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The RBA credit card surcharge reforms: What you need to know

Information verified correct on December 10th, 2016

How will the RBA credit card surcharge reforms change how much you will pay when you make a purchase with plastic?

With annual costs of over $1.6 billion, surcharges are a huge expense for Australian credit card and debit card users. In fact, according to research done by MasterCard in 2014, the average person pays over $130 in surcharges every year, a figure that could rise as people continue to seek out faster and more convenient ways to pay for purchases.

Reports of excessive surcharging have led to a series of government reforms aiming to limit surcharges to the actual card payment costs imposed on merchants so that the system is fair for businesses and consumers alike. Here, we look at the latest changes to credit card surcharges, what they mean for you and how you can reduce or avoid these fees when you pay with plastic.

What is a credit card surcharge and why is it charged?

A credit card or card surcharge is an additional fee that can be applied by merchants when you make a purchase using a credit card, debit card or prepaid card. It is designed to help these businesses cover the cost of accepting card payments, which can cost them up to 3% of the transaction value depending on the card and the type of transaction.

According to the Australian Competition and Consumer Commission (ACCC), the average costs for businesses are:

Type of transactionsTransaction value
 Mastercard and Visa debit card transactions0.5% of the transaction value
 Mastercard and Visa credit card transactions1% to 1.5% of the transaction value
 American Express credit card transactions2% to 3% of the transaction value

Note that these are average costs, and could be higher in some cases. For example, data from the Reserve Bank of Australia (RBA) has shown that some premium Mastercard and Visa credit cards could cost merchants more than 2% per transaction.

What changes have been made to credit card surcharges?

In February 2016, a law was passed banning excessive payment surcharges and providing the ACCC with new regulatory powers. This law, known as the Competition and Consumer Amendment (Payment Surcharges) Act 2016 or CAA, also operates in conjunction with the RBA standard for surcharges.

While merchants still have the right to apply a surcharge for accepting card payments, there are three key conditions they will have to follow:

  1. Card acceptance costs. The RBA has narrowed the definition of acceptable costs to: “fees paid to the merchant's acquirer (or other payments facilitator) and certain other observable costs paid to third parties for services directly related to accepting particular types of cards.” This definition means that businesses can only apply surcharges up to the amount they have to pay for processing a transaction. For example, if a business is charged 3% for an Amex payment, they could only apply a surcharge worth up to 3% of the total transaction amount if you paid with an Amex card.
  2. Average costs and percentages. The companies responsible for the fees merchants must pay (payment facilitators) have to provide merchants with an annual statement that outlines the average cost of acceptance for each type of card payment regulated by the RBA. These costs will be represented as a percentage of each transaction. It’s expected that merchants who apply a surcharge will also use a percentage, rather than a fixed fee. The RBA notes that this includes the airline industry.
  3. ACCC regulation powers. The ACCC has the power to investigate possible excessive surcharging and to enforce these surcharge standards.

Large merchants have to comply with these standards as of 1 September 2016, while smaller merchants have until 1 September 2017. The RBA also states that these rules will apply to all payment surcharges, even if a different name is used for these fees: “Merchants will not be able to avoid the rules by calling their payment surcharges something else while still applying them to some payment methods and not others.”

The change will have a major impact on businesses that were charging excessive and/or fixed-rate fees for card payments, such as Qantas and Virgin Australia. Both Qantas and Virgin will be charging a credit card surcharge of 1.3% on all domestic, trans-Tasman and international flights with caps up to $70 for international flights. Prior to the reform, Qantas customers paid credit card surcharges of $7 per passenger for Australian and Trans-Tasman flights and $30 for international trips. Virgin Australia charged $7.70 per passenger for domestic flights and $30 for overseas trips.

Whether these new surcharges result in savings for credit card holders depends on the flight, though. Using Virgin Australia as an example, a return business flight from Sydney to London (Heathrow) would've attracted a $30 flat rate, but the same flight will now require you to pay the new $70 cap. You'll see savings on most domestic flights, though. While you have had to have paid $7.70 on a return economy flight from Sydney to Melbourne worth $245.00, you'll only have to pay a $3.19 booking fee from September 1.

