What merchants need to know about new credit card surcharge rules

What credit card surcharging is, and how new laws about credit card surcharging will help both consumers and merchants to pay less.

The Reserve Bank of Australia has made it official – there is now an enforceable standard for credit card surcharges under the government’s tough new laws.

What is a credit card surcharge?

A credit card surcharge is an extra charge that consumers pay on top of the price of goods of services. This surcharge applies when they choose to pay with a credit card such as Visa or MasterCard. This covers the cost of processing the card payment for the merchant.

In the market for a credit card? We have provided a comparison table below that allows a snapshot into the current market offerings for low fee credit cards with links to the financial institutions website. These have been sorted by  Purchase rates (Lowest – Highest) and are based on a $2,000 monthly spend.

What surcharge is allowed? What is excessive surcharging?

The Competition and Consumer Amendment (Payment Surcharges) Act 2016 bans “excessive” credit card surcharges. Credit card surcharges are supposed to represent the cost to the merchant of accepting payment by credit card. The new laws declare it is excessive when a merchant charges the customer any more than the cost of the transaction, determined according to the Reserve Bank (RBA) standards.

The RBA hasn’t set an amount for the permitted surcharge amount, but they have defined which costs will be allowed to be included in the allowable surcharge. The actual cost of a transaction does not include the costs of accepting card payments in general (e.g. costs involved in the risk of fraud, or IT infrastructure).

Therefore surcharges for credit cards will need to be levied as a percentage charge on each transaction. This means no more fixed-fee surcharging, unless the fixed amount is lower than the cost of acceptance.

Essentially, the providers of merchant payment facilities (financial institutions) will need to let merchants (business owners) know what their average cost of accepting cards is – and this will be the amount that business owners can pass on to consumers.

So the lowering of interchange fees should have a flow on effect to the costs to business owners – and therefore the costs to consumers.

The RBA Payments System Board will regularly set and reassess the standards for permitted surcharges. As of May 2016, the RBA has said that as a guide, “excessive” is defined as meaning anything more than the permitted surcharge, which is the business’s cost of acceptance. The benchmarks for the interchange standards – which will lower the cost of acceptance – are as outlined in their May media release:

  • Weighted-average benchmark for credit cards: 0.50%
  • Benchmark for debit cards: Reduced from 12 cents to 8 cents

The RBA has said that as a guide, the cost of accepting debit card payments through the eftpos system is usually quite low, and accepting a Visa or MasterCard debit transaction may cost a business around 0.50% (½ a per cent) of the transaction value.

The RBA says credit cards usually have a higher cost for businesses, but again typically only cost up to 1%-1.5% for Visa and MasterCard, and 2%-3% for American Express cards.

The new framework also sees American Express companion cards brought under the same regulations as that of Visa and MasterCard. But the RBA has decided the benchmarks will not apply to foreign-issued cards.

These standards will be enforced by the ACCC starting this year, to give merchants time to adjust their surcharges:

  • Large businesses must comply this year, by 1 September 2016
  • Small businesses must comply this year or next year, by 1 September 2017

The good news for small business is that ceilings will apply to individual interchange rates, to reduce the smaller merchant’s cost of accepting credit card and debit card payments.

Consumers are entitled to a fair deal. The Turnbull Government is committed to improving Australia’s payments system to achieve a more efficient system and fairer outcomes for consumers and business.”

– Federal Treasurer Scott Morrison, media release, 3 December 2015

New credit card surcharge rules

Can consumers report a business for excessive surcharges?

Consumers are being urged to “Dob in the Wrongdoer” to the ACCC, keeping in mind that the ban has already commenced for large retailers but doesn’t start until September 2017 for all other merchants. (Large retailers are defined as either having gross revenue of more than $25 million, the value of its assets is more than $12.5 million, or it employs more than 50 people.) Consumers can dob in a wrongdoer online: http://accc.gov.au/contact-us/contact-the-accc

Penalties for excessive surcharging

The new legislation gives the Australian Competition and Consumer Commission (ACCC) the power to punish excessive surcharging:

  • Gather information from all involved in the payments process
  • Issue infringement notices against merchants with excessive surcharges
  • Charge penalties:
    • For listed corporation: 600 penalty units (amounting to $108,000 at the time of writing) per breach
    • For body corporate: 60 penalty units ($10,800) per breach
    • For person other than a body corporate: 12 penalty units ($2,160) per breach
  • Charge pecuniary penalties (civil fines) if court action is required:
    • For body corporate: 6,471 penalty units ($1,164,780)
    • For person other than a body corporate: 1,295 penalty units ($233,100)
  • Seek an injunction to stop the business from trading
  • Seek non-punitive court orders, such as community service or probation

For small businesses that are sole traders, such as tradies, market stall vendors, or professional freelancers, the penalty units applied would be a disastrous hit to the business, especially if the matter went to court.

As if that wasn’t enough, any individual consumer who suffers loss or damage due to excessive credit card surcharging can sue the merchant seeking compensation (damages).

These penalties make the new legislation more than just a list of “best practices” for merchants; rather, it is a powerful tool for positive change in our competitive commerce industry.

CANSTAR advises small businesses to make sure they are set up with an outstanding value financial institution when it comes to business finance and merchant services. Get your business in order before the changes come into effect in September – but compare your options first so you don’t pay too much.

You can check out the table below which features a comparison of Business Transaction Accounts available on the Canstar database with links direct to the providers’ website. Please note that this table has been generated based on a business that does not transact often using cheques and branches, and is sorted by Star Rating (highest first).

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