Who charges credit card surcharges -- and why?

By Helen Fowler

Many credit card holders opt to use their card to pay for travel expenses because of the built-in security that comes with a credit card purchase -- Section 75 covers company-cancelled trips, and your card may cover personal trip delay or cancellation. Unfortunately, that extra protection comes at a price -- airlines and travel firms routinely impose charges on consumers who use credit.

Credit card surcharges vary by firm.

For example, a return flight from London to Paris via EasyJet costs almost £5 more when you use a credit card instead of a debit card, thanks to the 2% surcharge on all credit card transactions. If you make a payment via credit card to HM Revenue and Custom (HMRC), you will pay a 1.4% non-refundable transaction fee. Holiday firm First Choice imposes a 2% fee for credit card payments. And UK taxi firm Central Taxis imposes a 5% payment charge on all plastic payments -- debit or credit. credit_card-surcharges

When you use a "budget" airline, such as EasyJet or Ryanair, the price you see boldly advertised online may not match what you end up paying. Brian Munjanja, a chartered accountant with Northamptonshire-based financial advisers AFP Services, suspects that budget airlines do not like to draw too much attention to "payment fees".

"The marketing spiel allows flight costs to appear low," he says.

However, Carly O'Donnell, spokesperson for EasyJet, wrote in an email, "EasyJet [...] includes all credit card fees prominently in the price for customers selecting to pay that way."

On its website, easyJet promotes an option to pay without "payment fees". This is not available on the cheaper payment package. You have to upgrade to a more expensive payment option to avoid the payment fees. Though it would be ideal to have no surcharges, these fees are lower than they used to be. In March 2013, the government implemented a surcharge reform, stating that payment surcharges had to reflect the actual processing cost to the retailer.

There are indeed real costs for merchants to process plastic payments. According to Richard Braham, policy adviser on payments, e-commerce and consumer credit at the British Retail Consortium (BRC), retailers pay payment providers £1 billion annually in fees to debit and credit card companies. Concerns persist over these fees, especially because they vary greatly depending on the deal the merchant strikes. These fees tend to be all over the place, depending on the deal struck with the credit card company.

Those variations are coming under greater scrutiny. In April 2014, the Financial Conduct Authority set up a Payments System Regulator Board following concerns about access to UK payment systems, the terms offered for access and the industry's pace of innovation. The new board came into being under The Financial Services (Banking Reform) Act 2013 and the new Payment Systems Regulator will become fully operational in April 2015.

Despite the industry uproar over fees, Braham says that the majority of BRC members do not levy surcharges on card payments, says Braham. He says budget airlines are an isolated example found mainly online and that shopkeepers do not -- and could not -- routinely impose surcharges on credit card payments.

"If one retailer were to surcharge, this would present a competitive advantage to another," says Braham. The practical logistics of introducing widespread surcharges among High Street retailers would prevent this happening, adds Braham. "Complex hardware, software and staff training would be required to implement an accurate surcharging mechanism and process at point of sale."

See related: FCA investigates: Is credit card market fair for all consumers?, FCA takes over consumer credit regulation

Published: 5 June 2014