Councils under fire on credit card rip off

28th September 2010  

In a worrying trend started during the credit crunch by airlines and holiday companies, some local authorities are now adding up to 3% to their bills for services if customers chose to settle by credit card.

Recent ‘Freedom of Information’ requests by the consumer’s champion Which? turned up at least 55 councils making credit card charges, with at least 12 charging more than 2%. The research showed many more Councils have plans to introduce similar charges.

Logic would seem to suggest that public servants would appreciate the reduced admin cost that settling bills by credit card offers. At a time when efficiency in public services is of paramount importance, council officials seem to be encouraging people to settle by cheque or cash which of course need human, manual processing.

Settlement by credit card deals with a number of administrative jobs at once. As well the customer having to do the work of making the payment, and entering the relevant reference number, credit card debits clear automatically, and most modern accounting systems can also then mark the payment settled without further human input.

Local authorities say they are passing on a charge levied by banks for processing credit card payments, but our research has shown that due to the volume of transactions a typical council puts through its merchant services provider, it’s likely they’re actually paying under 1% to process your credit card online. If they’re paying more, they’re not playing hard ball negotiating competitive banking fees.

A typical low risk small business turning over £500,000 would normally pay around 1% to process its credit card transactions. With a negligible risk of chargebacks and high turnover councils should be able to easily negotiate sub 1% merchant services rates. The Which? research found 0.8% was a typical charge by the banks to retailers.

Critics say that Councils have to pay fees and charges for processing cash and cheques as well. But these aren’t passed on to the customer, so why should credit card charges?

More unnerving still is that some Councils are also making a similar charge for settlement by debit card. The debit card charging structure is based on a fixed fee of around £0.01p per transaction, not on a percentage.

Perhaps cash strapped councils have just seen the airlines and other retailers making the unwelcome charge and spotted a way to increase the council tax bill, circumnavigating central Government’s council tax cap? For the council to levy a fee of 3% on the average UK council tax bill of £1,400, this means £42 of extra revenue per household.

Credit card processing house VISA has argued, along with Which? that with no chance of returned cheques, and no trip to the bank to pay in cheques or cash, settlement by credit card offers the most cost affective and safe way to accept payment.

Fees and charges for settling by credit card have been banned in many EU countries including France, Italy, Portugal and Germany, and in some states in America, but in the UK the practice seems to be spreading.

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