On 13th January 2018 it became illegal to implement surcharges (adding an additional fee) to those paying by debit or credit card, with just a very few exemptions.
No longer can shops, airlines, food delivery businesses or anyone else charge an extra fee to customers because their customer wants to pay by card.
The UK Government’s regulation banning surcharging means that many smaller businesses have needed to review how the transaction fees, which they used to charge a surcharge for, can be offset within their business model.
The Government has made several suggestions, while acknowledging that small businesses may be impacted by this change. Their suggestions include:
• Stop accepting a certain payment method (this may impact on sales as people look for businesses that take cards, as increasingly people are using cards and not carrying cash on them)
• Absorb the costs (this could put a strain on the business, with a narrowing of profit margins)
• Pass on the costs through an increase in headline price of the relevant goods or services which is payable by all customers (see the Just Eat example on Social Media as a cautionary tale about how this was received by customers)
• Negotiate lower fees with the payment service provider (see payment providers such as NetPay which offer a free, no-obligation comparison for merchants)
The changes in legislation follow a directive from the European Union, which banned surcharges on Visa and Mastercard payments. However, the UK government went one stage further and included the banning of surcharges on American Express cards and PayPal payments too.
The motivation behind the removal of the surcharges was to make paying fairer for all consumers.
This is a legislative change not a change being imposed by the payments industry, so it is important that retailers and other businesses which take card payments are aware of this change. Whilst consumers often snubbed surcharging, the process is now illegal so those breaking the law may face penalties. There have already been instances of people lodging complaints with Trading Standards, following the publicity in the media about this charge becoming illegal.
Carl Churchill, Managing Director of NetPay Solutions Group says,
“There are bound to be examples made of those flouting the law, especially with the increased likelihood of customers reporting such charges to Trading Standards – there is very little point in taking the risk.”
The legislation applies where the payment service provider of the payee and/or payer are located in an EEA state (see Regulation 6A(2)).
Just Eat removed their surcharge but instead implemented a 50 pence service charge on all orders for all customers. This therefore complied with the law above, as all customers were subject to the service charge. However, they received a backlash on Social Media, from both customers paying by cash who now felt penalised, as well as those who paid by card, who thought the service charge was a surcharge by another name!
From a PR perspective this was not a good move, but with an established and popular business they will probably withstand the backlash in the longer run. Other businesses may not be so well placed.
There is no legal “way round” the surcharge ban, so businesses will need to look at their business model and work with the Government suggestions. However, you can still impose a legal minimum spend for those wishing to use cards, for example set a £5 or £10 minimum spend in your shop.
Another way merchants (sellers) can save money, to compensate for this change in law, is by becoming PCI compliant. Apart from showing best practice it will mean a saving in monthly fees, which are currently charged to all those who are uncompliant. If you are not sure how to become PCI compliant please speak to your payment provider and ask them what you need to do. You could be saving £35 a month on fees (industry research suggests this would be the saving for approximately half the non-compliant PCI business), which may cover the costs from the removal of surcharges for smaller businesses and shops.
Regulation 4 limits surcharging under certain contracts between consumers and traders. Those contracts include sales or service contracts and contracts for the supply of water, gas, electricity, district heating or digital content (regulation 5(1)).
The ban on surcharging applies to most retail payment instruments including non-commercial cards for which interchange fees are regulated under the Interchange Fee Regulation (IFR) and therefore including the vast majority of cards, including Visa and MasterCard (see Regulation 6A(1). However, they do not include:
• Corporate cards issued to employees for business expenditures such as office equipment and supplies or services
• Other non-commercial payment instruments, e.g., a retail e-money payment
• Payment services to which EU Regulation 260/2012 applies (Single Euro Payments Area (SEPA) direct debits and credit transfer).
The removal of surcharging is an ideal opportunity for businesses to review existing contracts and rates as well as to take steps to become PCI compliant (it is not a difficult thing to achieve for smaller businesses processing smaller turnovers).
Contact NetPay on 0333 311 0200 for more information about rates and PCI compliance.
Please note this is not legal advice, but information taken from the legislation. As always you should check with your legal adviser if you intend to continue imposing surcharges on customers or if you want more advice about this legislation.
You can also find out more information on this, including further details on the card types that can no longer be surcharged for, by visiting the following page on the government’s website: