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Government to ban payment surcharges before end of 2012

Out-Law News | 23 Dec 2011 | 11:21 am | 2 min. read

Companies will be prohibited from charging consumers "excessive" payment surcharges before the end of next year, the Government has said.

The Department for Business, Innovation and Skills (BIS) announced its intention to introduce a section of new EU consumer laws into UK law early in order to tackle what it called "opaque" and "misleading" payment charges that some businesses currently impose on transactions. It said excessive payment charges "prevent consumers getting a good deal".

Some companies currently charge consumers a fee for buying goods or services using credit or debit cards or via other payment methods. Under the Government's plans businesses will only be permitted to charge "a small charge to cover their actual costs for using any particular form of payment". 'Above-cost' surcharges will be banned.

The ban on excessive surcharges will apply to "all forms of payment ... across most retail sectors, not just transport" and mean that the UK will be the first EU country to enforce the part of the new EU Consumer Rights Directive that prohibits traders from introducing surcharges for payment methods above what it costs them to deliver the means of payment. The Directive has been approved at EU level and its measures have to be implemented into national laws by 13 December 2013.

"We want consumers to be able to shop around," Mark Hoban, Financial Secretary to the Treasury, said in a statement. "They have a right to understand the charges they may incur up front and not be hit through a hidden last minute payment surcharge. We’re leading the way in Europe by stopping this practice. The Government remains committed to helping consumers get a good deal in these difficult times," he said.

Government said its plans were based on recommendations provided to it by the UK's consumer protection regulator. In June the Office of Fair Trading (OFT) called on the Government to change the law to prohibit surcharging for all debit cards. It said that, before any change could be enacted, traders should "stop charging for paying with any debit card" in order "to make headline prices truly meaningful and comparable" and that those that did not change practices risked enforcement action under UK consumer protection laws. It was issuing its response to a 'super-complaint' brought by consumer charity Which? in March.

Under the Enterprise Act super-complaints can be made to the OFT by a designated consumer body when it thinks that "a feature, or combination of features, of a UK market is, or appears to be, significantly harming the interests of consumers". Within 90 days the OFT must publish a response detailing if and what course of action it plans to take and why.

Which? criticised airlines in September accusing them of not heeding the OFT's June comments and collectively costing consumers "an estimated £18 million in airline debit card surcharges" in the period following the OFT's surcharge investigation response.

The OFT has said that UK consumers spent £300 million on payment surcharges when booking with airlines during 2009.

Richard Lloyd, executive director of Which?, "welcomed" the Government's announcement which it said would finally end "unfair and excessive charges".

"While the law will come into force at the end of 2012, we want companies to be upfront and fair over card charges today," Lloyd said.

The Government is to consult on the proposed changes to the law in the New Year.

Claire McCracken, expert in consumer protection law at Pinsent Masons, the law firm behind Out-Law.com, said that whether consumers will experience savings in purchases will depend on how organisations implement the changes.

"On face value it should provide greater transparency for consumers as they will be presented with charges upfront, rather than hidden charges towards the end of a transaction. Even if companies try to shift these hidden charges elsewhere, their 'justification' for this will be scrutinised closely and we could see precedents being set in certain sectors to determine just what exactly is justified and what is excessive," McCracken said.