What credit card surcharging is, and how new laws about credit card surcharging will help both consumers and merchants to pay less.
The Reserve Bank of Australia has made it official – there is now an enforceable standard for credit card surcharges under the government’s tough new laws.
What surcharge is allowed? What is excessive surcharging?
The Competition and Consumer Amendment (Payment Surcharges) Act 2016 bans “excessive” credit card surcharges. Credit card surcharges are supposed to represent the cost to the merchant of accepting payment by credit card. The new laws declare it is excessive when a merchant charges the customer any more than the cost of the transaction, determined according to the Reserve Bank (RBA) standards.
The RBA hasn’t set an amount for the permitted surcharge amount, but they have defined which costs will be allowed to be included in the allowable surcharge. The actual cost of a transaction does not include the costs of accepting card payments in general (e.g. costs involved in the risk of fraud, or IT infrastructure).
Therefore surcharges for credit cards will need to be levied as a percentage charge on each transaction. This means no more fixed-fee surcharging, unless the fixed amount is lower than the cost of acceptance. The providers of merchant payment facilities (financial institutions) will need to let merchants (business owners) know what their average cost of accepting cards is. This will be the amount that business owners can pass on to consumers.
The RBA Payments System Board will regularly set and reassess the standards for permitted surcharges. As of May 2016, the RBA has said that as a guide, “excessive” is defined as meaning anything more than the permitted surcharge. The benchmarks for the interchange standards – which will lower the cost of acceptance – are as outlined in their May media release:
- Weighted-average benchmark for credit cards: 0.50%
- Benchmark for debit cards: Reduced from 12 cents to 8
The RBA has said that as a guide, the cost of accepting debit card payments through the eftpos system is usually quite low. Accepting a Visa or MasterCard debit transaction may cost a business around 0.50% (½ a per cent) of the transaction value. The RBA says credit cards usually have a higher cost for businesses, but again typically only cost up to 1%-1.5% for Visa and MasterCard, and 2%-3% for American Express cards.
These standards will be enforced by the ACCC starting this year, to give merchants time to adjust their surcharges:
- Large businesses must comply this year, by 1 September 2016
- Small businesses must comply this year or next year, by 1 September 2017
The good news for small business is that ceilings will apply to individual interchange rates, to reduce the smaller merchant’s cost of accepting credit card and debit card payments.
Information shared by Canstar: https://www.canstar.com.au/credit-cards/the-end-of-excessive-credit-card-surcharges/