What is Surcharging?
A payment card surcharge is an additional fee that retailers add to a customer’s bill when a card is used for payment, and which they would not have to pay if paying by other means.
What is the issue?
In the past, a number of companies have imposed surcharges. These were particularly prevalent in the travel industry where airlines and other companies often used 'drip pricing' practices for surcharges online - adding payment charges to the total price only after customers had filled in a number of web pages during the purchase process. The Office of Fair Trading (OFT) estimated that UK consumers spent £300 million on payment surcharges during 2009. The OFT concluded that surcharging for using a credit or debit card is potentially misleading to consumers when it comes as a surprise - particularly when free payment mechanisms are only available to a small proportion of consumers, making a surcharge effectively compulsory.
This makes it very difficult for consumers to accurately compare prices, which is not good for competition. It is often very difficult to avoid surcharges e.g. if buying online it is not possible to use cash.
To make headline prices truly meaningful and comparable, the OFT is calling for traders to stop charging for paying with any debit card - the online equivalent to cash. Traders should still be able to impose surcharges for other payment mechanisms such as credit cards, which can be more costly to process, provided that they meet the minimum transparency requirements set out by the OFT.
What we think
Surcharges cause harm where they are not transparent, and where consumers lack the opportunity to avoid them.
The lack of transparency about true cost means that it is difficult to compare headline prices, weakens competition between retailers and often results in consumers not getting the best deal. Allowing more meaningful comparisons and ensuring information on surcharges is provided in a clear and timely manner helps consumers avoid surcharges and encourage competition between retailers.
We support the EU Commission’s proposals to prohibit businesses from charging fees for using a particular payment method which are themselves higher than the costs to the trader of accepting that payment method. These rules are contained in the Consumer Rights Directive.
We encouraged the UK Government to bring forward legislation prior to the Consumer Rights Directive coming into force, and were pleased that this request was fulfilled in 2012. The effect was that, from 6 April 2013, it became unlawful for retailers to impose large surcharges at the end of the payment process which considerably exceed their processing costs.
The recent changes also give consumers greater transparency by allowing them to compare the price of products online. The card payments industry has consistently moved towards greater transparency for online payments, which is another reason why we strongly supported this legal change.
What we are doing?
We have been supporting the Which? campaign to identify particular retailers that are failing to comply with the legislation. We have called on the Commission to ensure that the provisions of the Payment Services Directive (PSD2) conform to these principles.