The RBA’s surcharging framework was introduced in 2003, but it wasn’t until 2016 that the ACCC gained the power to enact a ban on excessive surcharges to consumers for using credit and debit cards
The RBA has come full circle and now committed to banning payment card surcharging altogether
From October, Australian consumers should be able to have confidence they’ll pay no more than an advertised price when using a credit or debit card
When the Reserve Bank of Australia (RBA) introduced the payment card surcharging framework in 2003, it opened the floodgates for businesses to charge customers an extra fee if they used a credit or debit card to pay for goods or services. Prior to 2003, the major card networks such as Visa and Mastercard prohibited this practice.
The move by the RBA was meant to encourage consumers to seek out and use the lowest cost payment method they could find. It was a measure aimed at counteracting the increasing costs to merchants being applied by the networks, which were then passed on to customers.
But defining how much merchants were allowed to charge proved problematic. In 2016, the Australian Competition and Consumer Commission (ACCC) gained the power to enact a ban on excessive surcharging – defined as merchants charging customers more than it cost to accept the debit or credit card payment.
Airlines, in particular, have been notorious for their massive surcharges, though they often called them something else, such as a ‘handling fee’
The allowed amounts charged to consumers ranged from 0.5% to 2% of the cost of the purchase for credit cards, and from 0.85% to 2% for debit cards, depending on the size of the business (smaller businesses charge higher surcharges since they pay more to use payment card networks).
It’s fair to say that these approximate caps have been routinely exceeded by businesses large and small in recent years. Airlines, in particular, have been notorious for their massive surcharges, though they often called them something else, such as a “handling fee”.
Now the RBA has come full circle and committed to banning surcharging altogether.
“The surcharging framework, introduced more than two decades ago, is no longer achieving its intended purpose of steering consumers towards making more efficient payment choices,” the RBA said in a statement.
“The increased prevalence of businesses surcharging all cards at the same rate, challenges with enforcing the current surcharging framework, and consumers using less cash have reduced the effectiveness of the surcharging regime.”
The RBA also noted that removing surcharges “aligns with the preference of most consumers for payment costs to be incorporated into advertised prices”.
For consumers, the key benefit is simplicity: the advertised price should increasingly be the final price, reducing confusion and frustration at checkout
Professor Angel Zhong, RMIT
Professor Angel Zhong of RMIT says the total surcharging ban, which is set to take place in October, “reflects the reality that, in a cash‑light economy, surcharging no longer works as an effective consumer choice mechanism”.
“For consumers, the key benefit is simplicity: the advertised price should increasingly be the final price, reducing confusion and frustration at checkout,” Zhong says.
But she cautions that it’s soon to celebrate the end of unfair card fees. “Payment costs do not disappear, and how much is absorbed by businesses versus passed on to consumers will depend on how the reforms are implemented in practice.”
In mid-March, the ACCC announced that it had launched an investigation after receiving tip-offs about high surcharges from customers of Hyatt Regency Sydney.
The regulator found that customers paying with a debit card attracted a surcharge above Hyatt’s costs of acceptance, unless the customer inserted the card into a payment terminal and selected “chq/sav”, something customers would have had no way of knowing.
It highlighted how tricky the surcharging space had become, and that surcharges were increasingly and stealthily being applied to debit card purchases.
“The ACCC expects all businesses to comply with the law and ensure their payment systems and staff are informed of different card types and apply the correct surcharge amounts for each, as it can vary between credit cards and debit cards,” ACCC deputy chair Mick Keogh said at the time.
Free and fair way to pay
When CHOICE recently sent out a petition to ban debit card surcharges, more than 24,000 people signed.
CHOICE head of policy Morgan Campbell says card surcharges are a product of another time, and Australians will be glad to see the back of them.
“At a time when so many are doing it tough, the last thing consumers need is to be hit with a surprise surcharge at the checkout, particularly when many businesses no longer accept cash,” he says.
At a time when so many are doing it tough, the last thing consumers need is to be hit with a surprise surcharge at the checkout
CHOICE head of policy Morgan Campbell
The forthcoming ban means card payments will be “simpler, more transparent, and most importantly, more affordable for consumers”, says Campbell.
“In a cost-of-living crisis, this fair, free way to pay is more important than ever.”
Andy Kollmorgen is the Investigations Editor at CHOICE. He reports on a wide range of issues in the consumer marketplace, with a focus on financial harm to vulnerable people at the hands of corporations and businesses. Prior to CHOICE, Andy worked at the Australian Securities and Investments Commission (ASIC) and at the Australian Financial Review along with a number of other news organisations. Andy is a former member of the NSW Fair Trading Advisory Council. He has a Bachelor of Arts in English from New York University. LinkedIn
Andy Kollmorgen is the Investigations Editor at CHOICE. He reports on a wide range of issues in the consumer marketplace, with a focus on financial harm to vulnerable people at the hands of corporations and businesses. Prior to CHOICE, Andy worked at the Australian Securities and Investments Commission (ASIC) and at the Australian Financial Review along with a number of other news organisations. Andy is a former member of the NSW Fair Trading Advisory Council. He has a Bachelor of Arts in English from New York University. LinkedIn
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