For a full outline of the credit card surcharges that the four major Australian airlines are charging as of 1 September, please see our guide of airline credit card surcharges and how to avoid them.

Earlier credit card surcharge reforms

In 2013, the RBA surcharge reforms specified that retailers could only charge customers for the “reasonable cost” of accepting electronic payment. At the time, electronic payment giant Visa was the first to ban its merchants from applying hefty surcharges to card transactions.

The RBA also stated that under their new surcharging rules, customers must be informed of the surcharge at the point of sale and are entitled to a refund of the surcharge when obtaining a refund of a purchase. Other payment companies, including Visa and American Express followed suit.

These changes were introduced after RBA research from 2011 found that surcharges were typically 1% higher than the merchant service fee for Visa, Mastercard and American Express cards, and 1.9% higher for a Diners Club card. Airlines and taxi companies were widely seen as the biggest surcharge offenders, with the former often charging flat fees of between $5 and $10 per purchase, while Cabcharge applied a 10% “service fee” for credit card payments.

The updates in 2016 are designed to further restrict excessive surcharging. But how much of an impact will they really have? To give you a better idea of the potential savings, check out the case study below.

Comparing the cost of old and new surcharges for a Qantas flight

FreyaFreya is planning to fly from Melbourne to Sydney for Christmas in December 2016. She wants to book her flights in advance using her credit card, and plans to fly with Qantas.

In August, Freya finds a flight for $116 but sees that she would also have to pay a credit card surcharge of $7. That works out to be 6% of her transaction cost.

But Freya also sees that Qantas is changing its credit card surcharge fee to 1.3% of the transaction cost as of 1 September 2016. If the same fare is available then, she will only have to pay a surcharge of $1.50.

In fact, even if the fare was $500, under the new system she would still pay less than under the old system ($6.89 compared to the $7 flat fee). So by waiting until 1 September 2016 to make her booking, Freya is able to save money on the surcharge and keep her credit card costs more reasonable as a result.

Other factors to consider

While the credit card surcharge reforms will provide us with fairer fees when we pay with plastic, there are a few other key details to keep in mind. These include:

  • Taxi fees. Individual state authorities regulate surcharges in the taxi industry, which means they don’t have to follow these standards. In some cases, that could mean you still pay a fee of more than 10% when you use a credit card to pay for your taxi fare. But state authorities in Victoria, NSW, WA, SA and the ACT are all limiting taxi surcharges to no more than 5% of the fare price, with other states and territories considering similar action.
  • Debit cards vs credit cards. As credit card payments typically cost more to process than debit card payments, it’s likely there will be more noticeable differences in the surcharges you pay for these types of cards. For example, a credit card booking with Qantas will cost 1.3% of the total fare price, while a debit card booking will cost just 0.6%.
  • Surcharge information. Merchants are required to inform you of any surcharge before you make a payment so that you can choose whether or not you want to go ahead with the transaction.
  • Other payment options. Merchants will still have to provide you with a fee-free alternative payment option. This could include cash, direct debit, BPAY or some other electronic payment option (such as POLi).
  • Additional fees. While surcharges will be limited, there are currently no regulations that stop merchants from increasing their prices or introducing other fees that apply regardless of the payment method (ie, a booking fee that is charged for all available payment methods). The ACCC says that any such fees would still need to be included in the advertised total price before a purchase is made in order to comply with Australian Consumer Law.

For more information on credit card surcharge regulations, other fees and your legal rights, contact the ACCC Infocentre on 1300 302 502 or via its website.

The latest changes to credit card surcharges provide customers with a more reasonable pricing system to help keep costs down when you pay with plastic. Now that you know more about how surcharges work, when they’ll apply and the average costs for both credit cards and debit cards, you can choose the most convenient and affordable payment options for you.

Amy Bradney-George

Amy is a Senior Writer at finder.com.au with more than 10 years experience covering credit cards, personal finance and various lifestyle topics. When she’s not sharing her knowledge on money matters, Amy spends her time as an actress.

