Are your charging methods compliant with the new law on excessive payment surcharges?
Businesses need to ensure that any charges for using a particular payment method (e.g. credit card or debit card) are compliant with new regulations which restrict the cost that can be passed on to consumers.
In the UK, payment surcharges have been something of a 'hot topic' in recent years. A payment surcharge is a charge made for the use of a particular method of payment in addition to the price of the goods or services purchased - usually encountered when businesses impose surcharges on payments made by credit or debit card.
In July 2012, the Office of Fair Trading (OFT) concluded its investigation into airline payment surcharges. As a result of this, payment surcharges charged by most airlines will now 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 decided to implement early the prohibition on excessive payment surcharges set out in the Consumer Rights Directive (the Directive). The Directive aims to harmonise consumer law across Member States to allow consumers greater choice, give confidence in that choice and provide access to the lowest prices, even across borders. It also prohibits businesses imposing excessive payment surcharges on consumers. The Directive must be implemented into national law by 13 June 2014.
The Consumer Rights (Payment Surcharges) Regulations 2012 (the Regulations) came into force on 6 April 2013. They apply to nearly all contracts concluded between businesses and consumers on or after that date, although businesses with fewer than 10 employees and businesses that begin trading between 6 April 2013 and 12 June 2014 will benefit from an exemption in the Regulations until 12 June 2014. There are some exempt areas (for example, contracts for residential rental accommodation, construction of new buildings and time shares amongst others), but for those businesses to which the Regulations apply, they apply however the contract is concluded, be it on-line, in a shop or business premises or at someone's home.
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. 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.
The Department for Business, Innovation and Skills has published guidance on the kinds of costs businesses can lawfully pass on to consumers under the Regulations. The guidelines illustrate that any form of charge or fee that varies depending on the method of payment used will be considered a surcharge under the Regulations, regardless of what it is called by the trader. Any such costs cannot exceed the additional cost the trader has to pay for accepting that method of payment. Where a fee or charge is the same regardless of the payment type, or where the trader only accepts one form of payment type, then the level of that payment is not restricted by the Regulations and is not limited to the actual cost incurred by the trader. Instead, the charge is part of the overall headline payment for the goods or services and the consumer has to decide if it is acceptable or not.
The guidance on the Regulations set out that operational costs can only be recovered as a surcharge if they can be separated and identified as arising exclusively from the processing of a particular payment type. Indirect costs such as administrative overheads, staff training or website management are not included, but costs associated with IT equipment for payment processing, for example, would be.
The guidance confirms that the Regulations apply to all means of payment that a trader decides to accept in any particular case, which may include cash, cheques, debit and credit cards and online credit transfers, as long as there is at least one accepted means of payment which does not carry any such surcharge (if all payment methods carry a charge, then the Regulations will not apply unless the charge varies depending on the payment method).
Discounts for particular types of payment, such as direct debit, are also permissible under the Regulations provided any discount reflects the cost savings for the trader and any additional surcharge for using other methods of payment reflects the additional costs borne by the trader.
The OFT can enforce the Regulations through the courts if a breach will result in collective harm to the interest of consumers as a result, and can seek a civil injunction against any party in breach of the Regulations.
Importantly, any surcharge that infringes the Regulations is unenforceable or, if already paid, refundable. This provision is directly enforceable by the consumer through the courts to recover such excess surcharges if they have not been able to secure a refund without court action.
All businesses that impose payment surcharges on consumers should carefully review their position on payment surcharges. If a business does not benefit from one of the temporary exemptions in the Regulations, it should review its payment surcharges now and make sure that any surcharges it has been imposing 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.