The NEW law that will stop retailers from charging excessive payment surcharges

By: Caroline Van


Since 1 September 2017, all businesses across Australia imposing payment surcharges on card transactions will need to comply with new law banning ‘excessive’ payment surcharges.

The new ban on excessive payment surcharges

In February 2016, the Competition and Consumer Amendment (Payment Surcharges) Act 2016 (Cth) introduced new part into the Competition and Consumer Act 2010 (Cth) banning excessive payment surcharges (s 55B). It provided new powers for the ACCC to enforce the ban and to ensure businesses take steps to comply with the law. A payment surcharge is considered excessive if it exceeds the ‘cost of acceptance’.

Businesses will need to limit the amount it charges its customers for use of payments methods such as credit and debit cards. The limit will be linked to the direct costs of the businesses’ payment method such as bank fees and terminal costs. If the businesses impose a payment surcharge, it can only pass on to its customers what it costs them to process a payment.

It’s also important to put any agreements you make with your co-founders in writing, (i.e. Shareholder’s Agreement or Partnership Agreement). This makes sure everyone is clear on how the start-up will be run, who owns what, and will minimise misunderstandings.

If your cost of acceptance for Visa Credit is 1% you can only surcharge 1% on Visa credit card payments onto your customers.

The Difference Between a Surcharge and a Processing Fee

In short, if you impose a fee, however you describe it, that is payable on some payment methods but not others, then it is likely to be considered a payment surcharge.

The ban does not prevent you from charging fees that are genuinely unrelated to payment methods, however you will need to consider whether the processing fee would fall within the definition of payment surcharge.

What payment types are included and excluded from the ban?

The ban covers surcharges on typical card payment methods:

  • Eftpos (debit and prepaid)
  • MasterCard (credit, debit and prepaid)
  • Visa (credit, debit and prepaid)
  • American Express “companion cards” (American Express cards issued through an Australian financial service provider, rather than directly through American Express)

Excluded Payment types:

  • BPAY
  • PayPal
  • Diners Club cards
  • American Express cards issued directly by American Express
  • Cash
  • Cheques
ACCC Excessive Payment Surcharge Ban

How do you calculate the payment surcharge?

For most businesses, calculating your permitted surcharge will be quite simple. All of the standard card acceptance services which are supplied to you by your bank or payment facilitator will be set out in the monthly statements you will receive from 1 June 2017. The statements will outline your cost of acceptance for each applicable payment type expressed as a percentage of the value of a transaction.

If you obtain any of the following services from a provider other than your bank or payment facilitator:

  • fees for the rental and maintenance of payment card terminals
  • gateway fees
  • cost of fraud prevention services
  • fees or premiums to insure against ‘forward delivery risk’

You want to pass on these costs in a payment surcharge then you will need to calculate your permitted surcharge yourself.

Can I impose a single payment surcharge for Visa Debit and Amex?

If you wish to impose a single surcharge across multiple payment types, you must set the surcharge at the level of the average cost of acceptance of the lowest cost system; that is, no higher than the lowest permitted surcharge.

For example, if your average cost of acceptance for:

  • Visa Debit is 1%
  • Visa Credit is 1.5%
  • American Express is 2.5%

You would be permitted to charge the same level of surcharge for each payment system, but it would need to be 1% as that is the lowest of all payment systems.

The purpose of the ban is to stop businesses from enforcing payment surcharges that are more than the actual cost of accepting that payment method.

At Lazarus Legal, our lawyers make use of their extensive experience to provide our clients with timely, practical and expert advice. If you require the law to be on your side, call us on 02 8644 6000.

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