Q&A: Credit and debit card surcharges

Cards, receipt and lock
Image caption Consumers are locked in to paying surcharges when using debit or credit cards

The government is planning to ban "excessive" fees for using a debit or credit card to buy items such as tickets online.

It has gone further than recommendations from the regulator to ban surcharges on debit cards only, by proposing to issue the same ban on credit cards.

However, traders will be allowed to levy a "small charge" to cover the cost of processing a card payment.

So what will this mean for you?

What are these surcharges?

Consumers booking tickets for travel or entertainment online are often charged extra when they tick the box that says they intend to pay by credit or debit card.

Sometimes this payment is only added to the total cost after buyers have ploughed their way through up to eight web pages.

The Office of Fair Trading (OFT) has said that this is unfair, because it makes it difficult for consumers to compare prices between different companies.

So what is the government proposing to do?

The government wants to ban "excessive" surcharges for anyone using a debit or credit card. It says that the charge should only relate to the "small" cost to a retailer of processing a card payment.

The ban will cover travel companies, booking agencies and even councils.

In effect it is bringing forward European proposals that will force companies to make these surcharges cost-reflective.

These were not due to become law until mid-2014, but the government will bring the new law into force in the UK from April 2013.

Does this kind of thing happen in many industries?

It certainly does.

There is evidence of local authorities and the DVLA levying these surcharges.

However, the OFT said in its report earlier this year that it considered the travel industry to be the most pressing to deal with.

There is a difference in using a debit or credit card when buying items.

Using a credit card does offer extra protection for consumers if things go wrong, such as a travel company collapsing, and, of course, allows people to book tickets on credit.

What do travel companies say?

Some made changes to their websites after recommendations were made by the OFT.

Those airlines which failed to do so were investigated by the watchdog, and later agreed to include debit card charges in their headline prices.

They were Ryanair, Easyjet, Aer Lingus, BMI Baby, Eastern Airways, Flybe, German Wings, Jet2, Lufthansa, Thomas Cook, Thomson and Wizz Air.

Why is there a card processing cost anyway?

High Street retailers point out that they absorb the cost, by charging the same in shops to someone paying by card as they do to cash-paying customers.

However, card payments do involve costs, in what is quite a complex process.

The customer uses a card to pay for a product or service. The retailer or business takes the card details and gives them to an "acquirer". The acquirer is the bank which processes the payment on the retailer's behalf.

The acquirer passes on the details to the customer's bank or building society, and passes the payment back to the retailer. This operation is overseen by the card scheme, such as Visa, Mastercard or Maestro.

So, for example, the acquirer will charge a fee for its part of the process.

How did this issue come to light?

After an investigation prompted by a super-complaint from the consumers' association Which?.

Various consumer groups have the statutory power to make a super-complaint to the OFT if an issue is "significantly harming the interests of consumers".

The OFT has 90 days to respond by stating what action, if any, it plans to take on the issue and the reasons behind its decision.

The OFT made proposals which led to the latest government response.

So has the regulator looked at the issue of surcharges before?

Yes, to a degree.

It has already read the riot act to businesses over "drip-pricing". This is when extra costs are added when a customer goes through the transaction process online.

Now, businesses must include any compulsory extras in their headline price on their website.

For example, if an airline charges customers a fuel duty surcharge, this must be included in the advertised price of the flight.

Many businesses have made prices on their websites clearer as a result of these rules.

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