From 1 September 2017, all businesses that impose payment surcharges on card transactions need to comply with a new law that bans excessive payment surcharges. Currently, the law applies to large businesses. However, the Australian Competition and Consumer Commission (ACCC) warned in a media release, small business owners must prepare for a ban that will now apply to all businesses across Australia.

To prepare your business for these upcoming changes, it is always recommended to get in touch with a business lawyer.

What Is A Credit Card Surcharge?

A credit card surcharge is defined as an amount charged that customers pay on top of the price of goods and services if payment is made using a credit card. The surcharge covers the cost of processing the card payment for the merchant.

What Is The Purpose Of The New Law?

The purpose of the new law is to stop payment charges that exceed the ‘cost of acceptance’. This means if a business owner wishes to impose a surcharge, he or she must set the surcharge at the average cost of acceptance of the lowest cost system. The ACCC collaborated with the Reserve Bank of Australia to devise a calculation you can use to work out your cost of acceptance’:

Bank fees (from merchant statement)
+ (plus) additional permissible costs (payable to a third party): gateway fees, terminal fees, fraud prevention and insurance
= (equals) cost of acceptance.

If a business owner sets a payment charge that exceeds the cost of acceptance, then the ACCC considers it excessive.

If you are interested in reading more about payment surcharges and your obligations, check out the ACCC’s guide Payment Surcharges – Only Charge What It Costs You.

Please note as a business owner you have a choice not to impose payment surcharges. The law will not affect you if you do not impose them.

Background

In February 2016, the Competition and Consumer Amendment (Payment Surcharges) Act became law but it was only applicable to large businesses that satisfy the Reserve Bank of Australia Payment Systems Board’s (PSB) standards. Generally, the Act gives the ACCC powers to enforce the ban, and investigate complaints relating to excessive payment surcharges. Now, the power will extend to small businesses. The new law will limit the amount businesses can charge customers for using payment methods such as EFTPOS, MasterCard, Visa and American Express cards issued by Australian banks.

How Does The New Law Affect Small Businesses?

There are a few preparations a small business owner should make prior to September:

  1. Small businesses are encouraged to review their surcharge levels to ensure they are compliant once the ban starts in two months. Once the new law comes into effect businesses can only pass onto customers what it costs them to process a payment, such as bank fees and terminal costs. For example, if a cost of acceptance for Visa Credit is one per cent, then the business owner can only charge a one per cent surcharge on the customer’s Visa credit payments. For more examples on how to calculate the surcharge, check out the ACCC’s Q&A: Payment surcharges.
  2. Check if your bank has sent you information about calculating appropriate surcharges when accepting debit and credit cards. Usually, banks will send business merchant statements that clearly set out the business’ costs of acceptance for each payment method. If you do not receive any statements, it is recommended you contact your bank.
  3. You can impose one surcharge on all payment types in certain circumstances. If you wish to do so, you must set the surcharge at the level of the average cost of acceptance of the lowest cost system (being no higher than the lowest permitted surcharge).
  4. You can choose between either a flat fee surcharge or a surcharge in percentage terms. But it is easier to express a surcharge in percentage terms. You are not prevented from imposing a payment surcharge as a flat or fixed fee.
  5. Business owners are not banned from charging fees that are genuinely related to payment methods.
  6. Be aware the ban does not alter existing Australian Consumer Law obligations. A business is still held accountable if it makes false or misleading representations about the price of goods or services.

If business owners fail to follow the new law, then the ACCC may issue surcharge information notices with penalties of up to $12,600 (body corporate) or $126,000 (listed corporation). The ACCC will determine whether or not a business’ surcharges exceed the permitted level. The process may be complex and lengthy as surcharge information notices require a business to supply evidence of their costs of processing a payment. If the ACCC believes a business has breached the ban, then the business owner may either be slammed with an infringement notice or an expensive court case worth around $1,358,910 per contravention.

Final Thoughts

September is around the corner so all businesses take note! Before you charge your customers a payment surcharge, remind yourself about the new ban on excessive payment surcharges and the consequences of failing to comply with the ACCC.

If you are concerned with any of these changes, it may be be beneficial to consult with LawPath’s experienced business lawyers.

Unsure where to start? Contact a LawPath consultant on 1800 529 728 to learn more about customising legal documents, obtaining a fixed-fee quote from our network of 700+ expert lawyers or to get answers to your legal questions.

Fiona Lu

Fiona is a Paralegal working in our content team which aims to provide free legal guides to facilitate public access to legal resources. With an interest in information, media, consumer and employment law, her primary focus is on how technology will affect the future of the legal industry.