Out-Law News 2 min. read
05 Apr 2013, 10:26 am
Under the Consumer Protection (Payment Surcharges) Regulations, which take effect on 6 April, businesses are prohibited from charging consumers excessive fees for using a credit card or other means of payment.
Under the Regulations businesses will be allowed to impose surcharges for the use of particular forms of payment but the amount of that charge cannot exceed the "costs borne by the trader" for facilitating the use of customers' means of payment.
The Department for Business, Innovation and Skills (BIS) has now explained in more detail what 'costs borne by the trader' are permitted to levied as part of a payment surcharge (16-page / 167KB PDF).
In new guidance it said that the "size and nature" of those costs were likely to vary depending on what kind of business is involved, what means of payment is used as well as "the contractual arrangements on which the business relies to use those means". In addition it said that factors such as businesses' turnover, what sector they operate in as well as "other characteristics of the trader" including their size and related bargaining power in the payments industry could also influence the extent of costs businesses could legitimately claim back under the terms of the Regulations.
However, BIS made clear that only "direct costs" incurred by traders which are "exclusively attributable to using a particular means of payment" could be claimed back via a payment surcharge levied on consumers.
"A cost which is too indirect, such that an equivalent cost would have been incurred anyway for other means of payment, cannot properly be characterised as a cost ‘for’ the use of the relevant means of payment," BIS said in its guidance. "The Department does not consider that indirect costs, such as general administrative overheads or staff training, should be included in the calculation of costs borne by the trader. Indirect costs should be reflected in the headline price of goods and services, as they ought to be for any general cost categories."
"Operating costs could be included only where they can be shown to result directly from processing the method of payments; in such cases, the appropriate cost would likely be the marginal cost," it added.
BIS said that businesses could legitimately claim back direct costs attributed to facilitating consumers' card payments such as the merchant service charge they pay to banks, as well as the "IT and equipment costs used for particular means of payment such as card terminals, for example point of sale devices".
In addition costs incurred in "risk management", such as fraud detection and prevention measures, as well as costs incurred in "reversing or refunding a payment" will also be able to be accounted for in a surcharge, it said.
BIS also said that businesses that incur "operational costs" in relation to "activities dedicated exclusively to card payments", such as by buying equipment, fraud detection and processing services for card payments from intermediaries, "should be able to recover the costs they incur through a payment surcharge". It said that businesses could show that these direct costs have been incurred by retaining invoices.
However, the Department also explained what indirect costs businesses could not reclaim via a surcharge.
"Indirect costs which cannot be separately identified as being attributable to the use of cards should not be included; this would most likely include such things as website management, staff training, utility bills and other general overheads that would be incurred even if card payments were not taken," BIS said.
Businesses will be able to offer discounts to consumers for electing to make payments using specific means, but must ensure that the discount on offer "reflects the cost savings for the trader, and the additional amounts payable by consumers using other means of payment reflect the additional cost borne by the trader for the use of these other means".