any payment surcharge currently charged, and absorbing costs, which may be reflected in higher headline prices for the goods or services;
- continuing to charge a payment surcharge, limited to the actual cost borne by the trader; and/or
- charging other fees for services not related to a particular payment method.
The Regulations are the result of a consultation by BIS following on from an OFT investigation into a super-complaint by Which? relating to card payment surcharges levied by various operators in the airline industry.
The OFT investigation and subsequent BIS consultation noted a number of practices which are detrimental to consumers. These included 'drip pricing', where a headline price is advertised but other charges are added when the consumer had invested time and effort in the purchasing process; a lack of transparency and failure to offer any reasonable alternative payment method, especially in relation to websites or remote booking platforms where often the only payment method is by card, which carries a surcharge, and traders charging an amount which exceeds the reasonable cost of processing the payment.
The Regulations only deal with the last practice. The Regulations achieve early implementation of Article 19 of the Consumer Rights Directive. The other provisions of the Consumer Rights Directive will not come into force until 13 June 2014.