Why are the Consumer Rights (Payment Surcharges) Regulations such a big deal for businesses?
It has become commonplace, particularly through online sales, for businesses to pass to the customer the additional fees they are being charged by banks and other intermediaries to use credit cards and debit cards.
However, some less scrupulous businesses have been charging excessive amounts in addition to the price of the service or the product. Often, consumers would only find out about the hidden charges just before they were about to purchase and frequently, these charges far exceeded the cost to the business to process the payment. It was estimated that in 2015, surcharging cost the UK £166 million.
The Government branded these surcharges as ‘rip off fees’ and, implementing new EU law, has moved to try to protect consumers and increase competition in the payments industry by introducing restrictions on payment surcharges.
What are the Payment Surcharges Regulations?
The Consumer Rights (Payment Surcharges) Regulations 2012, as amended by the Payment Services Regulations 2017 (the Regulations), impose controls on any trader seeking to charge a customer fees for the use of certain methods of payment, such as credit card, direct debit or online payment (e.g. BACS or by way of a third party provider such as Paypal). They came into effect on 13 January 2018 and apply to transactions made in person, by phone or online.
What do the Regulations Say?
Two key points:
- there is a ban on surcharges in business to consumer transactions which take place within the European Economic Area (the absolute ban)
- in business to business transactions, you cannot apply surcharges that exceed the cost borne by the trader of accepting the payment method (eg. Paypal’s commission charge) (the excessive surcharges ban)
Note, it is not the status of the buyer, but the method of payment that is relevant. For example, if a partner in a partnership uses a personal credit card but is buying for a business, the absolute ban applies. If they use a corporate credit card, only the excessive surcharges ban applies. However, differentiating between these situations will be hard in practice.
Also, if either the trader or the payment service provider is based outside the EEA, only the excessive surcharges ban applies.
What Does This Mean in Practice?
The absolute ban means that you cannot charge a consumer a fee for choosing to pay by:
- debit or credit card
- online banking and telephone banking services (including Apple Pay and similar); or
- credit transfers and direct debits
You cannot incentivise the customer to choose a particular payment method either if this effectively makes the other methods above more expensive.
Also, where you are allowed to levy surcharges that are not excessive, the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 require you to get the express consent of a consumer for that surcharge prior to contract formation.
What Can You Do If You Are Caught by the Absolute Ban?
- refuse to accept certain types of payment (this approach was put into practice by HMRC who announced they would no longer be accepting payment by personal credit cards)
- increase the cost of your product or service (JustEat added a 50p service charge to all of their orders, though this did not go unnoticed and was the subject of a huge public backlash)
- offer a discount for one-off payment over instalments, as long as the charge is the same for all payment methods (so no effective surcharge is made for use of a credit card over cash, for example)
- have a minimum spend (e.g. £5 or £10 for credit or debit cards)
- charge a booking or handling fee to all customers regardless of the method of payment (eg. charging 50p for every booking made online, whether bought by debit card, credit card or through another payment service such as PayPal)
- encourage direct debits or other bank to bank payments or if suitable for your product or service
Consequences of Breaching the Rules
Where fees are charged in contravention of the Regulations, the customer is not obliged to pay it; and if it has already been paid, it is refundable.
With the increased accessibility of the internet, consumers are more price conscious these days than ever. As a result, retailers have had to find innovative ways to cover increasing costs rather than increasing the product price, as tools like price comparison websites and listing by price means those businesses who are more “honest” with pricing may lose out.
Expecting anyone other than the largest businesses (such as Apple for example) to be able to negotiate card processing transaction costs with the banks is most likely unrealistic. Looking to the future, the possible widespread adoption of blockchain may mean that retailers and customers are able to trade directly, without the need for banks or other payment services intermediaries – or so advocates of blockchain are saying – but that’s a good few years if not a decade away at best. Therefore, at least for now, most businesses will either have to refuse payment by credit card, increase prices or absorb the costs charged by banks.
 Where both the business and the consumer payment service provider is located in the EEA.