Can credit card surcharges save consumers money?


Choice report into issues around unpopular fees for using plastic

A CHOICE investigation and survey into credit card surcharges has found 68% of respondents do not believe retailers and other businesses should be allowed to charge extra to those who choose to pay with plastic.

The latest Reserve Bank (RBA) figures reveal the number of merchants surcharging has risen steeply over the past few years, with 20% of smaller merchants and 40% of larger businesses now surcharging their customers.

The CHOICE report, which was commissioned by NSW government’s Fair Trading, says while RBA reforms allow surcharging, consumers are increasingly concerned the surcharges go beyond just covering card costs and are used to raise extra revenue.

The survey respondents found surcharges are most common in industries such as air travel, telecommunications, hotels, restaurants, utilities, taxis and petrol stations.

Surcharges were levied as percentages of up to 10% for taxis, to flat fees often used by airlines. The highest surcharge found was from Qantas: $25 per person per international booking.

“The report argues that transparent surcharges at reasonable levels, which are typically one percent for most cards, are fair enough,” said CHOICE spokesman Christopher Zinn.

“But we are concerned by excessive surcharges that are often not apparent until after you’ve paid, making it too late to use an alternative fee-free method.”

NSW Fair Trading Minister Virginia Judge called on retailers to fully disclose how they determine credit card surcharges and said many consumers thought businesses were using excessive surcharging to profiteer, rather than to recover processing costs.

“Now, surcharges can be as high as 10 per cent or more and the practice of charging has increased significantly, without the extra cost being clearly explained,” said The Minister.

A potential upside of surcharging is that it supports a user-pays system. Those who use cards and get benefits such as interest-free days and reward points now actually pay for them. In pre-reform days, the cost of running the credit card system was paid by all consumers through higher prices - even if they used cash.

Competition in Australia’s credit card system has seen the fees charged by the card companies drop significantly. It’s argued this means a saving of $1.1 billion a year which, in theory, should be passed onto consumers through lower prices.

The CHOICE report, which involved a survey of 1435 consumers and 140 members keeping a diary to track their incidence of surcharges, includes tips on how to avoid them. These include using cash, EFTPOS, debit cards or newer online payment systems.

“The rationale for surcharging is complex and poorly understood despite the fact it affects millions of people everyday. Thanks to Fair Trading for backing this report as more easily digested information about our payments systems would empower consumers to make smarter choices and save money,” said Zinn.

To see CHOICE story on the report go to www.choice.com.au/surcharge

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