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22 Responses to The RBA credit card surcharge reforms: What you need to know

  1. Default Gravatar
    miranda | November 1, 2016

    I have use credit to make purchase, in the situation that organization end up pay back to my card for that funds. Do they have right to charge credit card surcharge?

    Thanks

    • Staff
      May | November 3, 2016

      Hi Miranda,

      Thank you for your inquiry.

      There are companies that are allowed to charge their customers surcharges at a reasonable amount to cover the cost of accepting credit card payments. The surcharges are RBA regulated so it could be 0.5% to 3% or more of the transaction cost, depending on the card and type of the transaction.

      Cheers,
      May

  2. Default Gravatar
    Gordon | October 31, 2016

    My wife just spent some time at major Sydney hotel who asked for a Credit Card to cover for incidentals when she finalised the bill she was charged 1.5% on the accommodation costs. If they only accept a credit card then are they allowed to still charge or offer an alternate form of payment

    • Staff
      May | November 3, 2016

      Hi Gordon,

      Thank you for your inquiry.

      The businesses that accept credit card payments usually pay merchant fees, so to cover that cost, they apply surcharges to your transaction, which is also allowed by RBA but only at a reasonable cost. Depending on the card and type of transaction, this fee can range from 0.5% to 3% or more of the total transaction cost. If you need more information about credit card surcharges, you may visit this page.

      Cheers,
      May

  3. Default Gravatar
    | September 16, 2016

    How do Franchisees such as Hello World fit into this legislation? Still charging 3% today. Thanks

    • Staff
      Ally | September 22, 2016

      Hi Judi,

      Thanks for your inquiry.

      Kindly note that you have come through to finder.com.au, a financial comparison website and general information service that does not represent financial institutions or other companies.

      With regard to the 3% charge however, legitimate companies are allowed to apply surcharges, some of up to 3%, depending on the card and type of transaction, to cover the cost of accepting card payments.

      I hope this has helped.

      Otherwise, please feel free to send another message.

      Cheers,
      Ally

  4. Default Gravatar
    | September 13, 2016

    I have a GO Mastercard, and as of the end of July – they have introduced NEW fees of $0.95 every time I make an online payment instead of one per month online processing. That’s adding an extra $4.00 every month to my charges because I elect to pay an amount weekly. Is this legal under these new rules because I think it’s excessive.

    • Staff
      Jonathan | September 22, 2016

      Hi Donna, thanks for your inquiry!

      Transaction fees are separate to surcharge fees charged by merchants (stores) and hence are up to the policies of the credit provider in this case Latitude Financial. As per their terms and conditions a payment handling fee of $0.95 per payment. To contact an authorised Latitude Financial representative please call 1300 462 273 Mon – Fri: 8:30am-7pm, Sat:9am-5pm, Sun: Closed (AEST).

      Cheers,

      Jonathan

  5. Default Gravatar
    Ray | September 6, 2016

    Your article on credit card surcharges states that large merchants need to comply by 1 September 2016 and small by 1 September 2017. What is the definition of a small or large merchant?

    • Staff
      May | September 6, 2016

      Hi Ray,

      Thank you for your question.

      As defined by RBA, “large merchants” are those that meet at least two of the following tests: consolidated turnover (including that of any related companies) of more than $25 million in the most recent financial year; consolidated gross assets at 30 June 2015 of $12.5 million or more; or 50 or more employees as at 30 June 2015.

      Cheers,
      May

  6. Default Gravatar
    Anne | July 2, 2016

    Are there any rules for a not for profit international organisation regarding how much merchant fee can legally be passed on? The organisation I am involved with has to pay 1.9% in credit card transactions. Is it legal in Queensland to pass the 1.9% on to the consumer for purchase of raffle tickets/auction prizes etc in this situation?

    • Staff
      May | July 22, 2016

      Hi Anne,

      Thanks for your inquiry. Please note that you’ve come through to finder.com.au we are an Australian financial comparison website and general information service, we’re not affiliated with RBA, so we can only give a generalised advice.

      Generally, merchants that accept credit card payments (including non-profit or private organisations) can surcharge only enough to cover the ‘reasonable cost.’ As per the 2013 governmental reform, the surcharge a merchant charges cannot exceed ‘the reasonable cost of acceptance’, which comprises of, but does not limit to, the merchant service fee it pays.

