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Surcharges are added to most purchases, but what are the rules behind these extra fees?

<div class="theconversation-article-body"> <a href="https://theconversation.com/profiles/steve-worthington-138">Steve Worthington</a>, <a href="https://theconversation.com/institutions/swinburne-university-of-technology-767">Swinburne University of Technology</a> You head to the register at the cafe to pay for your lunch, swipe your card and suddenly realise you’ve been hit with an extra small but unexpected charge. It might be listed on your receipt as a service or merchant fee, but either way it’s because you’ve used a credit or debit card. With the pandemic accelerating the use of cards instead of cash – <a href="https://www.rba.gov.au/publications/bulletin/2023/jun/cash-use-and-attitudes-in-australia.html#:%7E:text=Cash%20payments,-The%20CPS%20suggests&text=In%20value%20terms%2C%20the%20cash,cent%20by%20value%20in%202022.">only 13% of Australians use cash</a>, dropping from 27% in the last five years – these extra charges have become mainstream. However, as was highlighted by National Australia Bank chief executive Andrew Irvine during a <a href="https://www.aph.gov.au/Parliamentary_Business/Committees/Joint/Corporations_and_Financial_Services/FinancialAbuse">parliamentary inquiry</a> into bank charges last week, they are often applied, in varying amounts, by businesses for reasons not always in line with their original purpose. Irvine slammed as <a href="https://www.afr.com/companies/financial-services/credit-card-surcharges-should-be-banned-or-regulated-nab-boss-says-20240830-p5k6jm">“outrageous”</a> a 10% surcharge he was forced to pay when he recently bought a cup of coffee at a Sydney cafe. “I don’t like the lack of transparency and lack of consistency,” he said. But most Australians are making these extra payments every day, without question. So how did this end up happening – and what can you do about it? <h2>Card surcharges in Australia</h2> At the start of this century, payments for goods and services were mainly made by cash, paper cheques, credit and debit cards. The first two of these options would eventually be deposited into a bank account by the merchant who ran the business. The latter two would be processed by the bank or financial institution which would charge the business a merchant service fee. For debit cards this might be a fixed fee. But for credit cards it would be proportionate with the value of the goods or services. The Reserve Bank of Australia became concerned the use of credit cards was greater than that of debit cards and <a href="https://www.rba.gov.au/publications/consultations/201106-review-card-surcharging/background.html">introduced surcharging in January 2003</a>. The intention was to lower the cost to the merchant of accepting debit cards and change customer behaviour. This has been achieved, as both the volume and value of paying by debit cards now exceeds the volume and value of paying by credit cards. However, the reality in 2024 is that card surcharges have become commonplace, and in a wide variety of payment situations. <h2>It’s estimated to cost us billions</h2> It is difficult to calculate the total cost of surcharging to Australian consumers since they became legal more than 20 years ago, because the rates charged vary widely. But at last week’s inquiry, Labor MP Jerome Laxale suggested it added up to <a href="https://www.smh.com.au/money/banking/card-surcharges-are-costing-us-billions-but-can-they-be-avoided-20240830-p5k6o8.html">A$4 billion</a> in the last year. Surcharges can be imposed by small to medium enterprises such as your local cafe, doctor’s surgery, your energy supplier, or when you use a card to pay your council rates. As an example, my rates are payable by card, with a surcharge of 1.10% for Mastercard and Visa credit, and 0.55% for eftpos and Mastercard and Visa debit cards. <h2>When surcharges can be applied</h2> Many merchants charge the same rate for all their card payments and some fail to alert customers to the extra fee before accepting the payment at their terminal, which they are required to do. Indeed, even on a receipt for payment, the surcharge can be described by the merchant as a “handling” or “merchant” fee. The Australian Competition and Consumer Commission <a href="https://www.accc.gov.au/consumers/pricing/card-surcharges">(ACCC)</a> regulates surcharging and demands the merchant prove a surcharge is justified. Furthermore, the ACCC says if there is no way for a consumer to pay without paying a surcharge – that is, they can’t pay by cash or cheque – then the business must include the surcharge in <a href="https://www.accc.gov.au/business/pricing/price-displays#toc-display-of-surcharges">the displayed price</a>. <h2>Penalties for misuse</h2> The ACCC can take merchants to court to enforce these regulations and there have been some examples of this in recent history. In July 2021, <a href="https://www.accc.gov.au/media-release/nine-entertainment-pays-penalties-for-alleged-excessive-payment-surcharges#:%7E:text=The%20ACCC%20alleged%20that%20these,Deputy%20Chair%20Mick%20Keogh%20said.">Nine Entertainment paid penalties totalling $159,840</a>, plus $450,000 redressing customers, for charging subscribers and advertisers excessive surcharges. The ACCC specifies that the surcharge must not be more than it costs the merchant to use that payment type. As guidance to the merchants, it also offers <a href="https://www.accc.gov.au/consumers/pricing/card-surcharges">the average costs for different payment types</a>: eftpos less than 0.5%, Mastercard and Visa Debit 0.5%–1% and Mastercard and Visa credit 1%–1.5%. However, despite the ACCC setting guidelines for the amounts that can be charged, many surcharges are above this guidance and in some cases more than 2.0% for all cards. Some merchants do charge different surcharging rates, depending on the cards they accept, be it eftpos, Mastercard or Visa. In theory, the surcharge rate is meant to be determined by the merchant service fee, which is negotiated between the merchant and their bank. Larger merchants, such as the supermarkets, department stores and energy companies, can negotiate low rates (reportedly as low as one cent a transaction). But smaller merchants with less negotiating clout will have higher service fees. The arrival of new payment players, such as <a href="https://www.forbes.com/advisor/business/software/square-vs-stripe/">Square and Stripe</a>, has offered businesses an alternative banker of card payments, which can then use surcharging as part of their merchant service fees. <h2>Surcharging overseas</h2> The <a href="https://europa.eu/youreurope/business/finance-funding/making-receiving-payments/electronic-cash-payments/index_en.htm">European Union</a> already has a long-standing ban on surcharging, while in the United States, surcharging is illegal in some states. Other countries, including the United Kingdom, have tried surcharging on card payments, only to abandon them as it was rorted by some merchants and became an unnecessary expense for consumers. <a href="https://bluenotes.anz.com/posts/2023/07/anz-news-surcharge-steve-worthington-australia#:%7E:text=In%202018%20the%20UK%20Treasury,their%20hard%2Dearned%20money%E2%80%9D.">A statement</a> released by the UK Treasury when it banned the practice in 2018 described surcharges as <blockquote> Hidden charges for paying with a debit or credit card, which will help millions of UK consumers to avoid rip-off fees when spending their hard earned money. </blockquote> <h2>What can you do about it?</h2> Before surcharging was allowed by the Reserve Bank in January 2003, acceptance by merchants of payments was just another cost of doing business. And it seems many consumers have just accepted surcharges as part of their transactions. There are ways to avoid them, the most obvious being to use cash. Using eftpos involves charges, but they are less than those imposed on credit and debit cards. The Reserve Bank is working on implementing a so-called <a href="https://www.rba.gov.au/payments-and-infrastructure/debit-cards/least-cost-routing/#:%7E:text=What%20is%20least%2Dcost%20routing,'merchant%2Dchoice%20routing'.">“least-cost routing”</a> system that defaults to the lowest cost network when processing payments. Unfortunately, this is yet to be widely adopted by businesses.<img style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important;" src="https://counter.theconversation.com/content/237964/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" /> <a href="https://theconversation.com/profiles/steve-worthington-138">Steve Worthington</a>, Adjunct Professor, <a href="https://theconversation.com/institutions/swinburne-university-of-technology-767">Swinburne University of Technology</a> Image credits: Shutterstock This article is republished from <a href="https://theconversation.com">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/surcharges-are-added-to-most-purchases-but-what-are-the-rules-behind-these-extra-fees-237964">original article</a>. </div>

