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“Rip-off” card charges to be banned

The government will introduce a ban on surcharges to pay with a credit or debit card from early next year

Online shopping with credit card on laptop

From January 2018 retailers will no longer be able to add any surcharges for paying by credit or debit card.

The government intends the ban to stop “nasty surprises  for people at the check-out just for using a card.”

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What are surcharges?

You’ve probably paid more than a few card surcharges, even if you’ve never noticed.

Though, more likely you’ve seen ‘credit card fees’ added at an online check-out, or a 50p charge to use the card machine at a corner shop and felt like it’s a bit of a rip-off.

The government singles out booking with airline tickets claiming “people can be charged 20% extra for purchases like a flight just for paying with a credit card”.

In 2010 alone, the Treasury estimates customers paid a total of £473 million on credit and debit card surcharges.

“Rip-off card charges to be outlawed”

In the government announcement of the ban, the Economic Secretary to the Treasury, Stephen Barclay, said:

“Rip-off charges have no place in a modern Britain and that’s why card charging in Britain is about to come to an end.

“This is about fairness and transparency, and so from next year there will be no more nasty surprises for people at the check-out just for using a card.

“These small charges can really add up and this change will mean shoppers across the country have that bit of extra cash to spend on the things that matter to them.”

Is the ban overdue?

The government ban on surcharges follows a 2015 directive from the European Union, which capped card interchange fees at 0.2% and 0.3% of transaction value.

For example, if you bought a £300 flight with a card, the airline company only needs to pay the card payment provider (Visa or Mastercard) £0.90 (0.3% of £300).

At the time the cap was introduced Visa and Mastercard claimed it would be bad for consumers, as the costs to card providers would lead to the end of benefits like cashback, and they didn’t believe retailers would pass the savings made with the cap on to customers.

Now though, with the ban by the UK government, retailers in the UK will need to entirely swallow this charge and cannot pass it directly onto customers at all.

Part of a move to a cashless future?

Last week, Visa announced plans to put “cash out of business” and card payments now make up well over half of all transactions.

It’s likely this percentage will increase in coming years, and we’ll see more initiatives to make it ever more frictionless to pay with credit and debit cards.

The Second Payment Services Directive (PSD2), coming into effect next year, is also hotly anticipated to unleash a raft of innovative banking services and apps that could make it harder for retailers and card providers to hide transaction fees.