The great credit card rip–off

Be careful when buying things – you may be charged a lot more for nothing by airlines, councils, etc.

Last night the pressure on the councils and retailers that charge their customers’ extra fees for credit card transactions became higher than ever. It was revealed that extra fees cost people hundreds of millions annually.

Despite the respective changes in the law made in 2013, some companies still add extra fees for credit card transactions that may go up to 12%. This sounds even wilder considering that every general transaction costs about 0.6%.

According to the research by The Times, the average extra charge nowadays is 3.5%. The range of institutions using such a policy include retailers, ticket services, local authorities, and even universities.

 

According to last night’s message from the government, any company that’s involved in such an activity is automatically breaking the law.

The wider attention to the trouble was paid after the accusations of some airlines for hiding the real prices of their tickets. The respective companies removed the extra fee right away, so the other organizations should take it as an example. Virgin Atlantic and Monarch Airlines announced this week that they would abolish fees, while British Airways and Flybe said that they would cut the charges.

The Office of Fair Trading (OFT) estimates that Britons spend £300 million on credit card surcharges in the airline industry alone.

TicketSource, the booking website, charges customers a 3.5 per cent “card processing fee” and the Empire cinema chain charges 70p per ticket, the equivalent of more than 12 per cent on the cheapest seat. Dozens of councils charge residents up to 2.5 per cent to buy services such as pest control and bulk waste collections. Queen Mary University of London charges students 2 per cent to pay with a credit card.

“These fees are not just a rip-off, they are illegal,” James Daley, of the campaign group Fairer Finance, said. “The rules came in after a Which? super-complaint and an OFT ruling. Until now the vast majority of airlines had ignored them. Councils and other retailers are still ignoring them.

“The fees are usually charged where purchases are less frequent, for example at travel agents or car dealers. By the time you have gone through the process of choosing and making a purchase you are not going to be put off by an extra 2 per cent, but the costs add up. Sadly companies know they can get away with it.”

Credit card fees paid by the retailer are made up of two elements: the interchange fee charged by the card issuer, such as Barclaycard, and the merchant fee charged by the bank handling the payment.

In December last year a European directive capped the interchange fee at 0.3 per cent, reducing by about 0.5 percentage points what most credit card providers could charge retailers.

Until this week few retailers had cut the fees charged to customers. Meanwhile, consumers have been hit by higher interest rates on credit cards as providers have sought to replace the potential lost income. The average interest rate has increased by 6 per cent since December and the average card fee by 15 per cent, according to Moneyfacts, the finance data firm.

A government spokesman said: “Retailers and local authorities are not allowed to make a profit when they process a card payment. Anyone that does is breaking the law and we expect Trading Standards to investigate.”

Clive Betts, chairman of the local government select committee, added: “I’m concerned people paying for basic council services are facing these fees. It seems excessive. It’s like using premium-rate numbers to make money.”

Local Trading Standards teams are supposed to enforce the law, but officials say that budget cuts mean their priority has to be issues where lives may be in danger.

A spokesman also blamed the government for drafting the legislation too vaguely, allowing retailers to charge higher fees by also accounting for “internal costs”, such as their finance departments.

Leon Livermore, of the Chartered Trading Standards Institute, said: “The law should be clearer. Ambiguity is bad for consumers and it makes it harder for Trading Standards to do its job.”

A spokesman for TicketSource denied that the cost of transactions was 0.6 per cent and said that smaller businesses could not negotiate the same deals that were available to bigger retailers. The company will cut its fee to 2.5 per cent in the new year. Empire did not respond to a request for comment.

Queen Mary University said that it was unable to comment. The Local Government Association said: “Not all councils charge for using credit cards. Those that do only do so to cover charges made by credit card companies.”

Q&A
Why do some retailers charge fees?

Banks charge more to process credit card than debit card payments. Most shops just absorb this but many traders, particularly online, add it to the cost.

What does the law say?
The Consumer Rights (Payment Surcharges) Regulations 2012 says that traders should pass on only the costs they incur, which campaigners say are not more than 0.6 per cent on average.

So why have so many traders got away with charging more?
Experts say that the law is vaguely drafted and that allows retailers to claim internal costs as part of the fee. Trading Standards says that its priority is issues where lives may be in danger.

Is there any advantage to using a credit card?
Yes. Goods and services bought with credit cards between the value of £100 and £30,000 are protected under the Consumer Credit Act. This means that if a retailer goes bust before the item or service is delivered, or if the product is broken and the supplier won’t fix it, you can still get a refund from your card provider.

What next?
In 2018 a new European directive will ban card fees outright, although Britain’s departure from the EU could mean the law is never passed.

Arthur Bingham
Arthur Bingham

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