Consumer group warns SMEs, clearly display credit card surcharges or customers will walk

Businesses must clearly display details of credit card surcharges or risk losing customers and even possible legal action, consumer group Choice has warned as part of new research showing businesses are often using surcharges above and beyond “reasonable” amounts.

The warning comes as new data from the Reserve Bank of Australia shows 20% of small merchants are now using credit card surcharges, along with 40% of larger merchants.

The Australian Retailers’ Association has also called for businesses to clearly display their charges or risk legal action or losing business.

Choice spokesman Christopher Zinn says businesses are within their rights to pass on surcharges but too many are taking advantage of the situation, with some charging as much as 10% on transactions, when the actual cost to the business is much lower.

“It’s quite fair to recovery your costs in a transparent way. But if your business is charging excessive fees, you risk losing business because there are only few industries that can get away with doing that through market power, such as the cab companies.”

Zinn noted that while retailers are “well within their rights” to charge surcharges, many are charging more than they need to recoup costs. “For example, a restaurant might be charged a 2% MSF for Amex and 1% for Visa and MasterCard, but it decides to apply an average surcharge to consumers of 1.5%.”

A significant number of respondents claimed they were not warned of surcharges, with over 10% of 163 recorded transactions recorded in the diaries listed as not receiving any notification at all.

And of those who were notified, 25% felt the notification was not enough, and just under 20% said the timing of the notification was inadequate. “Sometimes this was because disclosure was made after the transaction had gone through,” the report warns.

“It turns away customers,” Zinn says. “And this is why the surcharge has to be transparent, because if you have charges that aren’t being displayed, that causes problems and you will lose customers.”

The new Choice survey, which was commissioned by the New South Wales office of Fair Trading, was split into two parts – one survey of 1,435 consumers, conducted online, and another of 140 members who kept a record of their credit card activity.

The online survey found that 88% of respondents paid a credit card surcharge in the last year, more than 50% paid between one and five times and 22% had paid more than 10 times in the past year.

The worst offenders, Choice said, were the airlines, telcos, travel agents, restaurants, utilities, taxis and petrol stations. While Zinn says many companies charge a percentage of the transaction cost, which can often rise as high as 10%, flat fees are also common.

Choice claims Qantas charges a $25 fee per booking for international flights, with 64% of respondents having seen charges made by airlines.

Zinn reminds businesses that both the Australian Securities and Investments Commission and the Australian Competition and Consumer Commission require businesses to both disclose the existence of fees and the amount before a transaction occurs.

“There are definitely laws about disclosure and businesses do need to adhere to them. These charges need to be described and displayed so people can take it or leave it. You face a massive backlash if it’s too late and they are charged.”

This feeds into a separate result of the survey, which found that if respondents were given notice of a 2% surcharge, 20% would go to another merchant and others said they “pay once but not return”.

“I would say many of these surcharges are in the “fairness band” of 1%, and we’re not opposed to that. But there are businesses making higher surcharges than the cost they are being charged, and we think that is wrong,” he says.

“It’s quite fair to recover costs if you’re being transparent. But those who have higher surcharges risk losing their businesses if they use it too much and don’t have the market power,” he says.

Zinn says American Express transactions are usually charged the highest, with the average surcharge for Amex and Diner’s Club cards at 2.7%, compared to 1.7% for MasterCard and Visa.

Meanwhile, the Australian Retailers’ Association has echoed calls for businesses to clearly display credit card charges, with executive chairman Russell Zimmerman saying SMEs will be punished by consumers if they don’t abide by the law.

“Businesses who charge directly for credit card use must inform their customers that the credit card fee will apply and also disclose the amount as a dollar or a percentage before they enter into the transaction, giving consumers the ability to make an informed decision about the means of payment that represents the best value for them,” he says.

“At the end of the day, retailing is driven by consumer demand and if charges for using credit cards are deemed unacceptable by consumers this will affect the individual retailer’s bottom line.”