Government introduces legislation prohibiting excessive payment surcharges

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In the UK, payment surcharges have been something of a 'hot topic' in recent years. A payment surcharge being a charge made for the use of a particular method of payment in addition to the price of the goods or services purchased is usually encountered when businesses impose surcharges on payments made by credit or debit card.

In June 2011, consumer organisation Which? made a super-complaint to the Office of Fair Trading (OFT) on the grounds that excessive payment surcharges in the passenger transport sector were likely to result in consumer detriment.

In July 2012, the OFT concluded its investigation into airline payment surcharges. Consequently, most airlines gave formal undertakings to the OFT and others made changes to their pricing practices in lieu of giving undertakings. The result is that any payment surcharges charged by airlines will be made clear in the headline price and free payment by debit card will be the industry standard for UK passengers.

In light of the Government's concerns relating to payment surcharges in the passenger transport sector, including its more general concerns that traders should be up front and transparent with their prices to allow consumers to accurately compare prices, it has decided to implement the prohibition on excessive payment surcharges set out in the Consumer Rights Directive (the Directive).

The aim of the Directive is to harmonise consumer law across Member States so that consumers will be more confident to buy across borders therefore having greater choice available to them including access to the lowest prices. One feature of the Directive is that it prohibits businesses imposing excessive payment surcharges on consumers. The Directive was agreed by all Member States in October 2011 and must be implemented into national law by 13 June 2014.

The Consumer Rights (Payment Surcharges) Regulations 2012 (the Regulations) were made on 18 December 2012. They come into force on 6 April 2013 and will apply to nearly all contracts concluded with consumers on or after that date, although micro-businesses (businesses with fewer than 10 employees) and new businesses (businesses that began trading between 6 April 2013 and 12 June 2014) will benefit from an exemption in the Regulations until 12 June 2014.

The Regulations limit the ability of businesses to impose payment surcharges on consumers. Under the Regulations, these charges must not exceed the cost to the business of using the relevant payment method. Businesses will not be able to enforce payment surcharges, and must refund any payment surcharges paid, in breach of the Regulations. Any suspected breach of the Regulations will be investigated by the authorities and businesses could be hit with enforcement action and adverse publicity if found to be in breach.

All businesses that impose payment surcharges on consumers should carefully review their position on payment surcharges. Firstly, businesses should consider whether they meet the definitions of a 'micro business' or a 'new business' and therefore benefit from one of the temporary exemptions in the Regulations. If the business does not benefit from exemption it should review its payment surcharges now and make sure that any surcharges it imposes after 5 April 2013 do not exceed the cost to the business of using that payment method. If the business does benefit from exemption, it should review its payment surcharges in good time before the protection of the exemption comes to an end.

The Department for Business, Innovation and Skills has said that it will publish guidance on the kinds of costs businesses can lawfully pass on to consumers under the Regulations.