We often think of debit cards as a cheaper alternative to credit cards - but you can still get hit with a fee for using one. Surprised? Here's what you need to know.
Whenever you buy goods or services using a debit, credit or prepaid card, the seller will incur bank costs for processing that payment. Some stores choose to cover those costs by imposing a surcharge on card transactions. This is legal in Australia, but the fee must be disclosed before you pay.
According to the Reserve Bank of Australia (RBA), the cost of processing a debit card transaction is usually quite low. Accepting a Visa or Mastercard debit transaction will typically cost a business around 0.5% of the transaction value.
The RBA says that processing credit card transactions usually attracts higher charges, with costs of up to 1–1.5% for Visa and Mastercard credit card transactions and 2–3% for payments made with an American Express credit card. As a result, credit card surcharges tend to be higher than debit card surcharges.
Legislation was introduced in February 2016 to stop businesses imposing excessive surcharges on debit, credit and prepaid card transactions. The Competition and Consumer Amendment (Payment Surcharges) Act 2016 was brought in to stop businesses charging customers more than what it costs them to process the payment.
Under the legislation, if a business chooses to impose a payment surcharge, it is only legal to pass on to the customer the costs incurred by the business for accepting that particular payment type.
Businesses are unable to get around the laws by giving surcharges a different name, for example, handling or service fees.
If a merchant imposes these types of fees and they are payable only on certain payment methods (such as credit cards) but not on others, the ban still applies. If the handling fee applies regardless of the payment type (eg a handling fee on a concert ticket purchase), that's allowed.
Note that there are some payment methods not covered by the ban, such as PayPal, BPAY, Diners Club cards, American Express cards issued directly through American Express, cheques and cash. The ban also doesn't apply to payments made for taxi services, which are the responsibility of regulators in each individual state.
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Where matters can trickier is if you pay for purchases using Visa’s payWave or Mastercard’s PayPass feature. This is due to the fact that tap and go (or contactless) transactions are processed through the same system used for credit card transactions – so even if you tap and go using your debit card, you may be hit with a higher credit card surcharge.
For instance, many shoppers are unaware that Aldi’s 0.5% credit card surcharge also applies to contactless payments made with a Mastercard or Visa debit card.
When shopping at a store that applies a surcharge to credit card transactions, you can avoid this additional fee by not using contactless payments. Instead, make sure to swipe or insert your debit card at the payment terminal.
These days, the only fees you'll pay are the small fees incurred by the business, which is generally around or less than 0.5% on a debit card. Every merchant or seller is legally allowed to charge these fees, providing they're made clear to the consumer. To avoid those fees altogether, you may need to pay with cash, or find a debit card with no transaction fees.
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When I went to hire a car today I was told at the cash register that there was a $400 “deposit” for using a debit card. This was nearly twice the amount of the original transaction. Information about this additional fee was on the website well it was on a page linked to the website via a link and a drop down or two. The account I was emailed did not advise me of the potential increase in cost.
It seems both unfair and questionable to sneakily add on this fee. Can they do this?
Hi Alice,
Thanks for your inquiry.
As it says on our page: whenever you buy goods or services using a debit, credit or prepaid card, the merchant will incur its own bank costs for processing that payment. Some merchants will include those processing costs in the fee they charge for goods and services, but others will cover their costs by imposing a surcharge on card-based transactions.
A debit card surcharge is an additional amount a business charges when you pay for a purchase using your debit card rather than another payment method, for example, cash.
According to the RBA, using a debit card will typically cost a business around 0.5% of the transaction value. Prior to 2016, some merchants were free to choose the surcharge amount they imposed on different card transactions, so there may have been instances where you’ve been given a surcharge 0.5%.
Hope this was helpful. Don’t hesitate to message us back if you have more questions.
Best,
Nikki