In our latest article, we discussed the ban on excessive surcharges, which has applied to large businesses since 2016 and will apply to all business from 1 September 2017. The ban seeks to protect consumers from businesses charging unreasonable fees for paying by card.
To achieve this aim, the ban requires businesses only pass on to their customers the cost that the business is charged for processing payments – known as the “cost of acceptance”.
The cost of acceptance is made up of various elements, and the figure may be different for each business. We take a closer look at the elements that can make up the cost of acceptance.
What Makes Up the Cost of Acceptance?
The Reserve Bank of Australia (RBA) has decided that the ban will cover the following payments:
- Eftpos (debit and prepaid);
- MasterCard (credit, debit and prepaid);
- Visa (credit, debit and prepaid); and
- American Express companion cards (which are American Express cards issued by an Australian financial service provider, rather than directly by American Express).
The company that helps your business facilitate card payments, (which is usually your bank), will often charge you the following fees to process payments:
- merchant service fees;
- fees which are paid to rent and maintain payment card terminals used by a business; and
- other fees for processing card transactions, including switching fees, cross-border transaction fees or fraud-related chargeback fees.
From 1 June 2017, banks are required to send businesses a “Merchant Statement”. This document, which sets out the cost for the business to process each payment scheme, will help businesses calculate their permitted surcharge levels. If you have not yet received your Merchant Statement, you should contact your bank as soon as possible.
What are the Additional Permitted Fees?
The standard processing costs which apply when a business accepts a payment using a debit or credit card are set out in an RBA Standard. The RBA Standard recognises four additional costs which a business can incur from other service providers (other than their bank) and can pass on to their customers as part of a card payment fee.
Whether or not you choose to pass these costs on to your customer is a commercial decision for your business. If you decide to pass these costs on, you must ensure that you are not charging the customer more than the costs to your business. Charging too much will result in a breach of the ban.
We have set out the additional costs that you can pass on to customers in the table below.
|Gateway fees||The costs for international services, switching (a system which transfers money) and cross-border transactions.||A virtual terminal to accept payments by phone, email or chat.|
|Fees for fraud protection services||The costs associated with managing the risk and occurrences of fraud.||Stolen credit cards.|
|Fees paid for the rental or maintenance of card terminals||These costs include the fees charged to rent the merchant facilities (including physical and online) and to maintain the service.||Repairing the chip and pin terminal.|
|Forward delivery risk insurance fees||These costs include fees for an insurance policy.||See below.|
Forward delivery risk is the risk that:
- a customer pays for goods or services that will be delivered at a later date using a card;
- the goods or services are not delivered by the due date; and
- a chargeback is claimed to reimburse the customer.
For example, when a consumer purchases a travel package using a credit or debit card from a travel agent, the travel agent must fulfil their obligations by paying the supplier (for instance, the airline). However, in doing so, the travel agent is at risk of a chargeback if the airline fails to perform its obligation or becomes insolvent. Forward delivery risk insurance protects the travel agent in these situations.
The Australian Competition and Consumer Commission may issue your business with a surcharge information notice to examine your surcharge levels for these four additional costs. If you are issued with a notice, you must be able to show that these four additional costs are documented or recorded in a contract or invoice so they can be verified. Of course, you also have the option of not passing on these fees to your customers. But then your business may be absorbing large bank costs and other fees, which could cut into your cash flow.
If you pass on any of the four additional permitted costs as part of your surcharge fee for card payments, you will generally need to calculate the permitted surcharge level yourself. To enable SMEs to meet this challenge, LegalVision has designed a Surcharge Checker service. Our lawyers can help you calculate the permitted surcharge level encompassing these four additional fees.
If you have any questions about the ban on excessive surcharges, get in touch with LegalVision’s consumer lawyers today on 1300 544 755 or fill in the form on this page.
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