Plastic, Yet Not Cheap

Posted by Sharyn Tauro | 23 Feb

As of December 2015, Australia has a little over 16 million credit cards currently in circulation and this number is steadily increasing. The Australian credit card debt is pegged at a whopping $51.47 billion, with many average Australians facing a lifetime of debt repayments [1].  This is why customers tend to feel more acutely about excessive charges and fees applied on credit card usage. Lately the term ‘credit card surcharge’ has been bandied about a lot in the media. So what is a surcharge, why is it applied and why does this need to be regulated?

A credit card purchase incurs for the retailer a ‘merchant service fee’ from its banking institution. This fee varies depending on the type of card type used Visa 1.9%, MasterCard 1.8% American Express 2.9% and Diners Club 4%. This charge is then passed on to the customer as an add-on amount to the cost of purchase. Credit Card surcharges were not levied onto customer purchases prior to 2003, when the Reserve Bank of Australia made major reforms to the Australian payment card system. Though originally aimed at leveling the playing field and improving efficiency, with time credit card surcharging has become an often abused tool. According to MasterCard credit card companies earn nearly $1.6 billion annually from credit card surcharging.

Airline and taxi companies too have been implicated of brazen misuse of applying surcharges well beyond the allowable limits. A survey conducted in 2013 confirmed that four major airlines were surcharging customers nearly 4.3%, 7.9%, 4.2% and 17% for payments using credit cards [2]. The ACCC took Virgin Australia Airlines and Jetstar to court for misleading customers with their online prices and for adding on high surcharge fees for credit card payments at the end of flight bookings made online. In November 2015 the courts found these two companies guilty of ‘drip pricing [3].  Ticketek and Ticketmaster two other well-known companies too were warned by ACCC to revise their pricing strategy with regards to credit card surcharges.

In 2015 Gold Coast businessman Klaus Bartosch started an online petition protesting Jetstar’s credit surcharge fees. In a matter of few weeks the petition had more than 100,000 supporters. On October 20, 2015 the federal government proposed a ban on merchants charging credit card surcharges above the cost of acceptance. The legislation was introduced to Parliament in December and finally on 22nd February, 2016 the Senate passed the Competition and Consumer Amendment (Payment Surcharges) Bill 2015 that will now give the ACCC the authority to fine companies charging excessive surcharge fees.

According to the new law, ACCC now has the power to enforce bans on surcharging and investigate information and companies involved in the payment process. The ACCC now also has the authority to issue infringement notices to companies flouting this law which could attract fines up to $108,000 [4]. According to a ACCC spokesperson the regulator will work closely with the Reserve Bank of Australia in the coming few months to help guide businesses to comply with the new changes. Choice the consumer advocacy group welcomed the decision saying that credit card paying consumers had been burdened for far too long. A spokesperson for Jetstar and Qantas advised that the companies would await further instructions from RBA to review their process while Virgin Airlines issued a statement that the company will comply with all the changes to the law. The ban is expected to be in place by July 1 of this year.

References: 1 – goo.gl/J42QKD 2 – goo.gl/UWIf7c 3 – goo.gl/ADQVPN  4- goo.gl/sNb9nN
Disclaimer: Incredo does not give financial advice. The information contained on this web site is intended to be generalist in nature, it does not take into account your personal situation or your financial needs, objectives and goals. You should carefully consider whether the information provided is applicable to you, and where appropriate, seek professional advice from a licenced financial adviser before acting on any information.

Sharyn Tauro

Sharyn Tauro is Incredo’s Client Liaison Officer. Her versatile experience in the Scientific, Academic and the Debt Collection industry gained across three subcontinents allows her to gain a unique analytical insight into the Financial Services Industry. She has translated her knowledge of scientific content writing to writing articles of interest for the Incredo Blog.

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