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‘Rip-off’ surcharges for paying by card to be banned in January

Authored by Phil Meekin

Phil Meekin

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Approximate read time: 3 minutes

As a result of an EU directive, the government has recently announced that charges added to card payments for goods and services are to be banned in January 2018. Described as a rip-off by many consumers and charities, these payments cost the British public hundreds of millions of pounds every year.

The levy for paying on plastic is usually applied to purchases such as cinema tickets, low-cost flights and takeaway meals. The government believes that the scrapping of this charge will mean “shoppers across the country have that bit of extra cash to spend on the things that matter to them”.

However, some commentators have said that they expect many companies to simply add the loss of income to their prices or change the name of the fee. For many government departments, the charges have provided them with addition profit over the years; currently, the DVLA charges £2.50 for vehicle tax payments made by credit card, this has resulted in £8.5m a year collected in charges.

Surcharging has been common practice in the UK for many years with businesses charging customers for making payments by card or using services such as PayPal. Official figures from 2010 show that surcharges cost the public around £473m, a large amount of money that companies have profited from.

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However, many retailers claim they are merely passing on charges made by the banks. Typically banks charge large retailers 10p-20p for a debit card and 0.6% of the transaction cost for a credit card. Under the Consumer Rights Regulations act, business are only allowed to charge customers a sum which reflects their own costs for processing the transaction.

With everyone from Ryanair and  EasyJet to Hungryhouse and local authorities charging fees, as a specific amount or a percentage of the overall transaction cost, it is a practice which if banned is likely to harm some businesses in the UK.

Small businesses, in particular, will be the ones who lose out the most. This is because they are usually less likely to be in a position to put up their prices so the charge will inevitably cut into their income and profit. They also tend to pay higher bank charges as they do not have the buying power that larger companies have.

Managing editor of MoneySavingExpert.com, Guy Anker, commented on the scrapping of these charges; “We expect some companies will raise prices for all to compensate for the loss, which could hit those who currently pay in cash or by debit card.”

Although the EU directive focuses on abolishing fees on Visa and MasterCard, the UK government’s proposal also bans charges for American Express holders and users of Apple Pay and PayPal. The inclusion of so many companies means that plenty of consumers will feel the benefits of this in their pockets from the beginning of next year onwards.

This is a move that has been described as ‘long overdue’ by consumer group Which? and it is one that the UK government, and many others, hope will bring about fairness and transparency between consumers and business when they are using card to pay for goods and services in future.

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