Lyla Lindsey
In Australia, it is legal for businesses to charge customers a credit card fee, also known as a surcharge. However, the Competition and Consumer Amendment (Payment Surcharges) Act 2016 prohibits businesses from charging excessive credit card fees. The Australian Competition and Consumer Commission (ACCC) is responsible for enforcing these regulations and encourages people to report businesses that charge excessive fees. The Reserve Bank of Australia (RBA) has defined the costs that can be covered in the allowable surcharge, but there is no set amount deemed excessive. Businesses need to be careful of imposing a flat fee surcharge, as this can often be higher than the processing cost, especially for low-cost transactions.
| Characteristics | Values |
|---|---|
| Legality of charging credit card fees | Yes, it is legal to charge credit card fees, but they must not be excessive. |
| Excessive surcharge definition | The surcharge must not exceed the cost to the business of processing that payment type. |
| Enforcement | The Australian Competition and Consumer Commission (ACCC) is responsible for enforcing the regulations. |
| Penalties | Penalties for excessive credit card surcharges can be up to $126,000 for listed corporations and up to $1,358,910 if court action is required. |
| Payment methods covered | The regulations apply to credit cards, debit cards, prepaid cards, and digital payment methods attached to cards, such as Apple Pay. |
| Excluded payment methods | PayPal, UnionPay, BPAY, Diners Club, and American Express cards issued directly by American Express are not covered by the ban. |
| Business considerations | Businesses should be careful with flat fee surcharges and ensure they comply with the ban on excessive surcharges. |
| Interchange fees | The payment network provider charges an interchange fee to the business, which can vary depending on the card type. |
| Average costs | The average cost of acceptance for Visa debit is 1%, and for Visa credit is 1.5%. |
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What You'll Learn
- The Competition and Consumer Amendment (Payment Surcharges) Act 2016 prohibits excessive credit card fees
- The Reserve Bank of Australia determines the costs that businesses can include when setting card surcharges
- Interchange fees are charged by the payment network provider to the business to process the payment
- Merchants can surcharge any of the cards covered by the RBA's standard up to the average percentage cost of acceptance
- PayPal and BPAY are not designated by the RBA, but they could include similar conditions in their merchant agreements
The Competition and Consumer Amendment (Payment Surcharges) Act 2016 prohibits excessive credit card fees
In 2016, the Australian government introduced new regulations to govern the surcharges businesses could impose on customers for using credit cards. According to the Competition and Consumer Amendment (Payment Surcharges) Act 2016, businesses are prohibited from charging excessive credit card fees. The law states that a surcharge should cover the cost incurred by the merchant when processing a transaction, but not exceed it.
The Australian Competition and Consumer Commission (ACCC) is responsible for enforcing the regulations. The ACCC and the Reserve Bank of Australia (RBA) devised a method to calculate the cost of accepting a payment. If a business's surcharge exceeds this amount, it is deemed excessive, and the business may be liable to the ACCC. The RBA has not set a standard excessive amount but has defined the costs that can be covered in the allowable surcharge. These include merchant service fees, terminal fees, cross-border transaction fees, switching fees, and fraud-related chargeback fees.
The regulations apply to various payment types, including American Express "companion cards" (issued through an Australian financial service provider). However, the ban does not extend to PayPal, UnionPay, BPAY, Diners Club, or American Express cards issued directly by American Express.
Businesses have the right to apply surcharges to cover the costs of more expensive payment methods. Surcharges are usually charged as a percentage of the transaction. A flat fee surcharge is allowed but can be higher than the cost of processing the payment, especially for low-cost transactions. Businesses can also set a minimum amount for card payments or a surcharge for card payments below a certain amount.
The ACCC encourages consumers to report businesses that charge excessive credit card fees. Merchants that impose credit card charges must stay updated with the latest credit card surcharge laws in Australia.
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The Reserve Bank of Australia determines the costs that businesses can include when setting card surcharges
In Australia, the Reserve Bank of Australia (RBA) determines the costs that businesses can include when setting card surcharges. The RBA's surcharging standard aims to provide clear price signals to consumers about the costs associated with different payment methods. The standard promotes transparency and enforcement to prevent excessive surcharges.
The RBA's rules allowing retailer surcharging have been in place for over 20 years. The RBA states that merchants have the right to apply surcharges to pass the cost of more expensive payment methods back to customers who use them. Applying surcharges to cover merchants' costs can, in theory, help lower the cost of goods and services for consumers. However, some merchants may have other costs that they would like to include in their surcharge. If those costs meet the requirements for inclusion and can be documented, merchants may add them to the costs charged by their acquirer or payment facilitator over the previous year.
Before introducing a payment surcharge, businesses should refer to the ACCC's Payment Surcharges Guide and the RBA's guidance material. The ACCC and RBA provide guidelines and resources to help businesses comply with regulations. Businesses can charge a surcharge for paying by card, but the surcharge must not be more than what it costs the business to use that payment type. If a business charges a payment surcharge, it must be able to prove the costs it is based on. If there is no way for a consumer to pay without paying a surcharge, the business must include the surcharge in the displayed price.
Businesses need to be careful of imposing a flat fee surcharge, as these can often be higher than the cost of processing the payment, especially for low-cost transactions. If a business wants to set the same surcharge for all card payment types, it must not be more than the lowest surcharge they can set for a single card payment type.
