Clearing the way for surcharge ban
A new EU directive - Payment Services Directive (II) – will be put into national law by 13 January 2018. This will affect, among other things, the ability of companies to add on surcharges for the use of credit cards and debit cards by customers. If the interchange fee that a bank can charge a travel company for use of a particular card has been capped already under certain other legislation then a card surcharge cannot be added on to what the customer is charged.
Key issues to consider
From 13 January 2018, in relation to most credit cards and debit cards, travel companies and other businesses will not be able to add a card surcharge when a customer books a flight and / or holiday using such cards.
The government held a consultation on the implementation of this directive. It closed its consultation on 16 March 2017. Once the result of the consultation has been published, we will have a clearer idea precisely how the card surcharge ban is going to be implemented within the UK. In particular, this will help determine to which credit cards and debit cards the surcharge ban will apply.
Surcharging will be banned for card payments in the vast majority of cases (including consumer debit and credit cards), both online and in shops; for example, when booking flights or paying in a newsagent. This will apply to domestic as well as cross-border payments. The European Commission has previously estimated that this ban will apply to approximately 95% of all card payments in Europe, saving consumers an estimated €730 million per year.
As things stand currently, it appears a surcharge ban will in all likelihood apply to Mastercard or Visa cards but might not apply to, say, American Express; however, it is difficult to be certain until the draft legislation has been published by Parliament. The result of the general election on 8 June 2017 may also have an impact on how the directive is implemented within the UK.
ABTA has produced an updated guidance note on credit card and debit card charges, which is available to its members. Mark Tanzer, Chief Executive, has stated that ABTA has highlighted to the Treasury “the negative impact a ban on card charges will have on the travel industry” and that “[ABTA has] called on the Government to include an exemption for charge cards and commercial cards”. In terms of steps that might be taken to help cope with the surcharge ban, “charging booking fees, increasing headline prices and offering incentives to customers to use payment methods other than cards” are noted by Mr Tanzer.
We await the government’s response to the consultation. In the meantime, it would be prudent to consider the implications for your business if credit card surcharges are removed. If part of your business model is based around being able to charge a card surcharge, you may want to reconsider your revenue options accordingly. Ultimately, this may involve charging a higher overall fee to recover the fees lost by this card surcharge ban or offering incentives to customers to use payment methods other than cards.
On the current timetable, this law will have been implemented for over a year before the UK leaves the EU. After Brexit, Parliament will not be bound to act in accordance with Payment Services Directive (II). So, Parliament might decide that there is no need to keep this legislation. However, on the other hand, they may take the view that it is useful for business-to-consumer card payments and should be retained.
Published: 13 Jun 2017