Debit/credit payment surcharge crackdown looms The OFT has reported on its 90 day investigation into surcharges imposed by travel businesses for paying by debit or credit card. It was obliged to do so after Which? lodged a super complaint. Nick Johnson reveals the highly critical findings and predicts the implications – both for airlines and for others.
Topic: Financial services
Who: Office of Fair Trading
When: 28 June 2011
Law stated as at: 11 July 2011
The Office of Fair Trading (OFT) has told passenger travel companies to get much clearer on debit and credit card surcharges, or face enforcement action under the Consumer Protection from Unfair Trading Regulations 2008 (CPRs).
In its response to a super-complaint from Which? under the Enterprise Act 2002, the OFT concludes that many airlines and other operators in this sector often present these surcharges too late in the buying process – after the customer has already spent considerable time making their booking and supplying personal information. It has called on operators to change their practices voluntarily so as to make charges clear to consumers upfront, or face legal proceedings under the CPRs.
In particular, it makes the following recommendations to online retailers:
– Price references within the trader's website: "whenever prices are displayed on a website, surcharges must be made clearly available via just 'one click' and not simply be revealed at a late stage in the shopping process".
– Disclosures in advertising: "retailers should clearly reference card surcharges on any advertising material when prices are being promoted".
As well as challenging the sector to move to greater price transparency in place of what it sees as "drip pricing", the OFT has also asked the UK government to legislate to ban surcharging for debit (as opposed to credit) cards.
Why this matters:
The OFT estimates that UK consumers spent more than £300 million on payment surcharges in 2010 with just 10 major airlines. The OFT is not saying that surcharges must stop entirely, or must be limited to no more than the actual cost of processing the payment: it says:
"Traders should still be able to impose surcharges for [payment mechanisms other than debit cards] such as credit cards, which can be more costly to process, provided that they meet… …minimum transparency requirements."
However, the OFT is plainly trying to reach a position where the headline price advertised is inclusive of all charges for paying by debit card, which the OFT sees as "the online equivalent to cash" And it is plainly not going to stop at just the travel sector, saying:
"…our views on surcharging apply across all commercial traders in the UK… …If necessary we will consider enforcement action in other sectors in due course…"
Of course, as emerging e-money currencies start to be used more widely by consumers, the OFT's assessment of debit card as being the "almost universal payment method for today's online consumers" may quickly become outdated. However, where these e-money payment methods are less costly to process, it is likely we will now see traders making much more effort to encourage uptake and usage by consumers, so as to increase profit-per-sale against a headline price that is inclusive of debit card processing charges.
Separately, as reported elsewhere in this month's www.marketinglaw.co.uk updates, it now looks like traders and payments sector operators will also have to factor in developments under the Consumer Rights Directive. Article 19 of the Directive states:
"Member States shall prohibit traders from charging consumers, in respect of the use of a given means of payment, fees that exceed the cost borne by the trader for the use of such means."
Assuming the Directive is approved by the Council of Ministers when they vote on it this month, this means that payment card surcharges will be limited to no more than passing on the actual cost to the trader: no element of mark-up will be permitted. It is currently proposed that the Directive would require transposition into local member states' laws by the end of 2013.
In the meantime, expect yet more small print disclosure in advertisements, along the lines "*Credit card surcharge applies", and widespread adoption of "Payment method charges" sections within traders' websites.