The Reserve Bank of Australia has passed changes to credit card surcharge rules in a move that is set to save consumers hundreds of millions of dollars. The reforms permit credit card companies to restrict the charges on this form of payment, surcharges that are believed to be implemented by about a third of retailers.
The changes enable credit card companies to drop the surcharge to the amount that it costs a merchant to process a card transaction. The two biggest card providers say the cost works out to about 0.86% of the transaction value, as opposed to the 4% to 10% that is being charged in some cases. Other well-known credit and charge cards may be charged at 2% of the transaction value. While this might seem like a lot it is still much lower than the 10% surcharge that has been slapped onto flights in the travel industry.
Credit card surcharges were introduced in 2003 and since then critics say they have been increasing at an outrageous rate. In fairness to retailers credit cards were a lot more expensive to process when they were first introduced but now things have changed and they have become considerably less expensive to process. While the surcharges may initially have been to recover costs they have now become a revenue generating channel of their own.
If all credit card companies had to start banning debit and credit card surcharges approximately $350 million stands to be saved by consumers every year. Currently two thirds of merchants are not surcharging their customers but rather choosing to absorb the cost themselves.
Critics say that retailers haven’t been given much time to prepare for the changes. Retailers that do not comply with the new rules could get themselves into some trouble, with fines, warnings or even termination of contracts being applied for infringements.
The company that has taken the first step has left the ball in other companies’ courts and they don’t really have much choice but to follow suit. According to the Treasurer the government has employed the restrictions on fees for credit cards that go over their limit and has stepped in to ensure that instalments are allocated to the debt with the highest interest.
Consumers are encouraged to lodge complaints with their banks and merchants if they find they are being levied with excessive surcharges on their card transactions.
The changes come at a time when the local credit card balance is sitting at $440 billion worth of transaction swiped on debit, credit and charge cards. A total of $257 billion is being swiped on the world’s two biggest credit card debit card providers, $54 billion is being put onto charge cards and $130 billion is being swiped on eftpos transactions.
A survey singled out travel and holiday and restaurants and formal dining as two of the top five categories when it came to imposing high surcharges.
Industry experts from Bankwest say that no one is in denial about the extra costs associated with processing credit card payments; it is more about ensuring that people are not ripped off by excessive or unnecessary surcharges and that it doesn’t turn into an excuse for banks and card companies to generate revenue streams.
A study found that 85% of restaurant respondents did not enforce surcharges on their card transactions. When asked, 6% said they did, and the average surcharge would out to between 2% and 3%.