Time to review your credit card charges
Under the Competition and Consumer Act 2010 (Cth) businesses may be fined for excessive credit and debit card payment surcharges.
A payment surcharge is defined as:
- an amount charged, in addition to the price of goods or services, for processing payment for the goods or services; or
- an amount (however described) charged for using one payment method rather than another.
The bans on excessive payment surcharges were introduced by the Competition and Consumer Amendment (Payment Surcharges) Act 2016 and affect all businesses, no matter what their size. The bans were applied to large merchants from 1 September 2016 and to small merchants from 1 September 2017.
The imposition of a payment surcharge is not mandatory however businesses that do apply a surcharge on credit and debit card payments are encouraged to review their policies to ensure they are compliant with the new rules, and to avoid being fined.
What is an ‘excessive surcharge’?
A surcharge is the additional charge added by a merchant to the costs of goods or services supplied to a consumer when they choose to pay with a credit card to cover the cost of processing that payment.
The reforms reflect the move towards a cashless society where credit card, pay-wave and tap-and-go payments continue to replace traditional cash transactions.The bans aim to stop businesses slugging customers with excessive fees simply because they choose to pay by card.
The laws ensure that credit card payment surcharges are not excessive and reflect (only) the cost of using the payment methods for which the business is charged.
A payment surcharge will be deemed excessive if a business owner charges any more than what it is charged by their financial provider for accepting a payment method covered by a Reserve Bank Standard or contained in the regulations. Currently, this includes:
- Eftpos (debit and prepaid);
- MasterCard (credit, debit and prepaid);
- Visa (credit, debit and prepaid);
- American Express companion cards (American Express cards issued through an Australian financial service provider and not directly through American Express).
Businesses are not restricted in applying surcharges to other types of transactions not prescribed in the regulations (for example BPAY, PayPal and directly-issued American Express cards) however merchants should check any limitations in the terms and conditions applicable for each of these payment systems.
The excessive surcharge rules do not affect taxi services which are regulated under state and territory legislation.
What should businesses do?
A merchant must not apply a surcharge on a customer transaction that is greater than the cost charged by its bank to accept that particular method of payment. The surcharge may only relate to bank fees and terminal costs and a business cannot add internal costs to the transaction.
Business owners will need to identify the external costs charged by their provider for prescribed transactions and add no more to that cost when charging customers.
Charges applied by financial institutions for card payment services are generally set as a percentage of the actual transaction value. These fees are contained in monthly statements which should outline the cost to the business of accepting each payment method. Financial providers are required to give their customers accurate information detailingthe charges applicable for accepting each card service.Business owners should contact their bank for clarification of these costs if they are uncertain.
Generally, surcharges for domestic Eftpos systems for debit cards are relatively low (around 0.5 per cent of the transaction value) with credit cards such as Visa and MasterCard around 1-1.5 per cent. American Express attracts around 2-3 per cent.
Businesses wishing to set a single surcharge applicable for all payment methods may do so, however must ensure that the surcharge reflects the lowest surcharge for all accepted transactions.
The surcharge limit should generally be reviewed annually.
What are the fines and how are they enforced?
The Australian Competition and Consumer Commission (ACCC) is charged with enforcing the ban and will investigate consumer complaints regarding excessive payment surcharges.
The ACCC may issue a surcharge information notice requiring a business to provide evidence regarding the surcharges they are applying to prescribed transactions to determine whether the business is in contravention of the ban.
If an excessive payment surcharge is identified the ACCC may issue an infringement notice. The following penalties apply:
- 12 penalty units ($2,520) for a sole trader;
- 60 penalty units ($12,600) for a proprietary limited company;
- 600 penalty units ($126,000) for a listed corporation.
For more serious breaches, the ACCC may commence Court proceedings seeking penalties of up to:
- 1,295 penalty units ($271,950) for a sole trader;
- 6,471 penalty units ($1,358,910) for a body corporate.
Individuals who suffer loss or damage as a result of a contravention of the ban may also bring action against the business.
Businesses that choose to apply a surcharge to prescribed transactions must ensure that the charge does not exceed what is charged by their financial provider for accepting a certain payment method. Significant fines may be imposed for contravening excessive surcharge bans.