On 13 January 2018, new rules came into force in the UK which mean that, for most retail payments, traders can no longer charge a fee in addition to the advertised price of a transaction on the basis of a consumer’s choice of payment means (for example, credit card, debit card or e-money).

For other retail payments and most payments between businesses made with commercial payment means, the rules ban traders from charging customers more than the direct costs that they incur to use the relevant means of payment.

The rules apply irrespective of whether contracts are concluded in person, by phone or online. Customers can demand a refund of any unlawful surcharge that they have paid and take legal action to recover any such charge.

Absolute ban on surcharges

The Payment Services Regulations 2017 (“Regulations”) introduce an absolute ban on certain surcharges. The absolute ban applies to most retail payment methods, such as debit and credit cards, online payment services (e.g. PayPal) and direct debits, where both the business and the consumer use a payment service provider located in the EEA.

This ‘absolute ban’ doesn’t apply to commercial means of payment, such as corporate cards issued to employees.

Limit on surcharges

Even if the absolute ban doesn’t apply, a limit on surcharges applies to most payment means (subject to limited exclusions such as cheques). This means that a trader cannot charge a fee that exceeds the direct costs borne by the trader for the use of that payment means. This limit applies if either the trader or the customer’s payment service provider is located in the EEA. It also applies where both payment service providers are located in the EEA and the means of payment is commercial in nature.

Can I charge booking and/or handling fees?

This may be possible in certain circumstances provided (among other things) that the fees do not differentiate between customers based on their payment method. There are also other rules to consider here.

Why has this change been introduced?

The Payment Surcharge Regulations 2012, which implement the EU Consumer Rights Directive (2011/83) (“CRD”), came into force in the UK in 2013 and prohibited excessive fees in respect of any given method of payment, but they only applied to (particular) contracts made with consumers. EU legislators considered that the CRD didn’t go far enough and so the Payment Services Directive II (“PSD2”) (2015/2366) was introduced. The latest Regulations implement PSD2 in the UK.

What’s the likely impact to businesses and consumers?

The Government suggested that the Regulations would mean that consumers ‘have that bit of extra cash to spend’. However, we’d suggest that most traders might simply increase prices (or charge booking fees where they are entitled to do so). The change also means that those consumers who choose to pay with debit cards (or cash) might now end up indirectly subsidising credit card users.