Consumer advocates welcome RBA proposal to cap credit card surcharges

The credit card industry and consumer advocates have welcomed a new proposal by the Reserve Bank to cap business’ ability to apply surcharges for credit card payments that significantly surpass costs.

The proposal comes after several months of negotiations and consultation with industry, with small business advocates also pushing the RBA to include an exception for SMEs if surcharge limits are eventually adopted.

“On balance, the board is of the view that… allowing a limit based on the reasonable cost of card acceptance… would be the most effective way to relax the standards,” last week’s report found.

“The board believes that this is the approach that is likely to result in the most efficient outcomes; by not being too prescriptive, it will enable surcharges to best reflect the actual costs of card acceptance faced by each individual merchant.”

Choice head of campaigns Matt Levey said in a statement this weekend the group welcomes the RBA decision, saying excessive charges shouldn’t be used as a “hidden revenue stream”.

“Today’s decision from the RBA will mean no more cream on top of transaction costs for those excessively surcharging, ensuring consumers no longer have to pay extra just for the privilege of paying,” he said.

The subject has been a key topic of discussion in the payments community for some time. Consumer advocates point to industries such as the taxi, airline and accommodation sectors, which tend to charge customers well above the actual cost of accepting Visa and MasterCard payments.

MasterCard is also in favour of the decision, saying the proposed changes would be a benefit for consumers.

”This is a significant step forward in protecting consumers from excessive and unfair additional fees imposed by some merchants on card transactions that have been frequently disproportionate to the cost of accepting card transactions,” vice president of strategy David Masters told Fairfax.

The RBA report also noted that it sees some benefits in greater transparency of merchant service fees to give consumers comfort the level of surcharges they are facing is reasonable.

However, given so many businesses opposed this move, the RBA said it won’t likely pursue this option further.

And although it did recommend the introduction of the possibility for a cap on surcharges, the RBA warned that such a system would take awhile, “as schemes and merchants determine what is “reasonable” on a case-by-case basis”.

The RBA said in its report it is now prepared to receive comments on the proposed variations.