As of January 2018, the pesky surcharges faced by consumers simply for paying by credit or debit card will be banned in the UK.
The new directive, known as the Payment Services Directive (PSD2), comes from the European Union, and will ban surcharges on Visa and Mastercard payments. As the new directive has become part of British law, it shall remain in place even after Britain leaves the EU.
The government has also introduced rules extending beyond those of the EU directive, banning surcharges on American Express and PayPal too.
The total cost to consumers of these charges in 2010 alone was estimated by the Treasury to amount to £473m, so it is hoped that consumers will have more spending money following the legislation’s introduction.
Under existing rules businesses can demand surcharges (often a small set charge or a percentage of the purchase price) to credit and debit card users. In accordance with the Consumer Rights Act, these charges must reflect business costs and so card usage surcharges must amount to the cost of processing a card transaction. Usually the cost of processing a debit card payment is 10p or 20p and that of a credit card approximately 0.6 percent of the transaction cost.
Not all businesses make these charges, although they are regularly used by airlines, event booking sites, take-away food apps such as JustEat, many small and independent businesses (as banks tend to charge them higher rates), local councils, HMRC, and the DVLA. Consequently all these businesses will have to change the way they charge their customers.
Whilst the government hopes consumers will have more pennies in their pockets, there is a concern that retailers will increase prices as a result. Campaigners in favour of banning card surcharges, such as James Daley, the managing director of Fairer Finance, admit the removal of surcharges may not translate into consumers saving money.
Mr Daley said: “Maybe they will bump the price up. That’s fair game. You have to take customers’ money somehow. And it’s not reasonable to add that cost on at the end of the process. Why not put it in the headline price?”
With British retailers spending £800m on such charges last year, the government can only hope the greater transparency of headline prices and business costs will discourage ideas of headline price increases.