The end of devious credit card surcharges; not yet!

3rd July 2011  

Many newspapers and websites have trumpeted a victory for consumers this week as the Office of Fair Trading (OFT) slated budget airlines and various other retailers for the reviled practice of credit card surcharging, but we feel that this battle has some distance to run before we can safely open the champagne.

On Tuesday the OFT published its official feedback to the super-complaint lodged back in March by Consumer organisation Which? The protest highlighted the unreasonable practice of charging fees for different methods of payment which continues to spread to more areas of the retail world.

The OFT’s initial response certainly lambasts the practice of hidden or misleading fees for different types of plastic, but is less assertive about the complete removal of the surcharges. Consumer groups were hoping for a more forceful stance on the practice to protect the public from the rip-off fees over this summer’s peak holiday season.

It’s clear to see why credit card surcharges are still with us despite the considerable negative publicity they’ve received. The OFT recons the UK consumer will hand-over £300 million in card surcharges to the airline industry in 2010 alone.

Unfortunately the OFT has no direct powers to influence the price companies charge, or their cost structures. They have however stated that they will take legal action under consumer protection laws against organisations that use so-called drip feed pricing; the practice of only revealing credit card surcharges once the customer is well on their way through a complex online order or purchase.

The key elements of the Which? super-complaint were that in the passenger transport sector:-

  1. Credit card or other payment method related administration fees seemed to exceed the likely or reasonable costs the organisations would incur as a result of actually processing the payments.
  2. There was an overall lack of transparency in disclosing the fees with credit card surcharges only being revealed to customers when they had almost completed a lengthy online ordering process.
  3. There are few practical or reasonable alternatives to avoid paying the fees.

The results of studies provided to the OFT by Which? show consumers vigorously object to being charged for the privilege of using ordinary payment methods like credit cards. The OFT’s own studies carried out in 2010 found that 91 per cent of consumers objected to surcharges on debit cards, and 87 per cent objected to surcharges on credit cards.

Consumers rightly feel that if the retailer or airline has an issue with being charged higher amounts for processing different types of payment card then they need to take that up with their merchant services provider, and not just pass that charge onto the public.

Although the wording of the formal OFT reaction is quite measured, it does clearly focus on the key areas of the problem, and provide a framework for a consultation period of 2 months. During this period the OFT is expected to put pressure on the worst offending airlines and retailers in a bid to get them to remove their surcharges, or at least make them considerably more transparent. The OFT will then be able to gauge the reaction to its position and if necessary will then approach the Government in the Autumn with its conclusions with a view to legislation being drafted, where necessary, to deal with the central issues.

Transparency of charging or clearly outlined surcharges within headline advertising, or at least in the first page of any online order process, at least allows consumers to compare prices easily between operators and retailers. Which of course the airlines don’t want.

The OFT’s reaction to the super-complaint does immediately outlaw the practice of making an admin or card surcharge when customers pay by debit card. The OFT found that as debit cards were the current standard online payment mechanism, it was therefore wrong to impose what is in effect a compulsory charge for consumers to pay in this way.

The OFT’s response doesn’t mention that in the still uncertain economic environment, many consumers feel that the only sensible way to pay for their holidays is to use their credit cards for the insolvency protection it offers in the event of travel operators going under.

The OFT response is detailed; here you can read the response in full.

So although any kind mounting pressure on particularly the airline industry to end these rip-off charges is good news, we’re some way from seeing a complete end to the practice.

Although some airlines seem to still be burying their heads in the sand stating that their payment card surcharges are ‘admin fees’, there is some evidence that the more reputable companies are looking into removing the fees. We’ll obviously be watching the market closely and will report back next month.

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