Money & Banking

"Is it even legal?": Outrage over pub's "sneaky" surcharge

A Sydney hotel has come under fire online after one customer exposed the popular venue for an unexpected - and apparently undeclared - “late night surcharge”. And after taking to Reddit, that same customer found a wave of support from users who agreed the additional fee was ridiculous, with some even questioning the legalities of it. And while they hadn’t initially revealed the name of the sneaky establishment, after a number of requests from fellow Redditors for a “name and shame”, they eventually disclosed that it had been Sydney’s iconic Oxford Hotel. They began their tale by sharing that they’d just been out with a friend, and had been buying “jugs of beer as rounds”. The first was “purchased at 9:18pm for $24.36”, and wasn’t an issue for the two friends. However, trouble arose at 10:37pm when the poster’s next round came about, and the total came in at $33.50. “I paid for it not looking at the price but Apple Pay has notifications when you pay for things,” they explained, “and I noticed the price difference in the notifications. “When I asked the same staff member who served me he said there was a ‘late night surcharge after 10pm’.” They went on to note that they’d never even heard of a late night surcharge before, and were dismayed by the “30% increase! Not exactly a small increase.” “There’s no signage to notify anyone of the fee after 10pm. I’ve never even heard of this practice in Australia,” they said, before asking whether anyone else had had a similar experience before, and “is it even legal?” When someone noted that “surcharges and semi-forced gratuities are becoming commonplace now unfortunately”, they suggested checking out menus beforehand to determine whether or not a particular establishment would be issuing additional fees. But as one user pointed out, the hotel in question didn’t list the late night charges anywhere on their website. Someone else said that while “late charge surcharging is nothing new”, what the customer had paid “seems somewhat excessive”. “Every time I go out in Sydney these days the whole experience just leaves a bad feeling because I feel like I've just been had by someone,” another said. “Ahh, the reverse happy hour. A sad hour, if you will,” one offered. “So sick of this. It needs to stop. Australian Culture is being killed before our eyes by these greedy establishments not willing to pay their staff living wages,” someone else lamented. And as one bartender added, “so many bars will bump their booze prices up at 10pm and midnight to ‘help pay for staff loading’, but won't actually pay their staff penalty rates. just a little bit of extra money for the big wigs”. Images: Facebook

