Out-Law News 2 min. read

Payment surcharge ban should apply to all businesses, says OFT

A ban on payment surcharges above the cost of processing a transaction should apply to all businesses, the Office of Fair Trading (OFT) has said.

The Government has outlined plans to ban excessive payment surcharges for some business-to-consumer contracts. This would apply where businesses charge consumers a fee to process payments made with credit or debit cards or via other means that is above the cost it bears to process the transaction.

However, the proposals by the Department for Business, Innovation and Skills (BIS) extend only to business-to-consumer contracts that fall within the scope of the new EU Consumer Rights Directive (CRD), with just one exception for package holiday contracts. The effect of this is that, under the BIS plans, the payment surcharging rules would not apply to business-to-consumer contracts for financial services, gambling, the construction of new buildings and in a range of other instances.

The UK's consumer protection regulator said that it supports Government plans to implement the ban on "above cost surcharges" ahead of the CRD deadline to do so. This is because of "the potential for payment surcharges to distort the headline price and restrict a consumer’s ability to compare prices". In June the then Consumer Affairs Minister Norman Lamb said it was the Government's intention to bring the ban into effect before the end of this year.

However, the OFT has called on the Government to go beyond the requirements of the EU laws and ban the surcharges being imposed in all business-to-consumer contracts.

"The OFT is keen to prevent confusion for consumers and businesses in the implementation of any ban on above cost payment surcharges," the OFT said in a response (9-page / 257KB PDF) to the BIS' consultation on its proposed Consumer Rights Bill. "We also want to ensure that the law is future-proofed against any problems which may arise in sectors currently outside of the scope of payment surcharges provisions. As such the OFT would welcome extending the payment surcharges provisions to all sectors unless these are specifically covered by existing provisions which would have a similar effect as Article 19 of the CRD."

In its consultation BIS asked whether "potential costs to businesses of accepting payments" such as the merchant service charge they must pay, as well as IT, risk management, fraud and operational costs, should be considered legitimate costs that businesses could recover through payment surcharges.

However, the OFT said that the "payment surcharges levied by business should be narrow in scope and clearly defined to ensure comparability across retailers and prevent retailers re-defining costs to meet the requirements, i.e. prevent retailers including wider IT and operational costs in the surcharge."

"As such the costs that are included any payment surcharge should only reflect the cost to a business of accepting a specific card rather than the infrastructure cost of accepting payments online," it added. "The general costs of accepting payments on line should be included in the headline price (in the same way as any other necessary overhead)"

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