[ 2011-12-23 ]

Credit card fees to be banned
Customers are being charged as much as £12 to use
their cards when they pay, though the transactions
cost as little as 20p to process.

In some cases, the surcharges are higher than the
value of the item being purchased.

Last night a Treasury minister said people were
“sick” of being “ripped off” by the hidden
charges. Legislation would be introduced by the
end of next year.

Mark Hoban, the financial secretary to the
Treasury, said consumers should be able to shop
around. “They have a right to understand the
charges they may incur up front and not be hit
through a hidden, last-minute payment
surcharge,” he said.

“We’re leading the way in Europe by stopping
this practice. The Government remains committed to
helping consumers get a good deal in these
difficult times. Consumers are sick of the rip-off
culture and we are determined to do what we can to
end it.”

Over the past few years, card surcharges have
risen sharply particularly among low-cost
airlines, who were among the first to bring in the
levies.

The cost of booking a Ryanair return flight with a
debit card has risen 15-fold to £12 since 2004.

The charges have now spread to many other areas
including cinema tickets, utility bills, holidays
and even some government departments. The DVLA and
HM Revenue and Customs charge extra for credit
card payments.

Consumer experts say Toyota levied a £75 fee to
buy a car with a credit card. The fees are
believed to cost consumers hundreds of millions of
pounds a year.

In many cases, the charge is only disclosed during
the closing stages of the booking process, making
it difficult for consumers to compare prices.

Ministers intervened after Which?, the consumer
watchdog, complained about the fees to the Office
of Fair Trading (OFT), the regulator.

In June, the OFT found that the fees were
detrimental to consumers and proposed that firms
should be more open about the levies.

Richard Lloyd, the executive director of Which?,
said last night: “The Government’s decision to
ban rip-off debit and credit card surcharges is a
huge victory for consumers.

“This announcement goes further than the Office
of Fair Trading’s proposals, finally putting an
end to these unfair charges. More than 50,000
people supported our campaign to see these fees
stamped out.

“Given that airline passengers alone pay more
than £265,000 a day in card surcharges,
businesses shouldn’t drag their feet over this.
While the law will come into force at the end of
2012, we want companies to be upfront and fair
over card charges today.”

The European Union is to ban excessive card fees
levied by airlines from 2014. However, the British
ban will be enforced sooner and go significantly
further. Earlier this year, Cavendish Elithorn,
the senior director of the OFT’s Goods and
Consumer Group, said: “The growth of internet
retailing has brought massive benefits, but the
increasing use of card surcharges is not one of
them.

“You can’t buy online with cash and people are
frustrated about being asked to pay for paying.

“Consumers find it harder to shop around and
find the best deal if they have to invest time and
effort in discovering surcharges. This also
weakens competition between retailers which is bad
news for the economy.”

Companies levying the fees have insisted that they
are necessary to cover costs. All banks charge
retailers a “merchant fee” for processing
payments by debit and credit cards.

Most banks refuse to disclose the amount charged
because it often depends on the size of the
retailers and their volume of transactions. For
example, large supermarkets will be able to
negotiate smaller merchant fees. In addition,
credit card payments cost more to process than
debit card paymentsdue to the charges associated
with borrowing.

There may also be extra security costs borne by
the retailer in processing online card
transactions.

According to regulators, the cost of processing a
debit card is about 20p. However, it can be one or
two per cent for credit cards.

A spokesman for the UK Payments Association said:
“The credit card costs are per transaction.

“If you are booking six tickets at once, or one
ticket in one credit card booking, the processing
costs would be the same.

“It’s hard to see how companies can charge per
item.”

The move to ban credit card fees is the latest
action by government to crack down on unacceptable
bank charges.

Earlier this week, the Office of Fair Trading
ordered banks to stop charging consumers so-called
foreign exchange fees when they use their bank
cards abroad.

Banks had been accused of “charging customers
for the privilege of taking money out of their own
account”.

The move could save consumers millions of pounds a
year.

The OFT has also waged a long-running battle
against low-cost airlines to force them to
disclose in advertisements and price comparison
websites the actual cost of their tickets.

The low advertised prices have traditionally
excluded a wide array of “hidden” fees and
taxes which can significantly increase the cost of
tickets.

Many low-cost airlines are thought to make the
majority of their profits from the extra fees,
including charges for luggage,checking in and
other services which used to be free.

However, the ban on credit card fees is expected
to be vigorously opposed.

Government officials are prepared to fight any
attempts by airlines to avoid the bar.

Source - The Telegraph

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