How will the changes to consumer card charges affect businesses?
The introduction of the Payment Services Regulations 2017 (the Regulations) by the Treasury is set to bring about a significant change for businesses selling to consumers next year.
The Regulations, which implement the European Union's second Payment Services Directive (PSD2), will amongst other things ban surcharges on all consumer card payments from 13 January 2018. PSD2 came into force in early 2016 and will become applicable in all the EU member states in January 2018. What's more, the Treasury has stated that the Regulations will go further than is required by PSD2, by banning surcharges not just for Visa and MasterCard payments, but also for payments made using American Express or services such as PayPal and Apple Pay. The Regulations will apply to any UK company selling to UK consumers and the PSD2 ban will apply to any business in the European Economic Area (EEA) selling to a consumer in the EEA.
This is great news for consumers, but not so welcome for businesses. Although regulation has attempted to limit and reduce the charges imposed by payment processors in the recent past, sellers still need to meet these hidden costs. Small businesses in particular (who are usually in a weaker bargaining position) are often forced to pay higher rates in order to be allowed to take card payments. Many will now need to decide what action to take; namely, whether to absorb these charges or increase overall prices to accommodate them. It seems likely that most businesses will choose the latter option, but this will impact on everyone including those who pay by cash and are not currently affected by these surcharges. It is also worth noting that the Regulations will not stop businesses from imposing a minimum spend for card payments if they wish to do so.
Regulation in this area may seem familiar (see our article here); it is already illegal to impose excessive payment surcharges in transactions with consumers and has been since 6 April 2013. You are already obliged to make sure that any surcharges currently imposed on consumers are representative of your actual processing costs. Nevertheless, many consumers still complain of significant charges. These types of charges were first widely used by airlines and ticket companies but are now also imposed by some public institutions such as the DVLA, HMRC and local authorities. The fees are typically around 2% but can sometimes reach as much as 20% of a transaction.
Once the Regulations become applicable in January, the Treasury believes that the fact that all card surcharges will be banned should make enforcement a lot easier for the authorities. It will be local authority trading standards officers who will receive consumer complaints about payment surcharges and will be tasked with enforcing the ban. However, trading standards state that current under-funding is the reason why it has been possible for many businesses (particularly small businesses who are not worth the cost of pursuing) to get away with imposing excessive payment surcharges since 2013. Therefore, due to the limited resources currently available for trading standards teams, we will have to wait and see how effectively the ban will be enforced in practice.
Although the ban will not start until January next year, you should consider now how your business will deal with this change. If you would like advice on this subject, any other area of consumer law, or any other commercial aspects of your business, please get in touch with Sheilah Mackie at Sheilah.Mackie@blakemorgan.co.uk or any other member of our Commercial contracts team.