Card surcharges are gone but prices may rise as a result

From this Saturday it will be illegal for any business to add a surcharge to a customer’s credit or debit card payment.

In theory, it will save shoppers as much as 3 per cent on their purchase for anything from a flight to a theatre ticket.

The end of this surcharge scourge is expected to benefit most shoppers – but some retailers are keen to make good the loss in revenue by jacking up prices.

Card surcharges have been the bane of shoppers for years, especially when they are unexpectedly added at the last step of a transaction made online or over the phone. 

At best they leave a bad taste in the mouth. At worst customers are ripped off because they could have purchased the same item cheaper elsewhere.

It is predicted the ban will result in people using their plastic more regularly as a result of not having to worry about surprise extras at the checkout.

The unpopular surcharge has cost consumers £500 million a year. 

It has been widely used by airlines, travel companies, takeaway food apps and public bodies such as local councils for council tax or business rate payments – and even Revenue and Customs.

In the past, many businesses profited unfairly from the practice, charging more than the cost of processing such transactions through their own banks.

But five years ago, following an investigation by watchdog the Office of Fair Trading – prompted by a so-called super complaint by consumer pressure group Which? – providers were only allowed to pass on ‘reasonable’ processing costs to customers.

Now, from January 13 this curb goes further with surcharges banned on spending with all personal cards, including Mastercard, Visa and American Express. Corporate cards are exempted.

Here The Mail on Sunday looks at the clever card ploys firms are expected to use to pass on the cost without consumers realising.

One likely repercussion of the surcharge ban is that more small retailers will either impose a minimum spend on cards or even refuse card payments.

Kevin Pratt of financial website MoneySuperMarket says: ‘Already in some food outlets and pubs you have to spend a minimum £5 or £10 if you are using a card. 

‘If the retailer is carrying the cost of the card fee, it will want more money coming in to cover its expenses.’ 

According to recent research by the Association of Convenience Stores, 13 per cent of retailers currently make a surcharge for card payments, 33 per cent demand a minimum spend while 8 per cent refuse card payments. 

Minimum spends and a refusal to accept credit card payments are likely to become commonplace. 

Prices will start to take off

Fears are growing that the payback for the surcharge crackdown will be higher prices. 

Kevin Pratt, of financial website Money-SuperMarket, says: ‘In theory, banning surcharges is good news. But it will only be welcome in practice if retailers do not increase their prices to cover what they pay in fees to the card companies to process payments.’

Although the Government anticipates competition will restrain price rises, Pratt believes rises are inevitable. 

He says: ‘After all, we are in an inflationary environment, so relatively small price rises triggered by the ending of the surcharge will not stand out. Consumers should respond and shop around.’

FLIGHT HINT: Airline Flybe warns that its costs will go up

Low cost airline Flybe currently charges 1 per cent for credit card purchases (2.5 per cent for payments made by American Express). While the company says it will comply with the surcharge ban it hints that fares could rise. 

A spokesman says: ‘The airline does not believe the ban on surcharges is in the best interests of consumers. It will inevitably result in price increases as businesses seek to recoup the costs of processing card payments and covering fraudulent transactions.

‘This will disadvantage the majority of those who now choose to pay for goods and services by cash or with a debit card.’

Rival Ryanair says: ‘Our current 2 per cent credit card charge reflects the cost of processing credit card payments, including bank charges. When the law changes we will comply with it as required – and we will continue to lower fares this year.’ 

The Revenue has already set out its stall – telling the self-employed that from this Saturday it will no longer allow taxpayers to use a personal credit card to pay a tax bill (corporate cards will be accepted for those who have them).

This is a blow to those who use a credit card to spread the cost of their tax bills – and for those who like to earn points or cashback using their cards.

Those wishing to take advantage of paying by credit card before the ban need to act fast and make their payment before Saturday. Some local authorities, such as Elmbridge Borough Council in Surrey, will stop accepting credit card payments for council tax and business rates from this Saturday.

Others will continue to accept card payments and absorb the cost. These include Ealing Council in West London which currently applies one of the highest surcharges at 2.5 per cent.

Last week the council confirmed to The Mail on Sunday that when the surcharge ban comes it will continue to accept payments by card, other than – as currently – American Express and Diners Card.

There is already evidence that the removal of surcharges will lead to higher prices for certain services.

Taxi minimum charges rose after London’s black cabs were banned from making surcharges on fares paid by card

In 2016 London’s black cabs were banned from making surcharges on fares paid by card. But to compensate drivers, they were allowed to increase their minimum fare by 20 pence to £2.60.

Then there is the temptation for businesses to simply convert the card surcharge to a ‘service’ charge.

For example, takeaway restaurant app Just Eat has been making a 50 pence charge for credit card transactions only.

But from tomorrow it will start making a 50 pence ‘service’ charge on all transactions whatever method a customer uses. A spokesperson says: ‘A 50 pence charge will be implemented on all orders.

‘It means that along with our restaurant partners, we can continue to deliver the best possible takeaway experience. Applying the charge equally across the customer base ensures fairness for all.’

Just Eat, pictured, will add a new fee following the banning of credit surcharges on transactions

James Daley of consumer group Fairer Finance welcomes the ban on credit card surcharges. He says: ‘The move is all about transparency, about knowing what you are paying from the start rather than waiting until the last stage when you make a card payment.’

Daley believes price rises need not be inevitable.

He says: ‘What it shows is that small businesses in particular have been getting a raw deal from the banks and they need to shop around when looking for a bank to process their payments.’

Harry Rose, editor of Which? Money magazine, says: ‘The good news is the ban will put an end to excessive card surcharges. It remains to be seen what will happen in practice. Some organisations will put up prices. But customers should be hard nosed and vote with their feet if they are not happy.’

He warns: ‘This change will not eliminate other sneaky charges. The regulator must continue to monitor and review how the new rules are working. Anyone aware of an abuse of the ban should report the business to Trading Standards.’

A survey of shoppers by payments provider Paymentsense found that surcharges were a big turn-off, with 37 per cent of those polled saying they would walk out of a store if faced with a charge – and one in four of these saying they would never return.

Guy Moreve, head of marketing at Paymentsense, says: ‘The January 13 deadline cannot come soon enough. When consumers know they will not have to pay a card surcharge there will be less hesitation to spend.’