Slam the back-door fees loophole shut
Are companies finding ways to skirt around the ban on credit and debit card surcharges?
Of the many Which? campaigns I’ve participated in over the years, one of the most successful has been our “supercomplaint” on credit and debit card surcharges. Before 2011, when we used our legal powers to force the regulator to take action on the huge fees companies charged when paying by card, the situation was scandalous.
Companies – mostly in the travel industry – would charge sky-high fees to pay by card, way in excess of the cost of actually processing a payment, which we estimated was around 20p for a debit card and around two per cent for a credit card.
This would either come in a percentage fee (the highest we saw seven years ago was 6.45 per cent to pay by credit card); or as a flat fee (some airlines charged £5 per person, per leg, meaningaflightfortwowould cost £20 in surcharges).
Our campaign was a huge success. The Office of Fair Trading, the regulator at the time overseeing this, upheld our complaint and, in April 2013, placed a ban on excessive surcharges, meaning any extra fees must reflect the cost incurred to the business for processing the payment.
Since then, the European Union has taken things one step further. Since 13 January 2018, businesses and government organisations have been banned from charging you a fee when you’re paying by personal credit or debit card.
This was a revision to an EU law, the Payment Services Directive, and, in implementing the Directive, the UK has gone further by banning surcharges not only for payments made by Visa or Mastercard, but also for American Express and Paypal.
In 2015, card surcharges cost UK shoppers more than £150 million, so this ban represents a significant saving for us all.
But, as we published in the latest issue of Which? Money magazine, there are some surprising exceptions to the rules and seven months after its implementation, many people are writing to us confused as to when they may legally face a surcharge – or whether the law is being broken.
The main point of contention is spending with companies based outside of the UK. Under the rules, these firms can still charge fees when you spend using an American Express card or any other card not on the Visa or Mastercard networks.
This has caught out a number of Which? members booking flights with Air France and KLM, both based in the European Economic Area but operating outside of the UK.
Why is this happening? It’s a bit of a “computer says no” situation.
One type of card that is exempt from the ban is a corporate credit card, and you can still be charged a fee for using one. In order to distinguish between what is a personal and corporate card, companies use something called a Bank Identification Number (BIN), which supplies all sorts of details about the card, and whether it’s for personal or corporate use.
But the latest research published by Which? Money has discovered that the technology used for the BIN, to ensure you’re not hit with a surcharge, doesn’t always get things right. Many members have reported that KLM and Air France had mistakenly classed their personal Mastercards as business cards and so had unfairly applied a surcharge.
The company that owns Air France and KLM is investigating our claims.
We’ve also had complaints about the Driver and Vehicle Licensing Agency (DVLA), a government body that is also banned from charging card surcharges. People who have paid their car tax using a credit card claim they have been hit with a £2.50 surcharge. In response, DVLA says that this fee is only being applied to corporate credit cards.
Paypal, the service that allows you to send and receive money online, also charges a fee if you use a credit card for its money transfer service. When Which? Money put this to the company, it denied it was a surcharge and likened it to the “cash advance” fee that credit card providers charge when you withdraw cash from a credit card.
That’s not all. The ban on surcharges is linked only to the way you pay. But you can face a whole host of “administration” charges, which seem to have cropped up as the surcharges ban kicked in, that are charged no matter what payment method you use and are still legal.
Just Eat, the takeaway food app, was highly castigated this year when it started charging a 50p service charge on all orders, even when paying by cash, but we’ve found other examples at cinemas, and third-party train booking sites.
What’s more, there’s no actual limit on how much of an admin charge a company can levy, although they’re bound by consumer law to show you what impact they’ll have on the total cost of goods.
The surcharges ban is policed by Trading Standards, so if you think you’ve been unfairly charged one, you can report a company to your local office.
But the government will need to continue to monitor the legislation it has introduced.
If admin fees or back-door charges end up becoming the common way to skirt the surcharges ban, it must be ready to take action.
In 2015, card surcharges cost UK shoppers more than £150 million, so this ban representsasignificant saving for us all
Gareth Shaw is head of Which? Money Online You can read Which?’s investigation in full in the August 2018 edition of Which? Money magazine, available at try www.which. co.uk/moneymagazine.