Credit card fees ban to backfire on shoppers

Businesses to ‘sneak’ around rules by raising prices and introducing stealth charges

CONSUMERS face higher prices and new “service charges” as retailers and businesses plan to get around the Government’s ban on credit card fees.

From Jan 13, “rip off ” fees of up to 3 per cent charged by firms and government bodies when people pay by credit card – ostensibly to offset charges to businesses by card companies – will be prohibited.

But The Sunday Telegraph has learnt that some retailers and other companies are planning to “sneak” around the rules by refusing credit card payments, increasing shelf prices and introducing new “service charges” across the board.

Even those paying cash are likely to lose out, as some companies, such as the food delivery firm Just Eat, plan to apply the cost increases to all customers. Consumer experts have called for regulatory enforcement to ensure businesses cannot dodge the rules.

At present, many councils, travel firms and shops charge customers paying by credit card as much as 3 per cent of their purchase, despite the true cost to businesses of letting customers pay by credit cards being a fraction of this price. “Interchange fees”, which retailers pay to payment providers, were capped at 0.3 per cent by the EU in December 2015.

A Sunday Telegraph survey of businesses and councils that currently charge consumers for using credit cards found the vast majority will continue to do so right up until the January deadline.

Ryanair charges customers a fee of 2 per cent of their purchase price for using a credit card. The airline said it would comply with the ban.

EasyJet has been charging a 1 per cent fee for purchases made using a credit card and said it would stop doing so by the end of the year.

Warwick District Council, Buckinghamshire County Council, Derby City Council, Barnet council and Ealing council in London will all charge fees of between 1 and 2.5 per cent until the deadline. However, it has also emerged that thousands of shops and businesses unable to absorb the cost intend to raise the price of items on shelves or refuse small card payments, according to the Federation of Small Businesses, which represents firms.

Speaking confidentially to this newspaper, an employee at a travel firm – which currently charges customers to pay with credit cards – also said the company had decided to raise prices to make up for lost revenue.

He said: “We agreed to increase all our prices by whatever amount we calculate will cover the cost of the fees we are charged by Visa, Mastercard

and American Express. We estimate that removing the surcharge will result in a significant shift away from payments by debit card and bank transfer so the increase [in extra costs] will be greater than the current credit card surcharge.”

Next month Just Eat will ditch its 50p card surcharge to comply with the rules, but replace it with a new “service charge” for the same amount. This will apply to all orders, including those paid for by cash. A Just Eat spokesman said the charge “ensures fairness for all”.

Meanwhile, HMRC has said the move will force it to stop accepting credit cards altogether, amid fears that other organisations could also withdraw the option. HMRC said it was unable to absorb the cost of card fees, as this would mean charging costs back to customers via the “public purse” and creating a burden for taxpayers.

Gareth Shaw, a Which? money expert, said: “These new rules should finally put an end to consumers paying excessive surcharges and additional fees just for using their cards.

“Trading Standards must make sure this ban is enforced across the board and that businesses can’t find sneaky ways around it.”

James Daley, of the campaign group Fairer Finance, said: “It will mean prices will go up for customers and those who pay in cash will be worse off as a result. However, the new system will be fairer and more transparent and is still a victory to consumers.”

‘These new rules should put an end to consumers paying excessive surcharges and fees for using their cards’

Mike Cherry, national chairman at the FSB, said: “There will be some vulnerable businesses that will struggle, and may need to decline small transactions with high costs or spread the additional costs across their whole range of products or services to cope.”

A Treasury spokesman said: “Banning surcharging will help protect consumers from rip-off charges. Pricing is a commercial decision for individual businesses and the ban will make it easier for consumers to compare prices and choose the right deal for them.”