The first step in the enhanced regulation of merchant surcharging came into effect when the Competition and Consumer Amendment (Payment Surcharges) Bill 2015 was passed by the Parliament on 22 February 2016. This legislation was foreshadowed by the RBA in their Review of Card Payments Regulation consultation paper issued in December 2015 (Consultation Paper).
The Competition and Consumer Protection Act 2010 (Act) has now been amended to give the Australian Competition and Consumer Commission (ACCC) the power to take action where merchants breach the standards established by the Reserve Bank of Australia (RBA) in respect of the amount they surcharge customers for paying for goods and services with credit or debit cards.
A new Part IVC has been inserted into the Act which:
- empowers the ACCC to request surcharging information from corporations that charge a surcharge;
- impose a penalty of 30 penalty units (currently $5,400) against a corporation that fails to comply with a request from the ACCC to provide surcharging information;
- enables the ACCC to issue an infringement notice where it believes on reasonable grounds that an excessive surcharge has been charged. ‘Excessive’ is defined as exceeding:
- an RBA standard; or
- a regulation made in this respect;
- requires an infringement notice to state the penalty assessed by the ACCC as being payable in respect of the alleged contravention;
- provides for a maximum penalty of:
- 600 penalty units for listed corporations (currently $108,000);
- 60 penalty units for an unlisted body corporate ($10,800); and
- 12 penalty units for a person not being a body corporate ($2,160); and
- Provides that a failure to pay a penalty in accordance with an infringement notice will allow the ACCC to commence proceedings to recover the penalty against that person (unless the notice is withdrawn by the ACCC after consideration of representations made by the affected person).
In order for these changes to become effective the RBA will need to establish the requisite standard to assess whether any surcharge is excessive. The RBA’s Payment Systems Board issued a guidance note in 2013 detailing what it viewed as ‘reasonable cost of acceptance’. These views have been further refined by the RBA in its draft standard no.3 that is attached to its Consultation Paper.
The draft standard:
- covers payments made by MasterCard and Visa credit, debit and prepaid cards, American Express companion cards, EFTPOS debit and prepaid cards;
- prohibits a card scheme or scheme participant from stopping a merchant from recovering an amount that does not exceed the ‘Permitted Surcharge’;
- establishes the maximum amount of a surcharge (being the ‘Permitted Surcharge’) by reference to the following ‘Permitted Cost of Acceptance Elements’ incurred by the merchant:
- the merchant service fee;
- fees for rental and maintenance of card terminals;
- processing fees levied by the acquirer or payment processor including international service assessments or cross-border transaction fees;
- other fixed fees for providing payment acquiring equipment and services referrable to a relevant card scheme being fees that are included on a merchant’s card processing statement; and
- where any of the above fees that are not based on a per transaction basis and is not referrable to a single scheme being applied on a pro rata basis.
- To calculate the ‘Permitted Surcharge’ amount, merchants use where:
- a single fee is paid by the merchant that covers the ‘Permitted Cost of Acceptance Elements’ that fee will be the ‘Permitted Surcharge Amount’;
- no such single fee applies then an average cost of acceptance (using the ‘Permitted Costs of Acceptance Elements’ based on the past 12 months transactional data); or
- the merchant does not have a single fee or 12 months of activity to base the calculation, then an estimate of the average cost of acceptance calculated by the merchant in good faith using known or estimated ‘Permitted Cost of Acceptance Elements’ and transaction volumes.
Limiting the costs elements that a merchant can use in calculating a maximum surcharge aligns with the RBA’s preferred Option 3 in the Consultation Paper in which the RBA’s aim is to:
“preserve the rights of merchants to surcharge for high-cost payment methods while ensuring that merchants do not abuse this right by surcharging in excess of their acceptance costs. It would retain the cost of acceptance as the ceiling for surcharges, but would define acceptance costs explicitly and more narrowly.”
In a speech by Tony Richards, the Head of the RBA’s Payments Policy Department, to the Payments Innovations 2016 Conference on 23 February 2016, he indicated that some of the issues to be explored in future consultation meetings which arose out of the consultation process included:
“... the calculation of ‘Permissible Surcharge’ for merchants (such as travel agents or ticketing agents) that are subject to significant chargeback risk when they accept credit or debit cards.”
In acknowledging the cost of fraud in this way, merchants may still have the ability to lobby the RBA to include, not only the chargeback losses, but also the associated costs of implementing fraud detection tools such as 3D Secure currently under consideration by APCA for mandatory implementation by online retailers.
Mr Richards indicated that the RBA’s Board had an expectation of finalising the review flowing out of the Consultation Paper in time to enable a determination of required regulatory changes at its May 2016 meeting. Mr Richards also noted that the Board recognised that a transition period will be necessary to enable the industry to adjust to the reforms.