Travel Trouble

“It's like they hate customers”: Restaurant surcharge ignites the internet

It’s a common experience to look at a restaurant’s menu and find hidden charges laying in the fine print - from service fees to split bill and public holiday costs, it can feel like surcharges are everywhere. And while it’s legal for such establishments to expect as much from their customers, particularly when it comes to public holidays, one particular cafe has ignited a debate over what’s actually reasonable when it comes to such surcharges. An exasperated customer launched the conversation when they <a href="https://www.reddit.com/r/brisbane/comments/134a652/how_much_is_too_much_for_a_public_holiday/?utm_source=share&utm_medium=web3x&utm_name=web3xcss&utm_term=1&utm_content=share_button" target="_blank" rel="noopener">posted to Reddit</a>, sharing an image of a menu they’d encountered while dining out in Brisbane, and the 25 per cent surcharge attached to it. “How much is too much for a public holiday surcharge?” they asked, before expanding with “what’s a fair go surcharge for a struggling business owner these days?” The comments flooded in from there, and one thing became clear: 25 per cent was well above what many were willing to pay, unless they could guarantee the extra fees were going directly into the wallets of the staff. One got right to the point when they declared, “25% = I eat elsewhere.” “I can understand [a] public holiday surcharge for 10% or 15%,” another said, “but isn't [it] that [being] open on public holidays often attracts much more business than usual, giving the restaurant an advantage such as higher cash flow?” “10% is fair, 25% is robbery,” one agreed. However, not all were of the opinion that walking away from such a cost was the only option, instead noting that “if I go out on a public holiday I am prepared for it to be exxy, I wouldn't have an issue with 25%.” And for some, the public holiday fee wasn’t the issue. Their problem? The extra 7% just to split a bill. “Even if I'm not split billing, f**k any place that charges extra for split billing, ESPECIALLY 7%,” one complained. “JFC, how are people not more upset about that part?” “25% is outrageous, as is 7% for splitting bills. It's like they hate customers,” said one. Another had a few questions about it, writing “that's higher than normal, but why is there a 7% surcharge for splitting the bill? It takes like an extra 30 seconds tops.” “Because people want it, and if they want anything you find a way to charge for it, even if it costs literally nothing,” came the reply. “Gotta get that hustle … Then they wonder why no-one comes back.” Unfortunately for the Redditors, restaurants and cafes in Australia have the freedom to set whatever surcharges they see fit as long as they don’t try to hide them on their menus. As the Australian Competition and Consumer Commission has declared, “restaurants, cafes and bistros that charge a surcharge on certain days do not need to provide a separate menu or price list or have a separate price column with the surcharge factored in. “However, the menu must include the words ‘a surcharge of [percentage] applies on [the specified day or days]’ and these words must be displayed at least as prominently as the most prominent price on the menu. “If the menu does not have prices listed, these words must be displayed in a way that is conspicuous and visible to a reader. These measures apply to pricing for both food and beverages.” Images: Reddit

Money & Banking

Is it legal for businesses to slap on a holiday surcharge?

