Reserve Bank may use sunlight to disinfect toxic credit card surcharges

Are you charging customers more than credit card companies fees? Watch out: the Reserve Bank is thinking of making you ‘fess up to customers.

Are you charging customers to use their credit cards? If so, the Reserve Bank of Australia (RBA) may insist you spell out your price-gouging ways to your customers. That’s one of the options in a new Review of Card Surcharging Consultation Document the Bank released today.

To understand the need for the consultation paper, think back to 2003 when the RBA lifted the restriction on merchants imposing surcharges on customers who pay by credit card. The reasoning behind the decision was that some credit card companies charge higher “merchant service fees” than others. RBA data suggests that MasterCard, for example, charges 0.86 per cent while American Express charges 1.89 per cent. Yet without the ability to make consumers pay a surcharge, many retailers picked the highest surcharge from among the credit card companies they work with and built it the price of every item they sell.

In came the small surcharge usually associated with AMEX and Diners Club and out, theoretically at least, went the price buffer built into every product.

Since 2003 two things have happened.

One is that some merchants charge surcharges that are more than the merchant service fee they are charged. Others slap on a blanket surcharge even though different card companies charge different fees. Some customers pay a fair amount: the merchant fee charged by the credit card company they use is covered under this “blended” surcharge. But other customers pay more than a merchant needs to cover the handling costs for a particular credit card.

The second change is that the rise of online payments has made credit cards a far more common method of payment. Some companies, notably utilities and telcos, have used this trend to make it hard for their customers to pay their bills other than with a credit card, then slapped on a surcharge. Consumers were left with no low-cost payment option.

The RBA has politely described these practices by saying “it has become apparent that merchants have increasingly been adopting a number of surcharging practices that have the potential to distort price signals and thereby reduce the effectiveness of the surcharging reforms.” That’s probably code for “some merchants are gouging consumers and using credit card surcharges to boost margins.”

The Consultation Document raises seven options to address the situation, namely.

  1. Is there a case for modifying the Standards to allow schemes to limit surcharges?
  2. Is a surcharge cap best implemented by the Board setting a transparent and specific permissible cap that is specified in the Standards, and may then be imposed in scheme rules? Or, should the Standards allow scheme rules to limit surcharges to an amount that is either reasonably related, or equal, to each particular merchant’s cost of card acceptance?
  3. Should there be some level of tolerance allowed around any surcharge cap?
  4. Is the merchant service fee an appropriate measure of the cost of card acceptance (that can be applied consistently across all merchants)?
  5. Should the no-surcharge Standards clarify that, notwithstanding any surcharging cap, scheme rules cannot prohibit merchants from applying a surcharge that is either a blended rate for each card scheme or the cost of accepting each card within a card scheme? Are there alternative ways to allow for differential surcharging?
  6. Should the no-surcharge Standards require acquirers to pass on information about the merchant’s cost of acceptance for each different card type if it is requested by the merchant? And, for those on ‘interchange-plus’ pricing, should the no-surcharge Standards require acquirers to pass on information about the weighted average merchant service fee if it is requested by the merchant?
  7. Is there a case for disclosure of the cost of card acceptance by merchants? Or, would it be sufficient for the Bank to collect and publish more detailed data on merchant service fees, such as the range and average of merchant service fees across merchant categories for each card scheme?

Early reaction to the Consultation Document was positive, with Mastercard’s Vice President of Strategy and Corporate Affairs David Masters saying “Consumers are at the mercy of merchants should they chose to surcharge for the acceptance of a card. Some merchants take advantage of this situation and charge excessive fees when the consumer has no other payment option.”

“It’s a vicious circle and we welcome the fact that the RBA is acknowledging this as a problem for consumers.”

The RBA has asked for comments on the Consultation Document and you can post them in to  "Head of Payments Policy Department, Reserve Bank of Australia, GPO Box 3947, SYDNEY NSW 2001" or email them to This email address is being protected from spambots. You need JavaScript enabled to view it..

Or you could just type a comment below!

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