Understanding changes to card surcharges in 2018

From 13 January 2018, businesses will no longer be allowed to charge consumers extra for paying by debit or credit card. This is according to the European Commission’s new Payment Services Directive (PSD2), which prohibits surcharges on Visa and Mastercard consumer payments. Currently airlines, travel agents, take away food apps and local councils are among the most likely to levy extra card charges. This change is good news for consumers and businesses, as our recent Consumer Behaviour and Payments report shows; 51% of consumers would walk out of a store, if there was a surcharge or minimum spend. Payments UK (July 2016) have estimated that surcharging for card payments will save consumers in Europe approximately €730 million per year.

In the UK, amendments have been made to the Consumer Rights (Payment Surcharges) Regulations 2012 to implement the PSD2 provisions on surcharging, but have also taken the prohibition further.  The UK has extended the ban on surcharging to all consumer payment instruments, including, for example, American Express transactions and other methods of payment such as PayPal.

The new rules will apply to all payments made in person and online by consumer credit and debit card, including smartphone payments (Apple Pay/Android Pay/Samsung Pay). They also cover credit transfers and direct debits.

However, the new rules won’t cover ATM withdrawals or transactions made using “commercial cards” such as corporate credit cards, or any methods designed solely to pay business expenses.  Where surcharging remains permitted, the charges must be reasonable and in line with the actual costs incurred by the business.

What happens next?

So, what will happen after January 2018? It will still be legal for small businesses to impose a minimum spend, so expect this to continue. However, for online consumers the new rules will mean an end to nasty surprises at the check-out stage, which should reduce the number of shopping cart abandonments, resulting in a better experience.

Local Trading Standards officials will be tasked with tracking down any firms continuing to charge consumers extra after 13 January 2018. It’s unclear how effective they’ll be at doing this. What is clear is that the PSD2 provisions are here to stay even post-Brexit, as they have already been written into UK law in the form of changes to the Consumer Rights (Payment Surcharges) Regulations 2012.