[EP 034] Legislation Alert : New Credit Card Surcharge Rules


CLICK HERE to download the transcript for this episode.

Episode Highlights

00:53 What is this new law? 01:19 A brief background

02:18 What brought about this legislation?

03:59 How does this impact small business?

04:44 What costs can be passed on?

05:41 Quick review

06:18 What are the consequences for non-compliance?

07:47 Impact on supply contracts or purchase expenses

08:29 Action items

09:46 Quick recap


Hi! It’s Joanna Oakey here, and welcome back to Talking Law. Today we are talking about recent changes to legislation relating to payments surcharges and what this means for your business.


What is this new law?

This is a really important topic because these new changes to legislation have just come into effect on the 1st of September 2017. And this now means that all businesses small and large that impose payments surcharges on credit card transactions are now limited in relation to what they’re allowed to charge their customers.


A brief background

This law came into effect for large businesses last year and it’s now being passed on to small businesses as well. Basically what it means is that if you choose to pass on a payment surcharge to your customers (so that might be for a credit card fee or a processing fee), you have to ensure that you’re only passing on what it actually costs you to process that fee.

In the legislation, this is referred to as the cost of acceptance. So this means you can’t pass on things anymore like admin fees and you can’t impose a flat fee that’s in excess of what it actually costs you to process each individual payment. So it’s a pretty significant change and definitely one that will force a lot of businesses to review their systems and policies so they’ve got everything compliant with this new legislation.


What brought about this legislation?

It’s really interesting to look back a year or so ago before these changes came into place for large businesses. We used to have the issue where there were many industries who were renowned for charging fees like credit card fees that were out of proportion to the actual costs that we knew those suppliers would actually pay to their merchants.

I recall for example the airline industry which used to often make the headlines when they charged a flat fee for a credit card transaction no matter what the actual cost of the ticket was and therefore the amount that was being processed as a credit card payment. So, you could, for example have a flight for fifty-nine dollars or a flight for five thousand dollars and you would still pay the same credit card fee which of course for the average flight booking ended up being out of proportion to the actual ticket cost. So I guess that’s why we’ve seen this type of legislation come into play.

In the past, these costs were imposed on customers paying the fees wouldn’t even question and didn’t have the right to question it. But now it’s making it fairer for everyone. But now what this is impacting smaller businesses. The big question for those businesses is what changes they have to make and can they still continue to impose flat fees for credit charge surcharges in order to make it easy because they don’t necessarily understand what their actual fees are or because it’s hard to impose costs or charges that relate to the actual amount that’s being paid.


How does this impact small business?

Well here’s the answer. So if you are in business and charging a flat fee for credit card processing, take note from the first of September 2017 businesses are still permitted to charge sort of a uniform fee but it can’t be in excess of what you’re actually being charged.

So say you have three different credit card providers. One of them charges one percent one charges two percent and one charges three percent. If the company wanted to have a flat fee you could only charge one per cent so that none of your charges are in excess of what you are actually paying out as the cost of processing these payments.


What costs can be passed on?

The new legislation provides that you can pass on any permissible costs. Permissible costs is the name that is actually used in the new legislation. So you can pass on permissible costs that essentially are anything that you do or will incur as a business owner in order to process that payment. So for example your actual merchant fees and your actual gateway fees that you pay to a third party service provider.

But the fees that you can’t pass on now are your internal costs. Those costs that relate to your staff actually processing payments. So you can’t charge an admin fee for the time involved or a processing fee and I think in the past a lot of businesses were passing that on to their customers. And so this legislation is just working to prevent that.


Quick review

So just repeating that, so it’s really clear. You can pass on the actual costs that you incur from third party service providers but you can’t pass on your internal costs. And if you’re charging a flat fee then that flat fee needs to be no more than what you are actually paying. Therefore it needs to be no more than the cheapest merchant fee that you’re paying.

So if you’re paying to say a higher rate for AmEx as opposed to Visa or MasterCard you can’t pick a flat rate that sits in the middle of the two in order for you to average it out.


What are the consequences for non-compliance?

So now we have that sorted. Let’s chat about what happens if the business doesn’t comply with the new legislation. What if you haven’t yet changed your pricing policy?

The consequences for not complying with the new legislation are pretty notable. Basically, the ACCC which is the Australian Consumer and Competition Commission which is the body that has been given the powers to enforce this legislation has got available to them a range of powers and they can also issue infringement notices. And obviously, with any infringement notice, there’s penalties associated and the penalties can be pretty significant.

They can be up to Ten Thousand eight hundred dollars for a company or 108 thousand dollars for a listed company and the courts can also impose pecuniary penalties of up to one point one dollars million for a company and two hundred thirty-three thousand dollars for an individual.

That’s a lot, isn’t it? It’s not just a small slap on the wrists and obviously in a lot of cases that probably wouldn’t be commensurate to what the business was passing on to their consumers. So it’s really important for the businesses to review this new legislation. It’s just not the type of thing that you want to get caught up in. It’s so much easier to comply and stay on top of it from the outset when you get faced with any sort of penalty or court action or anything like that.


Impact on supply contracts or purchase expenses

It’s also important for businesses to understand the impact of this legislation in relation to their supply contracts or their purchases their expenses. If you’re dealing with a supplier that is imposing a large fee for example for processing credit card payments that supplier might, in fact, be in breach of this legislation now.

So you know there might be some opportunities for businesses to be paying a bit less than they were in the past. If you were able to clearly identify that surcharges are being applied that are greater likely to be greater than what the actual charge to that business is then I guess there’s an opportunity here as well.


Action items

So let’s talk then about action items for businesses that are facing this new legislation for the first time. Here’s what businesses should do moving forward.

Firstly, you need to work out what the fees are that you’re actually paying in payment surcharges to your credit service providers your merchant fees your gateway fees and any other third party fees you’re having to pay in order to process your customer’s credit card payments.

Remember that the big banks do actually have a responsibility to contact their customers and let them know what fees are able to be passed on. So if small businesses haven’t heard yet they should be hearing from their banks soon. And obviously you can also be proactive and contact the bank and they should be able to give you that direct information just to avoid any confusion.

But also look at this as an opportunity for your business to review what it is paying. This legislation should give you a bit of confidence to ask the question. So if you’re just paying these fees at the moment and you don’t really understand what they’re for, contact your supplier and find out because it might be the case of you clocking up all of these extra fees that you are now not required to pay and can’t be required to pay.


Quick recap

So that’s it. That’s an overview of this area. Just as a recap in this episode we talked about payments surcharges and the new legislation that now requires that businesses don’t pass on more than they’re actually paying.

If you’d like more information about this topic head over to our website at talkinglaw.com.au. Through that website you’ll be able to find a transcript of this podcast episode if you’d like to read it in more detail and you’ll also find details of how to contact our lawyers at Aspect Legal, if you’d like help with any of the items we covered today.

And finally, if you enjoyed what you heard please pop over to iTunes and leave us a review. Thanks again for listening in. You’ve been listening to Joanna Oakey and Talking Law. See you next time!