New laws that came into force on 13 January prohibit businesses from charging a fee to consumers for paying by credit or debit card, whether online, by telephone or in-store. The new rules only apply to ‘business to consumer’ transactions so businesses can still charge a fee for ‘business to business’ transactions, providing the fee does not exceed the cost directly borne by them. However, business owners who pay via a personal credit or debit card will be considered as consumers.
The new rules apply throughout the EU, and will remain in force in the UK after Brexit. The prohibition applies to any transaction where both the business’s and the consumer’s bank are based within the EU. If the business’s bank is outside of the EU, then the business can charge a fee provided it does not exceed the cost directly borne by them.
The UK has taken the prohibition one step further and has applied it to payment instruments linked to credit or debit cards, such as American Express, PayPal and Apple Pay. It remains to be seen if this will be implemented throughout the rest of the EU.
What does this mean for you or your business?
Consumers are under no obligation to pay these fees, and if a fee is charged they are entitled to be refunded.
Consumers have the right to enforce civil proceedings against non-compliant businesses and/or refer the matter to Trading Standards, who can investigate businesses and enforce injunctions against those found in breach.
It is essential that businesses comply with the new rules to avoid the resulting reputational damage and invariably-expensive court proceedings.
Businesses may be affected financially as they are now unable to pass the cost of processing card payments onto their consumers, and we’d recommend that businesses review their payment provisions and adjust them accordingly.
Looking further into the future, the introduction of "open banking" could see a movement away from card payments altogether. Consumers will soon be able to pay using their account number and sort code, and authorise the payment through their online banking which could result in a decline in card payments and ease the strain of bearing the transactional costs.
What do you need to be doing now?
There are many ways businesses can adjust to combat the risk of financial loss:
- Add a booking/administration fee to all transactions. For example, “Just-Eat” add a 50p booking fee to all orders.
- Introduce a minimum payment price to pay by card. Although this does not avoid the costs, it may reduce the amount of card payments made for smaller, less cost-effective transactions.
- Offer incentives to use other payment types, e.g. free delivery. However, be careful when offering discount as this could amount to an indirect fee being generated for card payments.
- Increase headline prices to absorb the costs.
- Negotiate lower transaction fees with the Merchant Service Provider.
It is important for businesses to consider their reputation and competition in the market before implementing any changes as a result of the new rules - some businesses may take the hit and absorb all costs themselves. On the other hand, smaller businesses may struggle to absorb the costs and will need to recoup the costs somehow from the consumer.
If you would like any further information or advice then please be in touch with our Commercial team.
These notes have been prepared for the purpose of articles only. They should not be regarded as a substitute for taking legal advice.