      If you want to know what makes up a surcharge, please visit this page. This could also be your guide on how much surcharge you will pass on to your customers. As merchant and surcharge fees are regulated, it’s also best to seek an advice from someone in RBA.

      I hope this helps.

      Cheers,
      May

  7. Default Gravatar
    Kathryn | June 7, 2016

    We have just hired a campervan through Apollo, and paid $7500 bond on it. We were given no choice but to put it on credit card, even though we offered cash/debit card. They have charged us 2% on the use of the card – as I say, we had no other choice but to use it. When we get our bond back, we will not be refunded the fee. Is this allowed ?

    • Staff
      May | June 10, 2016

      Hi Kathryn,

      Thanks for your inquiry.

      Basically, banks and credit card companies charge a fee to merchants for the use of their payment methods. As those fees can significantly impact a business, especially to small ones, in effect, merchants may or may not directly pass these fees to their customers in a form of surcharges or processing fees.

      Whilst the RBA has implemented a number of credit card reforms to lower the costs for merchants accepting credit card payments, all customers must be told, in advance, if a processing fee applies and what the amount is. As a customer, you have the option to cancel a purchase/ transaction immediately to avoid being charged with a surcharge.

      Usually, surcharges are not refundable unless you find it as a fraudulent / unauthorised transaction, you can file or make a dispute.

      Cheers,
      May

  8. Default Gravatar
    Steve | May 3, 2016

    How do you report excessive credit card charges to the ACCC for actioning?
    The justification term this provider (a bank) uses is “surcharge” of 1.5% for MasterCard. However, the merchant fee for MasterCard is approximately 0.3%, so that would appear excessive to me.

    • Staff
      May | May 12, 2016

      Hi Steve,

      Thanks for reaching out.

      Indeed, knowing what a dollar surcharge equates to is a good way of finding out if it’s excessive. Though it’s odd, usually, for a larger merchant, the average surcharge is more than 2%, and the average service fee was slightly below 1.25% while smaller merchants have slightly lower surcharges, but higher service fees.

      But what really makes up a surcharge that it seems to be so high when we are charged by this using our cards? Actually, merchant service fees aren’t the only costs a merchant has to pay for in order to accept card payments, so this difference doesn’t always indicate a merchant is using high surcharges. In addition to merchant service fees which are paid to the acquiring bank, the following categories also make up a surcharge:

      1.) ‘Acquirer’ costs
      2.) Costs payable to other payment service providers
      3.) A merchant’s own card acceptance costs
      4.) Fraud costs related to accepting cards
      5.) Any other fixed equipment, systems or developments costs

      Nevertheless, if you deemed you were really charged with excessive surcharges, you can follow the guide on how you can write a letter which I have sent to your email.

      I hope this has helped.

      Cheers,
      May

  9. Default Gravatar
    Terry | March 25, 2013

    How much are airlines and agents allowed to charge now?

    • Staff
      Marc | March 26, 2013

      Hello Terry,
      thanks for the question.

      Most airlines and merchants who usually surcharge have stated they’re waiting to see how all card schemes respond to the reforms before changing their surcharges at all. According to the RBA a merchant is now only allowed to charge enough to cover any ‘reasonable costs’ associated with offering electronic payment services. Seeming as though Visa and American Express have so far said they’ll restrict surcharges, it seems likely Diners Club and MasterCard may follow suit, so we could see lower surcharges in the coming weeks. Stay tuned to this page for more information.

      I hope this helps,
      Marc.

  10. Default Gravatar
    Margaret | March 25, 2013

    I have a Coles Mastercard with $5,000 credit limit.I got the card when it was changed from a Target store card. I am on a disability pension now and would like to switch to a card that doesn’t have such high interest fees. Can you help with this at all?

    • Staff
      Marc | March 26, 2013

      Hello Margaret,
      thanks for the question.

      It may be helpful to contact a card issuer you’re interested in first and call them up to discuss your situation before applying formally. They may be able to suggest options for you.

      I hope this helps,
      Marc.

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