By Felicity Anderson
From Saturday 13 January all UK businesses will be banned from charging consumers extra fees for paying for goods or services by credit or debit card.
Originating from the EU Payment Services Directive (PSD20) it marks the end of surcharges for card payments on all items including flights, concert tickets and takeaway meals.
Intended to protect consumers from surprise or inflated charges for paying on plastic, the rules have come under scrutiny from some commentators, who fear that businesses will increase their prices to recoup the costs for processing card payments.
Will consumers be better off?
The BBC reports that in the days leading up to the law change, high-profile takeaway app Just East scrapped its charges for paying by card and introduced a new blanket fee instead.
In a move that’s angered some, the firm removed its 50p surcharge for paying by credit or debit card and introduced a 50p ‘service charge,’ which is applied to all orders regardless of payment method.
Claiming that this flies in the face of the new legislation, Hannah Maundrell, the editor in chief of Money.co.uk said:
“It’s wrong for companies to rebrand credit card fees as service charges.”
“The law was changed to stop businesses from profiting from unnecessary credit and debit card fees. So this makes a mockery of the law which is trying to protect us from getting ripped off.”
Just Eat, meanwhile, maintains that change to its fee structure is fairer for customers, as those paying by cash are also subject to the fee.
Price increases likely to be lower than card payment surcharges
Other businesses may increase overall prices to recover the money for processing card payments, but any increases are likely to be lower than the previous surcharges.
These charges came under a grey area in the law and weren’t rigorously enforced.
As such, customers were frequently charged far more than the actual cost of processing card payments, with companies such as Ryanair charging 2% on credit card payments and the DVLA charging £2.50 per credit card transaction.
James Daley, the founder of Fairer Finance, who campaigned against the surcharges, claims that the new law will save consumers money and make it easier for them to compare prices when looking for the cheapest deals.
Guy Anker, the managing editor of MoneySavingExpert.com, agrees, saying:
“Scrapping card surcharges is good news, especially for the millions of consumers who would otherwise have been milked by companies who whack on unexpected charges at the end of the process – something that has been happening for years.
“With the cost of living rising anyway, people shouldn’t be hit with unexpected fees. While it will make it easier for consumers to compare prices, we expect some companies will raise prices for all to compensate for the loss, which could hit those who currently pay in cash or debit card.”
Will businesses refuse to accept card payments?
The law stipulates that customers can’t be charged for paying by card, but businesses can still choose to stop accepting cards as a payment method.
This would avoid having to absorb card processing charges but could also turn-off customers who like the convenience of paying by card and digital payment methods, such as Apple Pay.
HMRC has said it will no longer allow people to pay their tax bill using a personal credit card, which was subject to a 0.5% fee.
It will, however, continue to accept debit cards, as well as direct debits and bank transfers.
Does the law also apply to Apple Pay and PayPal?
The law in the UK applies to any payment service linked to your payment cards, including Apple Pay and PayPal.
What about company cards?
The law applies to consumers only, meaning that businesses may be subject to surcharges on company cards.
Charges should, however, only cover costs to process the transaction and no more.
Where do the new rules apply?
The new rules are based on an EU directive, so according to moneysavingexpert.co.uk the ban on card surcharges applies to any transaction when the bank(s) of the consumer and the retailer are based within the EU, or Iceland, Liechtenstein or Norway.
If a retailer’s bank is outside of these countries you may be charged a surcharge, but the company is only allowed to charge what it costs it to process the transaction.
The rules have become law in the UK meaning they will remain unaffected by Brexit.