Now more than ever, businesses operating in Australia should be very careful with any payment surcharges that they charge their customers, after changes to the Competition and Consumer Act (CCA) introduced new prohibitions on excessive surcharges. In November 2017, Red Balloon became the first company to be fined for alleged breaches of these laws.
The changes to the CCA
Since September 2016, the section 55B of the CCA in combination with a Reserve Bank of Australia standard has prohibited “large businesses”* from charging any surcharge amount to their customers that exceeds the business’ actual cost for processing a credit card, debit card, or EFTPOS transaction. That cost is calculated as the average cost per card transaction over a 12 month period, having regard to fees incurred by the merchant, such as those paid for card transaction services, the rental and maintenance of payment card terminals and fraud prevention services. On 1 September 2017, this rule was extended to any business that is either located in Australia or uses an Australian bank.
A company in the ACCC’s crosshairs recently was the popular online gift and experience retailer Red Balloon who paid penalties totalling $43,200. Following the issue of four infringement notices, the ACCC alleged that Red Balloon charged four of its consumers excessive payment surcharges on payments they made via MasterCard credit, MasterCard debit, Visa credit, and Visa debit that were in excess of the actual cost to Red Balloon for accepting these payments.
How have other jurisdictions dealt with this issue?
Similar regulations have previously been put in place elsewhere. In some US states, it is illegal to surcharge customers paying by card altogether (though some of these laws have been the subject of court challenge). In American states where card surcharges are permitted, surcharges may only be charged to credit cards (not debit cards), and while this prohibition on surcharges has sometimes been inconsistent across America, they have almost always seen any allowed surcharges capped at a maximum of 4% of the overall sale price or not more than the business’ processing costs, whichever is lower. As this is an evolving area of law in the US, companies Visa and MasterCard both maintain an up to date display of this requirement on their websites, in order to keep merchants who trade in states in which surcharges are legal fully informed of their obligations. MasterCard’s display can be found here and Visa’s display can be found here.
Australia has not prohibited any surcharges amounting to more than 4% of the sale price, the effect of capping the surcharge at not more than the business’ processing costs effectively delivers the same limitation. It is important to note that under Australian consumer law, in contrast to some US legislation, surcharging payments made through debit cards is permitted – but again, these surcharges cannot exceed the actual cost to the business of processing the payment.
The impact of the changes to Australian law
Businesses in Australia need to be mindful now more than ever that, if they choose to issue surcharges to their customers for payments of this kind, these surcharges do not exceed their actual costs of accepting the transaction. While the Reserve Bank has indicated that businesses may incur costs of around 0.5% of a transaction’s sale value for debit card payments, 1-1.5% for credit card payments and 2-3% for American Express payments, these figures are only a guide.
Since different businesses may incur different charges from their payment facilitators, it is okay for a business to charge a higher surcharge than these amounts to customers who are making payments using credit or debit cards. However, businesses must ensure that any surcharges do not exceed their actual costs of accepting the payment. If a business charges its customers a surcharge that is higher than the actual cost to that business of accepting the payment, regardless of whether or not that surcharge is lower or higher than the RBA’s guideline recommendation, the business will have breached the CCA and will face substantial fines. Depending on the size of the business, fines range from $2,520 to $126,000 per transaction.
What will these charges look like?
To provide an easy example, say a small coffee shop in Sydney charges $0.50 for any card payment under $10. If a cappuccino costs $5.00 at the coffee shop and a MasterCard customer is charged $0.50, ($5.50 total) that equates to a 10% surcharge on the sale price. Now, if we presume that the coffee shop’s payment facilitator charges the usual fee of 1-1.5% to the coffee shop for a MasterCard payment, the surcharge to the customer is nine or more times higher than what the actual cost to the coffee shop of accepting the payment was – this is prohibited. Let us say that this is a very slow morning in that coffee shop, with only 10 such transactions, attracting 10 such excessive surcharges, taking place in one morning. Fines to the business for just those 10 transactions would total $25,200.
The Federal Government is taking note of how the new legislation is operating, particularly throughout the busy Christmas retail season. Treasurer Scott Morrison expected initial fines issued under the new regime to act as a “significant wake-up call for merchants”, as the government takes further steps to “better protect consumers”. We will watch with interest as the ACCC undertakes further enforcement activities arising out of this busy shopping period.
With these regulations now in place and seemingly here to stay, what do businesses need to do as a result of these changes? And likewise, what should consumers now keep in mind?
- As of mid-2017, payment facilitators must provide merchants with an annual statement that clearly sets out their average cost of acceptance for each of the card payment systems regulated by the RBA. As such, the best course of action is to contact your payment facilitator/payment terminal provider, and determine the exact percentage per payment for each of the different EFTPOS payment types that the institution charges your business;
- Ensure that no surcharges to customers exceed this percentage;
- Communicate the changes to all business staff to ensure consistency; and
- Be aware that when purchasing goods or services via EFTPOS, certain forms of payment attract different surcharges from some (but not all) businesses;
- If you suspect that a surcharge may be in excess of the above guidelines provided by the RBA, raise this with the business; and
- If you are unhappy with their response, refer your complaint to the ACCC.
* A large business is a business satisfying at least two of the following: consolidated gross revenue of at least $25 million, consolidated gross assets of at least $12.5 million, or at least 50 employees.