OFT demands credit card surcharge transparency

By UK CreditCards.com

Travel companies have been told to be upfront about any credit card surcharges, following an investigation into the issue by the Office of Fair Trading (OFT). The regulator launched a 90-day investigation after consumer group Which? submitted a super-complaint about misleading debit and credit card surcharging practices. It has now published its findings and called for passenger travel companies to change their ways, as well as for the introduction of new legislation.

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Why did the OFT investigate surcharges?
The OFT looked at the practice, which is commonly used by airlines, after Which? complained about excessive debit and credit card surcharges. The consumer group claimed the charges were often "above and beyond" the costs faced by retailers when processing card payments and that people were being ripped off as a result.

What did the regulator find?
During its investigation, the OFT found evidence of companies employing 'drip pricing' practices, whereby the full extent of surcharges is only revealed in the latter stages of an online purchase. It estimates that UK consumers spent around £300m on debit and credit card surcharges while purchasing airline tickets in 2009, with many of these fees only becoming apparent at the end of the process.

How will the situation change?
As a result of its findings, the OFT has told retailers to inform customers about credit card surcharges at an early stage during the buying process. According to the organisation, any extra charges should be made "clearly available via just one click" and should be referred to on any advertising material promoting prices. Any company that fails to meet these minimum transparency requirements could face enforcement action in the future.

The regulator is also asking the government to change the law so that retailers can no longer add surcharges to debit card transactions, as these are not as costly to process as credit card payments.

"The growth of internet retailing has brought massive benefits, but the increasing use of card surcharges is not one of them," said Cavendish Elithorn, senior director of the OFT's goods and consumer group, in a statement. "You can't buy online with cash and people are frustrated about being asked to pay for paying."  

Consumers and industry welcome decision
In response to the OFT decision, Which? chief executive Peter Vicary-Smith commented in a statement: "Thousands of people have told Which? that hidden or excessive card fees are unfair, and it's a victory for consumers that the OFT supports this view."

Mr Vicary-Smith urged companies to make the necessary changes "as soon as possible" so that consumers know how much their purchase will cost. "Businesses can start to be upfront and fair over card charges today," he argued. "There's no point waiting until the OFT forces action. Industry shouldn't drag its feet over this."

The OFT's ruling has also been praised by the credit card industry. Melanie Johnson, chair of the UK Cards Association, said that companies "should not generate profit by imposing inflated surcharges when their actual card processing costs are substantially lower."

"There are costs to every business for accepting payments," said Johnson in a statement. "But the vast majority don't charge us for paying in different ways. Why would a business choose to charge customers more for choosing the card they most want to use?"

See related: 'Excessive' card surcharges continue to draw fire; Plastic card transaction fees stir debate 

Published: 5 July 2011