Credit card late payment fees

Following the High Court's decision in Andrews v Australian and New Zealand Banking Group Ltd (2012) 247 CLR 205, there was an expectation that the High Court's decision in Paciocco v Australian and New Zealand Banking Group Ltd [2016] HCA 28 (the Paciocco Case) would also favour the customer. This was not the case.

The Paciocco Case (which was commenced by Mr Paciocco and his company as representative plaintiffs in a class action) involved a claim that the late payment fees and other fees charged by the bank in relation to credit cards were unenforceable because they were penalties. There were also allegations of unconscionable conduct by the bank, on the basis that the late payment fees charged amounted to unjust transactions and constituted unfair terms of the contract between the bank and the customer.

The High Court confirmed that the late payment fees were enforceable, and that, in charging them, the bank was not engaging in unconscionable conduct.

In relation to whether the late payment fees were a penalty, the High Court applied the test of whether the late payment fee is "out of all proportion" to the interests of the bank in the event of a default. The bank indicated that a default in payment would impact on its interests, such as operational costs, loss provisioning and result in increases in regulatory capital costs.

Ultimately, the majority of the High Court decided that because the costs of late payment impacted on the bank's financial interests and were greater than the fee they imposed on the customer, the fee was not a penalty. Specifically, it found that fees of $20 and $35 were not "out of all proportion".

Was this the right decision?

The decision is and will remain controversial. Consumer groups are already calling for reform, and until such time as any legislative reform is forthcoming consumers have little choice but to check the fine print before signing credit card contracts and exercise their right to shop around for the best terms available.

Payment surcharges and the ACCC

On 25 February 2016 the Competition and Consumer Amendment (Payment Surcharges) Act 2016 (CTH) became law and the Competition and Consumer Act 2010 (CTH) was amended to include a ban on excessive payment surcharges. These changes also gave new powers to the Australian Competition & Consumer Commission (ACCC).

What is a payment surcharge?

A surcharge is the extra amount charged by a business for the costs incurred in processing a payment as a result of the manner in which you choose to make the payment. Adding surcharges to transactions has become a usual practice in many industries such as travel, retail and hospitality.

The changes are intended to prevent a business from charging more than what it costs the business to process a payment.

What is excessive?

A payment surcharge is excessive if it exceeds the permitted surcharge as defined by the Reserve Bank of Australia.

When do the changes commence?

The ban is being introduced in stages and as of 1 September 2016 applies to large businesses. A large business is one that satisfies two or all of the following thresholds, taking into account the business and its related bodies corporate:

  • consolidated gross revenue for the financial year ending 30 June 2015 of $25 million or more;
  • value of consolidated gross assets at 30 June 2015 of $12.5 million or more;
  • 50 or more employees (whether full time, part time, casual or otherwise) at 30 June 2015.

The ban will apply to all other businesses from 1 September 2017. If your business does not satisfy the large business threshold you should start considering your obligations under these changes so that you are compliant when 1 September 2017 comes around.

Which payments are covered are by the changes?

These changes prevent businesses from charging excessive surcharges on the following payments:

  • Eftpos (debit and prepaid);
  • MasterCard (credit, debit and prepaid);
  • Visa (credit, debit and prepaid);
  • American Express “companion cards” (these are American Express cards issued through an Australian financial service provider, rather than directly through American Express).

However, not all payment types are covered by these changes. Payment types that are not covered by these changes include BPAY, PayPal, Diners Club cards, UnionPay and American Express cards issued directly by American Express, cash and cheques. Payments made for taxi services are also not covered as taxi services were excluded from the RBA standard because the taxi industry is already regulated.

Does this affect any other obligations businesses have under the Australian Consumer Law?

No. Businesses must still comply with the Australian Consumer Law provisions those relating to false or misleading representations about price, and component pricing.