How to prepare for the credit card surcharge crackdown

SmartCompany, August 29 2016:

The Australian Competition and Consumer Commission will begin enforcing a ban on excessive credit card surcharges from Thursday – and while the rules won’t apply to smaller operators until 2017, there are things all business owners can do now to prepare themselves.

The crusade against businesses charging exorbitant fees for credit card payments is not new, and the movement has even motivated some operators to get ahead of the game and waive surcharges altogether. The Surcharge Free Coalition includes retailers such as The Iconic, Interflora and House, which are all voluntarily forgoing a surcharge for their customers.

From September 1 surcharging will not just be an issue of goodwill – any additional fees for use of cards must be in line with the costs or companies could be slapped with fines.

What is an excessive payment?

There is a standard set by the Reserve Bank of Australia for excessive payments, which prevents vendors from charging more than the cost of accepting a customer’s money. For domestic eftpos transactions, this is flagged at about 0.5% of the transaction and up to 2% of the transaction cost for most credit cards.

The new ban on excessive charges does not relate to other “handling and processing fees” that are not connected to the actual processing of a payment. However, any surcharges should meet the costs of processing the payment, nothing more. The elements that can be covered include:

  • Merchant service fees
  • Rental of payment terminals and maintenance of the hardware
  • Fees involved in payment processing, like cross-border fees

From June 1 2017, all banks will be required by the RBA to provide businesses with monthly statements that highlight the costs of payment processing so that the average costs of acceptance are clear and appropriate surcharges can be calculated.

When will it apply to my business?

The rules won’t apply to smaller operators until September 1, 2017 but the ACCC is keen for businesses to start complying ahead of time. As of September 1, the rules will apply to large businesses, which are defined as operations that meet two of the three following criteria:

  • Businesses with a consolidated gross revenue at June 30, 2015, of $25 million or more
  • The value of consolidated gross assets at June 30 2015, was in excess of $12.5 million
  • The business employs 50 or more employees at June 30, 2015.

If your business does not meet two or more of the above points, you will have until September 1 2017 to comply.

How to prepare for the transition

Small business should take the time to review their current payment processes now to work out what can and can’t be included in surcharges from September next year. By 2017 all banks should be in the rhythm of providing statements as a starting point for calculating the fees.

Before the rules become binding for small business, owners and operators should work out:

  • The merchant service fees and rental fees for payment processing hardware
  • Any fraud prevention fees paid to an external provider that relate to a specific card type
  • Any other gateway fees paid

If a business owner pays a third party provider (ie. not the bank) for any costs directly relating to processing payment, they will have to work out the legal amount that can be passed on to consumers as these providers won’t have to provide detailed statements to help calculate the appropriate surcharge. Listing all the elements that go into processing payments now will help calculate the correct amount when it’s needed next year.

Understanding the ACCC’s powers

The ACCC has been given the power to deliver a “surcharge information notice” to businesses, requiring operators to turn over evidence of the actual costs involved in processing a payment. If the commission believes a breach has occurred it can issue fines.

The penalties that can be passed on include:

  • 600 penalty units ($108,000) for breaches by a listed company
  • 60 penalty units ($10,800) for body corporate
  • 12 penalty units ($2160) for individuals other than body corporate

The powers also extend to court action against a business, including seeking pecuniary penalties of up to $1.1 million against a body corporate. For more information on penalties see the ACCC website.