In July 2018, the Australian Competition and Consumer Commission (ACCC) instituted proceedings against CLA Trading Pty Ltd trading as Europcar (Europcar) for charging excessive credit and debit card payment surcharges, in breach of the Competition and Consumer Act 2010 (CCA).
Excessive surcharging on card payments banned since 2016
Under section 55B of the CCA, a corporation must not, in trade or commerce, charge a payment surcharge that is excessive. This prohibition on excessive card payment surcharges took effect from 1 September 2016 for large businessesi and from 1 September 2017 for all other businesses.
A payment surcharge is excessive if:
- The surcharge is for a kind of payment covered by a Reserve Bank of Australia (RBA) standard or the relevant CCA regulations; and
- The amount of the surcharge exceeds the permitted surcharge referred to in the RBA standard or the CCA regulations.
Payment types which are covered by the ban include EFTPOS (debit and prepaid), MasterCard (credit, debit and prepaid), Visa (credit, debit and prepaid) and American Express cards issued through an Australian financial service provider, rather than through American Express directly.
A payment surcharge is excessive if it amounts to more than what it actually costs the business to process the card payment. This is referred to as the “cost of acceptance” and generally would include merchant service fees, fees for rental and maintenance of payment card terminals and any other processing fees such as international transaction fees. Banks and payment facilitators must provide businesses with monthly and annual statements outlining the cost of acceptance for each payment type, expressed as a percentage of the value of a transaction.
The RBA’s guidanceii is that:
- Surcharges for debit payments are usually quite low, mostly below 0.5 percent and accepting a Visa or MasterCard debit transaction may cost a business around 0.5-1 percent of the transaction value; and
- Surcharges for credit payments may cost up to 1-1.5 percent for Visa and MasterCard, and between 1.5-2 percent for an American Express card payment.
Excessive surcharging by Europcar
In the proceedings, the ACCC alleged that Europcar’s car rental customers who paid using a:
- Visa or MasterCard credit card or debit card between 19 July 2017 and 31 August 2017 (Period 1); and
- Visa or MasterCard debit card between 1 September 2017 and 5 November 2017 (Period 2),
were charged excessive payment surcharges.
The ACCC alleged that the overcharging ranged from at least 0.18 percentage points to 0.65 percentage points across different cards and time periods within the above periods, despite Europcar being notified by its bank in July 2017 of the costs of card acceptance.
Europcar’s alleged conduct was separated into the above periods because the ACCC alleged that:
- In Period 1, Europcar charged customers the amount it had charged from 1 September 2016 despite receiving information from its bank in July 2017 estimating a lower overall average cost of acceptance; and
- In Period 2, Europcar charged customers paying by debit card, a surcharge equal to the cost of acceptance for credit payments rather than debit payments, despite being aware from August 2017 that it was not lawful to charge a blended rate for credit and debit cards where the higher cost of acceptance is charged.
Europcar subsequently admitted that its conduct contravened section 55B(1) of the CCA and was ordered by the Federal Court to pay a pecuniary penalty of $350,000 and $25,000 towards the ACCC’s legal costs.
The financial benefit Europcar obtained from charging the excessive surcharges was $67,215, which puts the cost of Europcar’s breaches of the CCA to be at least five times the amount of the benefit obtained. Europcar has also provided refunds to the majority of customers identified as having been charged the excessive surcharges between July and November 2017 and would have had to pay its own legal costs in relation to the proceedings.
In deciding the pecuniary penalty, the Court referred, amongst other things, to the deliberateness of Europcar’s contravening conduct, including the knowledge of senior management that Europcar was charging excessive surcharges for debit card payments between 1 September 2017 and 5 November 2017. The Court also referred to Europcar’s prior history of contravening conduct. In April 2016, it was ordered to pay a pecuniary penalty for engaging in misleading or deceptive conduct under the Australian Securities and Investments Commission Act 2001 (Cth) and certain terms in its car rental contracts were declared to be unfair.
Takeaways for businesses passing on credit card surcharges
Businesses do not have to impose payment surcharges on card payments however if they do, they must not charge excessive surcharges. The ACCC’s successful action against Europcar highlights the serious consequences of doing so. Not only may overcharging customers attract the attention of the ACCC, it is likely to cause reputational damage to the business.
Banks and payment facilitators are required to provide businesses with statements that set out the average cost of acceptance for each card. Businesses imposing card payment surcharges should continually monitor and adjust the surcharges so that they do not exceed the relevant card’s cost of acceptance.
This article was written by Teresa Torcasio, Partner and Marian Ngo, Senior Associate.
P: + 61 3 8644 3623
i Large businesses were merchants that satisfied two or more thresholds relating to gross revenue, consolidated gross assets and/or employee numbers.