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Visa credit card surcharges cut

Visa has become the first company to ban Australian retailers from adding additional fees to customers’ transactions via credit card, following changes announced by the Reserve Bank last year.

In June 2012, the Reserve Bank of Australia (RBA) announced that it was changing the standards relating to merchant surcharging on credit and scheme debit cards. The variation allows card scheme rules to limit surcharges to the reasonable cost of card acceptance, and came into effect at the beginning of this year.

While the RBA has defined what the ‘reasonable cost’ can include, it seems there is a certain amount of interpretation that could still see consumers hit by unreasonable surcharges for using their credit or debit cards.

Airlines, including Qantas Airways (ASX: QAN) and Virgin Australia Holdings (ASX: VAH) and many retailers have often been accused of charging over-the-top fees for credit card transactions. Qantas adds $30 per person on international flights and $7.70 on domestic flights, including flights to New Zealand as a surcharge, although the company denies that it profits from its surcharges.

Consumer advocate group Choice has told Fairfax Media that Australia’s domestic airlines were already attempting to sneak around the rules, by disguising surcharges as booking and service fees.

Cabcharge Limited (ASX: CAB) charges a 10% fee on customers who pay for a taxi with their credit card, although the company believes that the RBA can’t force the company to comply with the new rules, as it’s not a surcharge, but a service fee.

American Express and Diners Club card transactions typically attract surcharges of around 3%-4%, and some merchants are refusing to accept either, possibly in protest at the high charges. Visa and Mastercard charge around 2% according to the RBA, while the banks charge a service fee of around 0.85%.

Tyro Payments CEO Jost Stollmann says that if excessive surcharging on all credit and debit card transactions was removed, it would save the Australian consumer an estimated $350 million a year. It’s not yet known whether Mastercard will follow Visa’s lead and restrict surcharges to as little as 1%.

Foolish takeaway

This should be good news for consumers, who may have felt like they were being ripped off for using a credit card. However, without a government agency enforcing the rules, it’s up to the consumers to complain, or the credit card companies to enforce. We’ll have to wait and see how successful that is.

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