How the new credit card surcharge rules affect merchants and protect consumer rights

Written by 
Bill Tsouvalas
Bill Tsouvalas is the managing director and a key company spokesperson at Savvy. As a personal finance expert, he often shares his insights on a range of topics, being featured on leading news outlets including News Corp publications such as the Daily Telegraph and Herald Sun, Fairfax Media publications such as the Australian Financial Review, the Seven Network and more. Bill has over 15 years of experience working in the finance industry and founded Savvy in 2010 with a vision to provide affordable and accessible finance options to all Australians. He has built Savvy from a small asset finance brokerage into a financial comparison website which now attracts close to 2 million Aussies per year and was included in the BRW’s Fast 100 in 2015 as one of the fastest-growing companies in the country. He’s passionate about helping Australians make financially savvy decisions and reviews content across the brand to ensure its accuracy. You can follow Bill on LinkedIn.
Our authors
, updated on November 25th, 2021       

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The Australian government has implemented a new law that bans excessive surcharging that some merchants have been adding to their goods and services. This new law is aimed at lowering the costs of these goods and services, but also that payment surcharges are in line with the Competition and Consumer Act of 2010.

According to the study commissioned by NSW Office of Fair Trading 88% of the respondents paid a credit card surcharge the previous year, and 50% of this group paid a surcharge up to five times more of the cost and 20% paid surcharges more than ten times.

However, what does this new law mean for businesses and the consumer?

What is the Competition and Consumer Amendment (Payment Surcharges) Act of 2016?

Stemming from the Reserve Bank of Australia’s review on credit card payments, they gave the Australian Competition and Consumer Commission (ACCC) the right to enforce this law, which became effective on 25 February 2016. However, this law only forced big business, which grossed more than $25 million a year in revenue or had more than 50 employees, to adhere to the law as from 1 September 2016. All other businesses had to comply from 1 September 2017.

Furthermore, this law applies to those companies that apply a payment surcharge on particular payments and bans them from adding on excessive payment surcharges, as external costs from the financial provider may be recovered only.

In practice, what does this new law mean to a business?

Irrespective of size, all businesses that are charging a surcharge needs to make sure that the surcharge does not exceed the cost of acceptance on card payment methods such as debit and prepaid cards, all MasterCard payments, all Visa payments, and American Express companion cards issued by an Australian financial service provider only. For example, if a merchant accepts a MasterCard and the cost of acceptance is 2%, then the surcharge may not exceed 2%.

Although the Reserve Bank of Australia has not set out a permitted surcharge amount, the merchant’s bank or payment facilitator will give that amount, which will be displayed in percentage. Alternatively, a business can levy a flat fee, but that fee must be based on their lowest cost charged to process any payment. Still, the act allows merchants to add some cost, which can be transferred to the consumer, and these include gateway fees, terminal fees, fraud prevention and insurance. Together, the bank fees and the permitted extra costs will then form the cost of acceptance.

If a business does not adhere to the ban, then the ACCC will investigate, and might send an infringement notice or take court action against the business.

What is the value of this new act for the consumer?

Firstly, according to the Reserve Bank of Australia, the consumer will benefit from a reduction of fees charged by a merchant. For example, in the US, this type of reform led to a saving of around US$ 36 billion per year for consumers. Secondly, there will also be more transparency in how and what fees are added to payments, thereby allowing a costumer to make the choice which payment method they want to use.

This consumer protection means that merchants need to be transparent, may not hide surcharges in the purchase price and consumers have the right to sue a merchant for compensation if they believe that a business has done them in.


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