License article

Call for clear rules on credit card fee overcharging

The Australian Securities and Investments Commission says companies have been able to overcharge for card transactions as they’ve fallen between the cracks because two regulators are tasked with policing such surcharges.

Visa and MasterCard say in industries where there is little competition such as airlines, taxi companies and utilities, customers are routinely charged well above the true cost of a transaction.

The Australian Retailers Association says its smaller merchants often undercharge for card transactions, but agrees a regulator should be charged with dealing with surcharging in other sectors.

Merchants are calling for one regulator to enforce limits on surcharging to the “reasonable cost” of the transaction. Reserve Bank of Australia guidelines were changed one year ago to allow this, but the card companies – with the cooperation of banks – must enforce them, even though merchants are often their customers.

“A co-regulatory approach to limit an activity appears to have failed because the limitation imposed by payment schemes is not sufficiently clear, and is not being enforced by a regulator with sufficient powers and resources to carry out the enforcement,” ASIC said in its submission to the Financial System Inquiry released on Tuesday.

But ASIC said it only has jurisdiction to prevent fee gouging under the “unfair contract provisions” it enforces for financial products – for example a contract between a business and a consumer for the credit or debit card payment itself.


“ASIC does not have any direct power to restrict the amount of a surcharge to the reasonable costs incurred by a merchant in accepting a card,” it said.

“A surcharge is imposed by a merchant on a consumer by a term of the purchase contract (i.e. the contract to purchase a consumer good or service), and not a term of the contract applying to the use of the credit or debit card.”

The Australian Competition and Consumer Commission also has some powers to restrict surcharging, but only if they relate to fees added to non-financial products that aren’t disclosed until the end of a transaction. This could be considered a misleading practice. The competition regulator recently said it would be scrutinising these so called “drip fees”.

State governments have begun to cap surcharges for taxi fares paid electronically. In February, Victoria forced payments providers to halve the 10 per cent fees they commonly charge and NSW Premier Barry O’Farrell said on Monday he would do the same in NSW.

Fees from payment providers and banks range from around 0.82 per cent of the value of a transaction for Visa and MasterCard, to a 12c flat fee for eftpos, to around 1.5 per cent for American Express and between 1.5 to 3 per cent for online providers like PayPal. But additional charges can be added by merchants for their costs of offering the methods.

In its submission to the Murray inquiry, Visa called for either ASIC or the ACCC to be formally allocated the power to enforce surcharge limits.