The UK Ban on Card Surcharges Does Not Go Far Enough

The UK government's ban for merchants from imposing "excessive" surcharges when customers use their debit and credit cards to pay began on Saturday, April 6th. Card surcharges have become a hotly debated topic over recent years. Many consumers feel it is unfair that they have to go through a complicated checkout process only to find out that there is a hefty fee for the privilege to pay, often irrespective of their chosen payment method. The ban is designed to outlaw such practices. But I don't think it goes far enough. Under the new rules, payment surcharges will have to reflect the actual cost to the retailer of processing the card transaction. Yes, it's a step forward, as it should start differentiating between types of payments. Debit cards cost less for the merchants, so customers should expect to pay less. However, I think that the new rules leave too much ambiguity and leeway for merchants to decide what they consider processing costs. According to the government guidelines, "for card payments the attributable costs could include direct costs such as:

• The Merchant Service Charge, which traders pay to their acquiring bank.

• IT and equipment costs used for particular means of payment such as card terminals, for example point of sale devices.

• Risk management - active fraud detection and prevention measures which vary depending on their business and whether transactions take place face to face or remotely.

• Processing fees such as charges for reversing or refunding a payment.

• Any operational costs that can be separately identified as internal administrative costs arising from activities dedicated exclusively to card payments. For example, where traders opt to buy in services from intermediaries who provide equipment, fraud detection and processing services (especially online payments) for card payments, they should be able to recover the costs they incur through a payment surcharge."

While the government expects that "in many cases, these costs could be evidenced by invoices from equipment and service providers," in practice, I believe it will be difficult to prove what the true costs are for individual retailers, and those that want to continue surcharging, will be able to hide behind the rules. Regular readers of this blog know that the US has recently allowed surcharging. And the rules are pretty clear and unambigous - Visa only allows surcharging on credit cards, and the surcharge amount must not exceed the cost of acceptance for the credit card which is capped at 4%. It is interesting that the US is allowing surcharging while the UK is banning it. However, it appears that the US permission is more restrictive than the UK ban. As a consumer, I prefer the US version.