It’s almost expected that when you walk into a cafe or shop on a public holiday or long weekend there is a sign indicating a certain surcharge on all bills. Have you ever wondered if it's legal? Can shop owners do this on normal weekends? With the cost of living increasing and just recently the minimum wage rising – which will no doubt be passed on immediately to consumers – the last thing anyone wants to be hit with is an unnecessary surcharge. But the surcharge on bills is in fact legal as long – as the customer is aware beforehand. So! That little sign you see at the till of the expected surcharge is your due notice that the extra levy will be in effect. Being open on public holidays and weekends costs business a lot more due to the penalties that apply and it's up to the business on how they want to tackle that extra cost. The surcharge could be placed on the overall bill, or on all items on the menu. Otherwise, the business can just decide to cop the surcharge themselves and not put it on the customer. Regardless, it is always up to the business to decide how much they charge and whether or not prices change, as long as the customer is made aware. The Australian Competition and Consumer Commission (ACCC) has also made it illegal for businesses to hide those surcharges. "Restaurants, cafes and bistros that charge a surcharge on certain days do not need to provide you a separate menu or price list or have a separate price column with the surcharge included," the watchdog says. "However, the menu must include the words 'a surcharge of [percentage] applies on [the specified day or days]' and these words must be displayed at least as prominently as the most prominent price on the menu." Image: Nine News

Money & Banking

Melbourne cafe introduces surcharge for Dan Andrews supporters

A cafe in Melbourne’s southeast is charging Daniel Andrews supporters an extra dollar for their coffee orders but the owners insist the surcharge is not politically motivated. Franz Madlener is the co-owner of Arcobar in Moorabbin. Earlier this week, he put up a sign that says: “Do you support Dan? Add $1 to your order.” It continues to explain that the cafe introduced the surcharge for those “who think Dan is doing a great job”. However, he says the sign is not anti-Dan Andrews but rather a warning against lecturing small businesses about the pandemic. “Customers have been coming in every day and lecturing us about how lucky we are to be able to open,” Franz told <a rel="noopener" href="https://7news.com.au/" target="_blank">7NEWS.com.au</a>. “They ask us ‘aren’t you grateful?’ and the answer is no.” The hospitality industry has been hit the hardest due to Victoria’s second lockdown, with the Premier promising to ease restrictions by November 1. Franz said the surcharge is comparable to a “swear jar” for those who “think paying $3 for a coffee allows them to lecture us”. “The first thought in the morning and the last at night is about the lockdown. “It doesn’t lead to healthy banter, it’s vicious.” He said the sign would have gone up regardless of which government was in power. The cafe is not actively enforcing the surcharge, he said, and any money that did go into the “swear jar” was divided among the staff.

Food & Wine

Outrageous fee: Watch out for sneaky Qantas surcharge

Travel experts are warning passengers to look at the fine print regarding frequent flyer bookings after Qantas was caught out for its “excessive” charges on some of its bookings. “Millions of Australians are Qantas Frequent Flyer members,” <a href="https://www.australianfrequentflyer.com.au/qantas-frequent-flyer-rip-off/">Australian Frequent Flyer</a> editor Matt Graham wrote. “We save up our Qantas points in the hope of one day redeeming them for a free flight. Unfortunately, Qantas Classic Flight Rewards are not as rewarding as the name might suggest.” Although government taxes and airport fees are out of the airline’s control, Graham noted Qantas’ “carrier charges” are discretionary and aren’t charged when booking a normal Qantas airfare. “When redeeming points for reward flights, airport and government taxes must be paid in addition to the points,” he said. “But Qantas Frequent Flyer also adds its own ‘carrier charges’ on top of this. Qantas carrier charges can add as much as $1080 to the cost of a round-trip Classic Flight Reward booking, and in some cases these charges are even higher than an equivalent airfare. “This is extremely frustrating for frequent flyers trying to redeem their hard-earned Qantas points, especially as carrier charges are not genuine taxes.” Graham points out that Qantas isn’t the only airline to impose surcharges in award bookings, calling out Emirates, Etihad Airways, British Airways, Lufthansa and Turkish Airlines. Many other airlines also do the same thing but Qantas’ surcharges caught his eye as they are “particularly high on some routes”. “Many airlines do not impose any surcharges on award bookings.” Mr Graham said. “These include Virgin Australia, Singapore Airlines, American Airlines, United Airlines, LATAM Airlines and Thai Airways. Other airlines, such as Cathay Pacific, impose fuel surcharges but at much lower rates.” Ultimately, such bookings can end up being “an extraordinary waste of points”. Graham gives an example where using points would have resulted in additional costs greater than buying the ticket outright. “During a recent sale, Jetstar tickets from Darwin to Singapore were available for $236 return. The same flights would have cost 28,200 Qantas points and $266 in additional fees if booked as a reward ticket. That’s not very rewarding,” he said. Australian Frequent Flyer is calling on Qantas to be more transparent about these fees and to publish a full list of the charges on its website. “Many Qantas Frequent Flyer members don’t realise just how much they’ll have to pay in additional charges when redeeming their points,” he said. “I would encourage Qantas members to find out how much these carrier charges are, and to consider whether another frequent flyer program might be a better option for them.”

