Ban on Excessive Card Surcharges

01 August 2016

On 25 February 2016, the Competition and Consumer Amendment (Payment Surcharges) Act 2016 (Act) commenced. The Act inserts a new part into the Competition and Consumer Act 2010 (CCA) to ban excessive card surcharges. The Act limits the amount businesses can surcharge customers for nine payment methods comprising Debit MasterCard, MasterCard Credit, MasterCard Prepaid, Visa Debit, Visa Credit, Visa Prepaid, Eftpos, Eftpos Prepaid and American Express Companion Card.

Key take away points

In summary, businesses (known as “merchants”) will only be able to on charge the cost of acceptance (Cost of Acceptance), which generally includes fees charged to them by their banks or other providers (known as “acquirers” in the context of facilitating card acceptance). In addition;

  • The merchant must keep records of how they calculated the “cost of acceptance” in the event it is requested by the Australian Competition and Consumer Commission (ACCC);
  • Card acquirers will be required to issue merchants with monthly and annual statements (either by themselves or through a “payment facilitator”) which will assist to determine the average Cost of Acceptance in percentage terms for each card payments system so merchants can set their surcharge fees with large merchants being required to calculate the Cost of Acceptance themselves for the first year;
  • Each Cost of Acceptance is the direct cost of the card payment method such as bank fees and terminal costs;
  • The Reserve Bank of Australia (RBA) sets guide rates for surcharges for different payment methods; and
  • The RBA Standard for Merchant Pricing commences on 1 September 2016 for “large merchants”.

These changes are relevant to franchisors and franchisees that currently incur and pass on card transaction charges to customers.

What is the “Cost of Acceptance”?

Under the Act, a merchant will only be able to charge a consumer a surcharge which is equal to or less than the Cost of Acceptance for the merchant. The Cost of Acceptance is comprised of the fees charged by a bank or other providers and includes, but is not limited to, merchant service fees, fraud prevention fees and fraud related charge back fees, terminal rental fees and processing fees charged by the provider.

When will a surcharge be excessive?

Surcharges will be excessive where they exceed the Cost of Acceptance for that card. High fixed fee surcharges will no longer be permitted such as a $7 fee to use a credit card regardless of whether the value of the transaction is $49 or $1,149 as this does not represent the Cost of Acceptance.

If a merchant wishes to set surcharges at the same rate across all card types (American Express, MasterCard, Visa, Eftpos) rather than having varying rates and surcharges (known as “blended surcharging”), they will be required to set a blended surcharge at the rate of the card with the lowest Cost of Acceptance. Similarly, if a merchant only wishes to set a surcharge for one card type, they may do so as long as the surcharge is not higher than the Cost of Acceptance for that card (except that surcharges for cards in a “Scheme Pair” – e.g. Visa Debit and Visa Prepaid – must be the same as each other if required under the Rules of a Scheme).

What are the Standards?

The RBA has released three Standards that will work with the Act to contribute to a more efficient and competitive card payments system. Standard 3 which deals with merchant pricing explains that a merchant will be a large merchant if it satisfies at least two of the following requirements: consolidated gross revenue of $25 million or more; the value of its consolidated assets is $12.5 million or more; or it employs 50 or more employees (as at, or for the financial year ending, 30 June 2015). The Standards can be accessed using the links below.

ACCC enforcement action

From 1 September 2016, the ACCC will enforce the ban on large merchants and from 1 September 2017 on all other businesses to ensure business comply with the new laws. They will be able to issue a Surcharge Information Notice and, if the ACCC has reasonable grounds to believe that a person has charged an excessive surcharge, an Infringement Notice.

What does this mean to the franchising industry?

Franchisors and franchisees should ensure they determine whether they are a large merchant or other merchant so they are aware when the Act and the Standards come into force for them. They should also ensure they have either received monthly and annual statements from their card acquirers or in the case of large merchants, they calculate from their records, the surcharges that will apply for each transaction. This should be done in advance of 1 September 2016 for large merchants and in advance of 1 September 2017 for all other merchants.

The links to legislation and Standards

You may access the Act here:

You may access the Reserve Bank of Australia Standards here, here and here. 

Should you any questions, or require further information regarding the Act, please do not hesitate to contact us.

This article was written by: Melissa Hanbidge, Special Counsel and Melissa Ramsden, Trainee Solicitor of the Brisbane Office. This article was overseen by Tony Garrisson, Partner, Matthew Craven, Partner and Derek Sutherland, Special Counsel

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