As of 13 January 2018, the Payment Services Directive (“PSD2”) makes it illegal for any business in the UK to charge the consumer extra for using their debit or credit card, making online payments or payments by direct debit in exchange for goods and/or services in the EU.
The Directive is already incorporated into UK law and will remain in place after the UK leaves the EU.
What is ‘surcharging’?
Surcharging is when a fee is charged by the trader for the consumer using a particular means of payment such as a debit or credit card. Traders will usually incur a payment processing fee for the use of certain payment methods, such as the merchant service charge for processing debit and credit card transactions. Under the present rules that came into force in 2013, traders should only charge a consumer what it costs them to process a debit or credit card payment. Under the PSD2, all surcharges in consumer transactions are banned.
In many circumstances they can be seen as “hidden’ fees as the consumer will only become aware of the charge at the final stages of the transaction. Consumers can be charged fees of 2% up to in some cases as much as 30% of the total value of the transaction. They have been described as a ‘rip off’ as in many cases they are disproportionate to the actual cost the trader has incurred in processing the payment and cost consumers in the UK approximately £166 million per year. The Government states that the ban will help promote ‘fairness and transparency’.
What does the ban mean?
The PSD2 bans traders from charging a fee in addition to the advertised price of a transaction on the basis of consumer choice of method of payment (e.g. via credit card, debit card, online payment). The regulation applies to contracts concluded at business premises, at the consumer’s home or at a distance (by phone, online, through Paypal). Indeed it is noted that this year, 20% of all online transactions will be done on consumers mobiles.
The intention of the ban is that the general costs of running a business are not directly passsed onto the consumer as a consequence of their use of payment method.
The ban doesn’t include commercial (b2b) transactions, but these are subject to a prohibition on charging consumers fees that exceed the cost of accepting the method of payment. Also, the ban doesn’t exclude traders from charging ‘booking’ or ‘handling’ fees so these will continue to appear to the extent traders do not use the fees as a means of differentiating between consumers on the basis of their choice of means of payment.
Can businesses refuse to accept card payments then?
A business is within its rights to refuse any method of payment if it so inclines. However with the ever increasing use of online sales, resulting in dwindling cash sales it is not within trader’s best interests to prohibit use of card sales. It is common occurrence for many smaller traders such as pubs and corner shops to already put a minimum spend limit when using debit or credit cards.
Will traders increase their prices as a consequence?
There is a suggestion that traders will look to absorb the cost of processing card payments by increasing the price of their goods/services. Only time will tell if this is the case. Many big traders such as airline companies where the surcharge can be a hefty addition to the price have stated they will not look to increase their prices.
What can a consumer do if it has been charged a surcharge after the 13 January?
In the first instance is it recommended that the consumer speak to the trader to obtain a refund. If the trader doesn’t offer a refund the consumer can raise this to the attention of their Local Trading standards who have the power to seek undertakings from traders or apply to court for injunctions or orders against traders who breach the regulations.
Additionally, the authorities have powers to apply to the courts if a trader is engaging or is likely to engage in conduct which constitutes an infringement of the PSD2 by granting of an enforcement order which requires that the trader does not continue or repeat the conduct.
What redress do traders have if excessive surcharges are levied in commercial transactions?
In respect of payment disputes involving complaints from small businesses regarding payment issues with larger businesses (such as payment providers), if the business does feel the surcharge has been excessive and the larger business is unwilling to reduce rates, small businesses might consider lobbying the ‘Small Business Commissioner’ to intervene to secure an overall reduction to the amount charged when transactions are below a certain volume. For more details, please see https://www.smallbusinesscommissioner.gov.uk/
Word to the wise
Traders should adjust their payment terms and policies to reflect these new laws or risk falling foul of trading standards and the resulting bad publicity and potential sanctions.
If you are interested in any of the topics raised in this article, or for further information please contact Ketan Mistry. Alternatively, you can call to speak to one of the team on 0115 9888 777.