Travel Tips

ACCC urges consumer vigilance regarding card charges

The Reserve Bank of Australia has introduced new standards regarding the size of card surcharges and tasked the ACCC with enforcing these new restrictions. The reforms are expected to recoup some of the <a href="http://www.news.com.au/finance/business/retail/surcharge-free-campaign-aims-to-save-us-the-16-billion-a-year-were-slugged-on-credit-cards/news-story/e511ef25cf9592c0950075c296c30064" target="_blank">$1.6 billion</a> Australians spend every year on surcharges when making a purchase by credit or debit card. Under the new rules, retailers will no longer be able to force the consumer to pay a surcharge that is higher than the cost of processing the card transaction. Debit card surcharges will be reduced from 12 to 8 cents per transaction, and the surcharge for regular credit cards will be capped at 0.5 per cent (the surcharge for premium Visa and MasterCard users will be capped at 8.0 per cent). The brand new rules are expected to affect Eftpos, Debit MasterCard, MasterCard Credit, Visa Debit, Visa Credit and American Express cards. In an interview with <a href="http://www.news.com.au/" target="_blank">News.com.au</a>, ACCC chairman Rod Sims said, “There are two upshots for the consumer. The most basic one is that consumers won’t get slugged for credit card surcharges that are above the cost to the retailer. The second and very important one, is that it will make it harder for companies such as airlines and ticket booking agencies to hide fees later down in web pages. “There’s less incentive for drip pricing if all they can do is recover their costs.” The new restrictions will commence on the 1 September 2016 for ‘large retailers’ and on 1 September 2017 for other merchants. A large retailer is defined as having a gross revenue exceeding $25 million or employing more than 50 people. Consumer advocate Christopher Zinn, who spearheaded a campaign to eliminate surcharges, welcomed the announcement but said, “Uncertainties remain around surcharging card payments for smaller everyday consumer purchases. Additionally, the RBA guidelines do not engage with consumers’ negative feelings toward surcharging or the detrimental impact the practice can have on customer loyalty and advocacy for businesses of all sizes.” Do you think it’s reasonable for retailers to have a surcharges for purchases made by card? If so, what should the surcharge be? Share your thoughts in the comments. Related links: <a href="/finance/money-banking/2016/05/10-clever-ways-reduce-bills-in-cooler-months/">10 clever ways reduce bills in cooler months</a> <a href="/finance/money-banking/2016/05/how-to-best-manage-your-credit-card/">How to best manage your credit card</a> <a href="/finance/money-banking/2016/05/40-million-dollar-jackpot-won-by-factory-workers/">$40 million Powerball jackpot won by factory workers</a>

Money & Banking

Malcolm Turnbull to stop exorbitant credit card fees

The Federal Government has flagged the end to unfair credit card surcharges.Prime Minister Malcolm Turnbull has declared the fee charged for using a credit card at a cash register will be no more than the merchant’s cost of processing the transaction, which is usually only 0.5 per cent. Many retailers charge double this amount, a practice that has incensed customers.Australians pay about $1.6 billion a year in credit card surcharges, according to research commissioned by MasterCard last year.In response to the Murray Financial System Inquiry report, Mr Turnbull said it was time to give consumers “a fair deal”.“This issue has been the subject of considerable consumer concern,” Mr Turnbull said.“The fact is — we all know, it is fairly widely known — in some cases these surcharges are well in excess of the real cost.“This is a matter of ensuring that the representation the merchant makes is, by way of regulation, an accurate one.”Treasurer Scott Morrison indicated that credit card surcharges would “have to pass the fair dinkum test”.Legislation banning merchants from imposing exorbitant card surcharges is set to be passed in the middle of next year, and will be enforced by the Australian Competition and Consumer Commission.The government has tasked the Payments System Board to advise it on what exactly constitutes excess surcharge in a report due by March next year.Related links: <a href="/finance/money/2015/08/good-apps-to-manage-money/">4 great apps to manage your money and help you save</a><a href="/travel/mastercard/2015/10/how-to-take-your-money-overseas/">How to take your money overseas</a><a href="/finance/money/2015/09/how-to-be-financially-fit/">Why you need to treat money just like you do health and fitness</a>

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Surcharges are added to most purchases, but what are the rules behind these extra fees?

"Is it even legal?": Outrage over pub's "sneaky" surcharge

“It's like they hate customers”: Restaurant surcharge ignites the internet

Is it legal for businesses to slap on a holiday surcharge?

Melbourne cafe introduces surcharge for Dan Andrews supporters

Outrageous fee: Watch out for sneaky Qantas surcharge

ACCC urges consumer vigilance regarding card charges

Malcolm Turnbull to stop exorbitant credit card fees

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