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The RBA and the ACCC working together to ban excessive surcharging
A ban has been imposed on “excessive surcharges” and the ACCC has been granted broad powers to monitor and enforce the ban. The ACCC will start enforcing the ban from 1 September 2016 for large merchants, and from 1 September 2017 for all other merchants. At the same time, the RBA has published a new standard setting out a new methodology for the calculation of reasonable surcharges.
Surcharging is allowed – to an extent
The ‘Standard No.3 of 2016 Scheme Rules Relating to Merchant Pricing’ (Standard) confirms that merchants are not prohibited from surcharging in respect of a credit or debit card transaction, provided the surcharge does not exceed the permitted amount.
The permitted amount is to be calculated by reference to the costs to the merchant of accepting the use of the credit or debit card. These costs are set out in an exhaustive list in the Standard. The list includes, amongst others, the following:
- service fees charged to the merchant by the customer or merchant’s bank for using the card (merchant service fee);
- payment terminal rental and maintenance costs;
- fraud prevention costs;
- cross-border transaction fees; and
- insurance costs,
to the extent that they are directly related to the card transaction and are documented or recorded in a contract with, or invoice from, the merchant’s bank or other payments facilitator.
These costs are to be added together and the total is to be expressed as a percentage of the total value of card transactions between the merchant and its customers. This percentage is the relevant ‘Cost of Acceptance’. To assist in calculating the Cost of Acceptance, the merchant’s bank must provide the merchant with a monthly and annual statement setting out the merchant’s card transaction costs and the value of the card transactions.
The ACCC has new monitoring and enforcement powers
On 25 February 2016, a new regulatory framework was inserted into the Competition and Consumer Act 2010 (CCA) imposing a prohibition on companies charging “excessive surcharges”. A payment is defined as excessive if it "is for a kind of payment covered by a Reserve Bank standard… and the amount of the surcharge exceeds the permitted surcharge referred to in the Reserve Bank standard".1
The ACCC will have new powers to:
- Investigate - The ACCC can require a merchant or acquirer to provide it with information evidencing the amount of a payment surcharge and the cost of processing the relevant payment. Failure to comply with the information request will be an offence;
- Commence proceedings - The ACCC will have the power to commence proceedings against a merchant who has infringed the prohibition;
- Issue infringement notices - Imposing a maximum penalty of $108,000 for a listed company, $10,800 for a non-listed company or $2,160 for an individual.
Implications of the new rules
The Standard, together with the ACCC’s new powers, create a package that is expected to deal, once and for all, with the problem of excessive surcharging. This is not the first time the RBA has tried to deal with this issue. But the Standard is more prescriptive and comprehensive – and expected to be more effective - than any previous RBA efforts as:
- it covers payments made by all credit and debit cards, including Visa and Mastercard debit, prepaid, EFTPOS and Amex companion cards (as well as the previously covered Visa and Mastercard credit cards);
- it provides an exhaustive list of acceptable costs, which is expected to address the uncertainty created by the previous measures that simply referred to the need to calculate the Cost of Acceptance but left it up to the merchant to determine what costs were relevant to this calculation;
- it imposes an obligation on acquirers or other payment facilitators to provide a monthly and annual statement to the merchant of its costs and value of card transactions. This is expected to facilitate transparency and make compliance easier for the merchant;
- it creates a mechanism to lower surcharges for lower value transactions, as the Cost of Acceptance is to be expressed as a percentage, and is expected the merchant will pass on the cost in percentage form; and
- it ensures the new rules will be enforced – in this case by the ACCC.
How to get ready
Banks and other payment facilitators will need to start preparing their systems so they are ready to provide monthly and yearly statements to merchants. These statements will inform merchants of the average percentage cost for accepting each card type during the relevant period. The statements will need to be provided from mid-2017 onwards.
Merchants wishing to surcharge will need to keep records and carefully analyse the costs of accepting different card types before determining the appropriate level of surcharge for each card. Prior to mid-2017 – ie, before statements are made available by banks or payment facilitators, merchants will need to rely on their own records and calculations in order to be able to substantiate their assessment of reasonable surcharge levels. After that date, these records can be used to complement the statements provided by banks. Merchants should also note there is an expectation that surcharges will be applied as a percentage of the value of a transaction – so any merchant considering a fixed fee surcharge should carefully consider how it would defend that decision in light of the obligations and expectations set out by the RBA.
When to be ready
The Standard will come into effect in relation to ‘large merchants’ on 1 September 2016 with all other merchants not subject to the new rules until 1 September 2017. A large merchant is one that satisfies two or all of the following:
(a) the consolidated gross revenue of the merchant and its related companies for the financial year ended 30 June 2015 was $25 million or more;
(b) the value of the consolidated gross assets of the merchant and its related companies at 30 June 2015 was $12.5 million or more; and/or
(c) as at 30 June 2015 the merchant and its related companies between them had 50 or more employees (whether full time, part time, casual or employed on any other basis).
What happens next
The ACCC has announced it will publish guidance for consumers and businesses in the near future, as well as further information on its approach to compliance.
1 Competition and Consumer Amendment (Payment Surcharges) Act 2016, section 3 referring to new s55B