Why are some consumers still being charged high transaction fees?

By Benjamin Salisbury


The fees you're charged for using plastic should be minimal, thanks to laws that were passed in the few years leading up to 2017. However, you might still be getting hit with higher fees than you should be.

In December 2015, the European Union (EU) imposed a cap on interchange fees, the fees credit card providers charge merchants to process credit card payments. Following that cap, credit card companies can charge merchants no more than 0.3% of the transaction cost.

In addition to the interchange fee, companies processing credit card payments are allowed to add on the Merchant Service Charge, which covers the cost of running the software and hardware used to accept payments. This should be no more than a further 0.3%, meaning a realistic charge for credit card payments should be no more than 0.6% of the transaction cost.

In 2013, the government introduced new rules concerning the fees consumers could be charged for paying by credit or debit card. According to the new law, companies can only pass on the actual cost of processing card transactions to customers. This led to most companies ending extra charges for customers who pay by debit card, and cutting credit card payment fees to 1% or less.

However, not all companies are complying. Research from Fairer Finance found that as of late 2016, many organisations were still imposing these charges. The consumer group is campaigning to change this.

An unfair penalty?
In short, customers are charged extra based on how they choose to pay. True, accepting credit card payments can involve small extra costs for retailers - particularly for small, independent retailers. However, many of the miscreants uncovered by Fairer Finance's investigation are large multi-national firms, where the costs could easily be absorbed as part of running a business.

Sometimes the charges to pay with plastic can be much higher.

For instance, local councils impose a 2.5% surcharge for paying council tax by credit card, airlines often tack on an extra 3% for credit card payments and even insurers add 2% for paying your car or home insurance by credit card (though it should be noted that insurers are exempt from the new rules).

The companies and councils claim they do not make a profit on fees, but James Daley, director of Fairer Finance, said in an emailed response to questions, "We know they are covering them and then adding on some extra for good measure."

The government should be taking action to "fine companies that are still charging high fees for paying by credit card," Daley said. "Trading Standards should be the first to get involved. But we'd like to see government ministers making it clear that there will be consequences for companies that ignore the rules."

The problem costs consumers tens of millions of pounds every year, Daley added. "Ministers need to step in to hold companies accountable."

According to a Treasury spokesman, "Any retailer that makes a profit is breaking the law, and we expect Trading Standards to investigate complaints thoroughly."

However, "companies have been flouting the rules as they realised it's easy to get away with," Daley said. "The rules were also written ambiguously. They are not clear enough about what can be included as a cost of processing a transaction."

Daley feels the UK should follow the European Union's lead on the issue, which is to work on new rules to ban card charges altogether.

What can you do?
As a consumer, you have the option of voting with your feet. Avoid buying products from companies that charge an unfair premium simply because you want to pay by credit card, or use an alternative payment method.

Putting pressure on companies that don't abide by the rules is also a good tactic. Each time a company charges you more than 1%, you could report them to Trading Standards or write to your local MP. You could even take them to small claims court.

Fairer Finance's campaign has led to some major companies changing their policies on charges for credit card payments. British Airways has reduced the cost of paying for a flight by credit card to 1%, down from £5 a person, and Virgin Atlantic has cut the cost to 0% from 1.5%. EasyJet also cut its charge to 1%.

"Taking people's money is a basic part of doing business," said Daley. "In our view, companies should not be charging consumers anything for that. However, if they choose to charge for accepting credit card payments - in spite of the strong public sentiment against these charges - then the rules make it very clear that they can only pass on the cost."

See related: Is this the end of credit card perks?, Dodge non-sterling transaction fees on foreign websites

Published: 24 January 2017