Treasury Minister Mark Hoban
What's the problem?
Consumers increasingly face high fees – known as surcharges – when purchasing goods and services when paying by credit and debit cards.
Low-cost airlines are among the worst offenders, with some charging a fee per passenger, per leg of the journey, despite the fact that they only have to process one transaction.
The consumer group Which? issued a “super complaint” to the Office of Fair Trading (OFT) and the government has decided it wants to ban excessive surcharges.
The OFT will now stop the excessive fees on travel companies, booking agencies and even councils.
In effect it brings forward European proposals that will force companies to make these surcharges more reflective of the true cost.
These were not due to become law until mid-2014, but the government will consult in the new year with a view to a new law in the UK by the end of 2012 by the implementation of the Consumer Rights Directive.
What is the true cost of using a card?
When paying by debit card, the retailer pays pence not pounds to process the payment. A fairer cost would be 10p to 20p.
The cost of a credit card charge to a retailer is calculated as a percentage of the value. Which? thinks the real cost of processing a credit card transaction is no more than 2% of the value of the purchase.
Retailers often charge a fixed value – so you could end paying more than the true cost.
Why does it matter?
A public survey commissioned by Which? showed 62% of people felt the surcharge made a significant difference to the advertised price.
Which? believes consumers are being overcharged for placing purchases on their cards. They say it is difficult to make an informed choice on the best price for a product or service - such as the cost of a flight – when you're not aware of the absolute total cost when carrying out your research. This weakens price competition amongst retailers.
Are there other ways to pay?
Some airlines claim to offer an alternative, cheaper method of payment. Which? believes the alternatives are too niche and only available to those with basic or children's bank accounts.
Prepaid cards are growing in popularity, but a consumer couldn't apply for a prepaid card and use it instantly. At the point of purchase a consumer without a prepaid, Visa Electron or Solo card, has no option but to pay a fee.
What do travel companies say?
Some have already begun making changes to the way they do business on their websites. However, there is likely to be a strong debate over what charges are considered “excessive”.
The costs are ultimately also likely to be passed onto the consumer through administration fees but campaign groups say at least the process will be transparent.
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