UK’s Credit Card Surcharges Ban


 

The UK government recently announced that come January 2018, the surcharges that have been added to credit card transactions will be banned. The new rules were announced by the UK’s Treasury Ministry on Wednesday and look to strengthen consumer protection.

British consumers sometimes are forced to pay surcharges ranging from 50p to as much as 20 percent of a total transaction when using a credit card. These small charges are levied by retailers to compensate for their cost of banking, and do not make up for the fee card companies charge merchants to provide banking services. Currently, not all companies pass on this charge when a consumer decides to use a card for their purchase.

The ban builds on an existing EU directive, which caps the interchange fee paid by the merchant at 0.3 percent for credit cards and 0.2 percent for debit cards.

“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,” said Economic Secretary to the Treasury Stephen Barclay.

The UK government has also said it will look at doing more to limit the fees that credit card companies impose on retailers.

Ticketing services, low cost airlines, food delivery apps, and various government agencies have been regarded as the worst offenders when it comes to the surcharges. While the Treasury did not have any recent figures, they did cite data from 2010 that showed the total value of surcharges for both debit and credit cards was approximately 473 million pounds, which is was about $700 million at the time

The fees have become an easy source of revenue for some businesses and government departments. The Drive and Vehicle Licensing Agency in the UK currently adds a flat fee of £2.50 to vehicle tax payments by credit card; estimated to collect more than $11 million a year from these charges. EasyJet and Ryanair have traditionally applied a credit card fee of one percent and two percent respectively. Various online travel agents and flight resellers also charge a fee of ~2 percent, regardless of which airline is booked. Other businesses have been known to deceptively label the surcharge as a ‘service charge’, ‘order processing fee’, ‘facility fee’, or ‘card handling fee’.

The ban has been regarded as a win for consumers; ensuring fees are not passed on to the consumer. Last year, a European Commission questioned the legitimacy of the fees consumers were forced to pay when using their cards.

“Since issuing banks benefit from interchange fee revenues [by directly receiving the payment], card schemes compete for the issuing banks by offering higher interchange fees. These fees are a cost for retailers which increase the price of their products. Interchange fees are therefore, indirectly, paid by consumers. Consumers and retailers are often unaware of the level of these fees. In addition, cardholders are encouraged through rewards offered by their bank to use cards that generate higher fees for the bank,” the commission stated.

Also covered in the ban are the additional charges imposed on American Express cards and users who use services such as PayPal and Apple Pay, which typically have a higher fee than Visa and MasterCard.

According to the National Council of State Legislatures, at least 11 states within the US forbid retailers from adding surcharges to credit card transactions.

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