At midnight on Friday, a rip-off that has cost Britons hundreds of millions of pounds a year was finally outlawed. All extra charges for using a credit or debit card to pay for goods and services have now been banned, which means no more nasty surprises at the checkout, says the government.
But some companies are already finding sneaky ways to get around the ban – such as simply renaming the fee so that it removes any reference to cards. Earlier this week, online takeaway company Just Eat faced a customer backlash after it scrapped its 50p card payment charge and replaced it with a 50p “service charge” on all orders, which applies whether someone is paying with cash or a card.
Meanwhile, some businesses and government departments such as HM Revenue & Customs have taken what some might feel is the fairly drastic decision to stop accepting personal credit card payments altogether.
Until now, fees for paying with plastic – most commonly a credit card – have been routinely levied on everything from low-cost flights and tax bills to cinema tickets and takeaway meals. Many small shops and businesses also imposed a fee. Sometimes it was an extra charge of perhaps 1% or 2%, while in other cases it was a flat fee, which could add as much as 15% to 20% on to the bill. But the ban taking effect from Saturday ends all that, and means you can’t be penalised for choosing to pay by card, whether it’s online or in store.
Some commentators have warned that many companies will simply hike their prices to compensate for the loss of this money. And shops and pubs can continue to impose a minimum spend – usually £5 or £10 – before they will accept a card.
However, one spin-off of this new regime is that it arguably makes paying for goods with a reward credit card more attractive. Until now, the fee you had to pay when buying some items cancelled out the benefit you would get from using a cashback/points card.
● So what’s this all about? This practice, known as surcharging, has been common for years, with many businesses and organisations charging people to make card payments, or for using services such as PayPal.
Action had already been taken to cap the costs that businesses face for processing card payments, reducing the so-called interchange fee, and now card-charging has been outlawed entirely.
In July 2017, when the Treasury issued a press release about this, it was headlined “Rip-off card charges will be consigned to history after ministers act to end these unfair fees … ” This change is actually the result of an EU directive relating to Visa and MasterCard surcharges. However, the Treasury says the UK has gone beyond the EU’s requirements by also banning charges for holders of American Express cards and users of services such as PayPal and Apple Pay.
● How much of a rip-off was this? There don’t appear to be any recent official figures for how much these surcharges were costing consumers, but the government calculated that credit and debit card surcharges totalled between £316m and £630m in 2010. It suggested a “best estimate” of around £473m for that year.
● Who were the worst offenders? These fees have long been a moneyspinner for many businesses. For example, Just Eat, which has 9 million UK customers, revealed in 2016 that “payment card/admin fee revenue” accounted for about 13% of its total revenue. With it forecasting its revenue for 2017 at between £500m and £515m, that’s a lot of money to have to wave goodbye to.
So – surprise, surprise – Just Eat isn’t waving goodbye to tens of millions of pounds. Instead, it could end up pocketing even more money than before. Last Monday the company cheekily replaced its 50p card surcharge with a 50p service charge on all orders, which even applies if you pay the restaurant in cash.
The company says applying the charge equally across the customer base “ensures fairness for all”. But the move sparked an outcry, with some customers calling for a boycott of the firm.
● Who else charged a card fee? Some government departments and official bodies. Until yesterday, the Driver and Vehicle Licensing Agency added a flat fee of £2.50 to vehicle tax payments by credit card, and its own data suggests it raked in more than £8.5m a year in these charges. That’s based on the fact that it collected 3,422,021 charges of £2.50 in 2009-10. The good news is that as of Saturday, there will be no charge for anyone using a personal credit card to pay for vehicle tax.
The taxman has taken a different tack. Until Friday, HMRC charged a fee for paying a tax bill using a personal credit card. This ranged from 0.374% to 0.606%. Now that it can no longer do that, HMRC is, as of Saturday, not accepting personal credit card payments.
Only a small minority of payments to HMRC were made this way – it was 0.8% in 2016-17 – and it insists it never made any money from the surcharges. A spokesman says that because it can no longer pass on the cost of the fees, it would be “unfair” to expect other taxpayers to pick up the tab. He adds: “There are a range of ways for people to pay us depending on the type of tax being paid, including debit cards, direct debit, Faster Payments and Bacs.” Corporate, business and commercial cards are not affected by the change.
● What about airlines? Ryanair and easyJet were charging a credit card fee of 2% and 1% respectively. However, easyJet scrapped its fee on 14 December. Ryanair, meanwhile, told us last week it would comply with the new law, and that the 2% fee “will no longer apply”.
Until Friday, Flybe charged a 1% fee for bookings made by credit card or PayPal, and 2.5% for Amex cards. It told Guardian Money last week it would “continue to accept bookings paid by debit and credit cards”, but did not disclose further details. The airline criticised the change, saying it “will inevitably result in price increases as businesses seek to recoup the associated costs they must incur, which includes processing usage and covering fraudulent transactions. This will disadvantage the majority of those who now choose to rather pay for goods and services by cash or with a debit card”.
● And cinemas? The Empire Cinemas chain was this week still imposing a 70p “card handling fee” for tickets bought online with a credit or debit card. For someone buying a £3.95 ticket, an extra 70p on top amounts to a surcharge of almost 18%. Empire did not respond to Money when we asked how it would be reacting to the ban, but it may decide to follow the example of other chains such as Vue and Everyman, which impose an online “booking fee” of, typically, 75p.
● Any others? Many local authorities were, at the time of writing, still charging handling fees when people paid for certain services by credit card. Ealing council’s fee was a chunky 2.5%, while Richmond upon Thames charged 1.65%. Some councils are expected to stop taking credit cards as payment.
What are people saying? Consumer body Which? says it is important this new law does not result in price increases, minimum spend limits or even cards being refused by retailers, and adds: “The government and regulator need to closely monitor the situation.”
Commenting on the Just Eat move, Hannah Maundrell, editor-in-chief of the website Money.co.uk, says it’s wrong for companies to rebrand credit card fees as service charges, adding: “The law was changed to stop businesses from profiting from unnecessary credit and debit card fees, so this makes a mockery of the law which is trying to protect us from getting ripped off.”
HMRC 0.374% to 0.606%**
Empire Cinemas £0.70
Just Eat £0.50
The Empire Cinemas and Just Eat fees were for credit and debit cards, while the others only applied to credit cards
* Was 1% for credit cards, and 2.5% for Amex cards
** Fee depended on type of card (these were rates for personal credit cards)