Why RedBalloon’s bust is good news for consumers

Angus Kidman 20 November 2017 NEWS

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Excessive payment surcharges lead to a $43,200 fine.

Last week, the Australian Competition and Consumer Commission (ACCC) slapped online experience retailer RedBalloon with a $43,200 fine. The issue? Four consumers had been charged more than was legally allowed for payments made using a credit or debit card.

Issuing a fine for overcharging just four consumers might seem odd, but the key here is that the ACCC is reinforcing an important legal principle: businesses can't charge over the odds for accepting any payment method, whether that's credit cards, EFTPOS or anything else. "Red Balloon was charging these customers more than allowed under the law prohibiting excessive payment surcharges on card transactions," ACCC deputy chair Dr Michael Schaper said. "Any business charging excessive surcharges on card transactions, whether intentional or not, risks ACCC enforcement action."

So how do the payment surcharge rules work? In simple terms, businesses aren't allowed to charge more than what it actually costs them to use a particular payment method. So if a bank is charging a business 1% for any payments made through Visa, the surcharge should also be 1%. It isn't OK to make it a fixed amount like $5. It isn't OK to make it a flat 3% either if that's not reflective of what the business itself is paying. The cost calculation can be fiddly since both merchant service fees and any rental fees for equipment can be factored in.

Businesses aren't obliged to pass on the cost of payment platforms, and many don't. For some, that's a means of attracting more customers; for others, the maths doesn't seem worth the effort. But if they do have a surcharge, they must make sure they're not charging more than the actual cost.

Large businesses (companies which have more than $25 million in revenue or more than 50 employees) have had to follow these rules since 1 September 2016. For small businesses, the rules have been in place since 1 September this year.

So how much difference does this make? A good example comes from airlines, which were amongst the first businesses to change their charging models when the new rules came into effect. Previously, a $250 domestic ticket on Jetstar would have attracted a whopping $17 in surcharge fees. Under the revised model, that fee is $1.20 on Visa or $2.65 on Mastercard. That's a massive difference.

For savvy consumers, it's still better to entirely avoid those fees. If there's a fee-free payment option available, then take it up. If you're shopping around for the same product from different stores, make sure you factor any fees into the equation. I have a friend who follows a simple principle: if a restaurant has a credit card surcharge, it won't be getting a tip. Not a bad strategy.

Angus Kidman's Findings column looks at new developments and research that help you save money, make wise decisions and enjoy your life more. It appears regularly on finder.com.au.

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