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Interchange fees are charged by the payment network provider to the business to process the payment
Interchange fees are transaction fees charged between banks for processing credit and debit card payments. When a customer makes a purchase using a card, the merchant's acquiring bank pays the interchange fee to the cardholder's issuing bank. Interchange fees are set by the payment networks, such as Visa and Mastercard, and are typically a percentage of the transaction amount plus a fixed fee. The fee depends on factors such as the type of card used, the transaction type, the industry, and the region. Interchange fees support the maintenance and operation of card networks, covering costs like network infrastructure and fraud prevention.
In Australia, the Reserve Bank (RBA) regulates interchange fees and has implemented reforms to prevent excessive upward pressure on interchange rates. The RBA's standards determine the costs that businesses can include when applying surcharges to card payments. Businesses incur costs for processing card payments and may pass these costs to customers as surcharges. However, the surcharge must not exceed the average percentage cost of acceptance for that card type.
The RBA's reforms have included imposing interchange fee benchmarks and reducing the interchange fee benchmark for debit cards, contributing to a decline in average fees for Visa and Mastercard debit schemes. Australia now has a relatively low-cost payment system compared to international standards.
Businesses have the right to apply surcharges to cover the cost of more expensive payment methods, and this can help lower the cost of goods and services for consumers. However, businesses must be careful not to impose excessive flat-fee surcharges, especially on low-cost transactions.
Some jurisdictions, like the European Union, have also regulated interchange fees due to their potential impact on businesses' costs and customer prices. For example, in 2015, the European Parliament capped interchange fees for credit and debit cards.
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Merchants can surcharge any of the cards covered by the RBA's standard up to the average percentage cost of acceptance
In Australia, merchants are permitted to surcharge any of the cards covered by the Reserve Bank of Australia's (RBA) standard up to the average percentage cost of acceptance in their annual statement for that card type. This means that merchants can pass on the costs of processing card transactions to their customers. The RBA has set out the costs that businesses can include when determining their costs of accepting payment types, and these costs must be documented.
The RBA's standard covers designated eftpos, Mastercard, and Visa schemes, including prepaid cards that are issued by participants in these schemes and can be visually identified as prepaid cards. Merchants can surcharge these cards up to the average percentage cost of acceptance, which includes costs such as merchant service fees, terminal fees, and any other fees incurred in processing card transactions. However, it is important to note that the RBA's standards do not currently cover PayPal and BPAY transactions.
The Australian Competition and Consumer Commission (ACCC) is responsible for enforcing regulations on excessive credit card surcharges. According to the ACCC, a surcharge must not be more than what it costs the business to process that payment type, and it can only include costs that are for accepting that specific payment type. For example, if a business incurs a gateway fee for processing credit card transactions only, this cost cannot be passed on to customers paying with a debit card.
Businesses need to be cautious when imposing a flat fee surcharge, as it can often exceed the cost of processing the payment, especially for low-cost transactions. Instead, businesses can set a minimum amount for card payments or a surcharge that only applies to card payments below a certain amount. For instance, a 10-cent surcharge for card payments under $10. Additionally, if a business wants to set the same surcharge for multiple payment methods, it must not exceed the lowest surcharge for a single payment type.
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PayPal and BPAY are not designated by the RBA, but they could include similar conditions in their merchant agreements
In Australia, credit card surcharges are fees charged by businesses to customers who pay by credit card. While it is legal to charge consumers a credit card fee, the Competition and Consumer Amendment (Payment Surcharges) Act 2016 prohibits excessive credit card fees. The law states that credit card surcharges should cover the cost incurred by the merchant when processing the transaction, but no more. The Australian Competition and Consumer Commission (ACCC) is responsible for enforcing the regulations.
PayPal and BPAY are not currently designated by the Reserve Bank of Australia (RBA), so transactions through these systems are not covered by the RBA's standards. However, these payment systems could include similar conditions in their merchant agreements. For example, PayPal updated its user terms and conditions on 19 October 2016 to permit merchant surcharging. Paragraph 11.2(c) of the updated User Agreement for PayPal Services allows merchants to surcharge PayPal transactions as long as the surcharge does not exceed the amount PayPal charges the merchant for the transaction.
The cost to a merchant of accepting PayPal or BPAY reflects the fees for those systems, so any surcharge applied on those systems is not a credit card surcharge. If excessive surcharging became an issue for either system, the RBA could reconsider the regulatory arrangements.
Merchants who decide to surcharge debit or credit cards will do so based on what they are charged for payments by their acquirer or payment facilitator. This includes costs such as merchant service fees, terminal fees, and any other fees incurred in processing card transactions. The RBA says that merchants have the right to apply surcharges to pass the cost of more expensive payment methods back to customers who use them. Applying surcharges to cover merchants' costs can help lower the cost of goods and services for consumers.
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Frequently asked questions
No, it is not illegal to charge credit card fees in Australia. However, the Competition and Consumer Amendment (Payment Surcharges) Act 2016 prohibits excessive credit card fees.
According to the Reserve Bank of Australia (RBA), a surcharge is considered excessive if it exceeds the cost incurred by the merchant to process the transaction. The RBA has defined the costs that can be covered in the allowable surcharge, but there is no set excessive amount.
Businesses that charge excessive credit card fees may face penalties from the Australian Competition and Consumer Commission (ACCC). These penalties can be up to 600 penalty units ($126,000) for listed corporations and 6,471 penalty units ($1,358,910) for a body corporate if court action is required.
