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Credit card surcharges end this weekend

Posted on January 10th, 2018

Customers cannot be surcharged for using credit cards after Friday, but prices could rise as a consequence.

Under the EU Payment Services Directive (PSD2), which comes into force on 13 January, organisations that previously imposed fees for using credit cards will have to absorb the cost or find alternative ways to recover their fees.

Her Majesty’s Revenue and Customs has reportedly said it will stop accepting credit card payments but will continue to allow people to pay by debit card, while the Driver and Vehicle Licensing Agency is on record as saying it will no longer add the surcharge.

The EU directive – essentially a minimum standard to be applied across all member states – bans surcharges on Visa and Mastercard payments. But the UK Government extended the ban to include American Express and Paypal.

The change, which was announced in July, will affect all firms that provide payment services, including banks and building societies, payment institutions, emoney institutions and their customers.

In September, the Financial Conduct Authority (FCA) published its approach to implementing PSD2. It warned that “firms should make sure they know what’s required of them to be ready for the new regime”.

In a report in July about the changes, the BBC said: “The worst offenders currently are airlines and food delivery apps, and small businesses which typically add a fee for cards.

“In 2010 alone consumers spent £473m on such charges, according to estimates by the Treasury.”

The BBC suggested some organisations, particularly smaller businesses, might simply increase their prices to cover the higher costs but suggested this might not be legal if it meant customers paying by cash or debit card essentially subsidised those paying by credit card.

Announcing the change to the rules, Stephen Barclay, as Economic Secretary to the Treasury, said in July: “Rip-off charges have no place in a modern Britain and that’s why card charging in Britain is about to come to an end.

“These small charges can really add up and this change will mean shoppers across the country have that bit of extra cash to spend on the things that matter to them.”

The move was described as part of a broader push by the Government “to help families with the cost of living”.

Andy Watterson, Business Crime Manager at the Chamber, said: “This is far more complex than it first appears. Yes, it does mean the end of surcharges to consumers for credit card transactions but businesses will still incur costs for providing card-payment services to customers.

“They will have to decide whether to absorb these costs or pass them on to their customers.

“If they pass them on, they will have to add to their prices the aggregated cost of providing card-payment services. It means the charges will still be there but they will be hidden.

“If the card-payment service providers can’t levy a charge for the service then they won’t have a business themselves and the service will stop.

“What is likely to happen is that there will be a small increase across the board to cover the costs which, far from delivering what the EU intended and what the UK Government claimed was its intention of giving people ‘a bit of extra cash to spend’, will actually penalise people who had previously paid with cash or a debit card to avoid credit card charges.”