The Reserve Bank to introduce new rules ending credit card ‘surcharge’ fees

THE cost of airfares is set to fall after the Reserve Bank of Australia limited the booking fees and other surcharges companies can slug consumers when using credit cards.

A Reserve Bank ruling means consumers using credit cards cannot be surcharged in excess of a merchant’s costs for utilising that system of payment.

AIRLINES will be forced to limit “gouging” consumers with excessive credit card fees after the Reserve Bank outlined new rules on surcharging.

Booking fees, services fees and other fees commonly charged by airlines but also hotels, ticket booking companies and taxis, cannot cost consumers more than the merchants are charged themselves.

The move will cut the cost of airfares, especially cheaper ones, as airlines will only be allowed to pass on the amount it costs them to offer the service — estimated at 0.77 per cent of the transaction — rather than a flat fee of up to $30 a flight. Domestic “booking fees” range from $7 a flight on Qantas, $8.50 on Jetstar and Tiger and $7.70 on Virgin with a bigger hit charged for international flights.

On an $85 one-way ticket, Jetstar charges $8.50 but under the new rules that would fall to just 65c, based on estimates by consumer group Choice.

The RBA said the changes, which will be enforced by the ACCC, will come into effect from September 1 for large merchants and a year later for other merchants.

“With the cost of acceptance defined in percentage terms, merchants will not be able to impose high fixed-amount surcharges on low-value transactions, as has been typical for airlines,” the RBA said in a statement.

WHAT YOU SEE IS WHAT YOU GET?

Choice said the decision was long overdue and urged consumers to continue to campaign about fixed fees that are charged on everything from airfares to show tickets to taxis.

“Companies try to dress them up in all sorts of ways as booking fees or service fees but it is a gouging racket,” said Choice’s Tom Godfrey.

But Klaus Bartosch, who has collected 220,000 signatures on a petition against credit card surcharges over the past three years, said the move was actually an invitation for all merchants to charge a fee, adding that the RBA should have banned surcharges altogether.

“I want to see the published price for the price I’m going to pay and not see a surcharge at the point of sale,” Bertosch said who levels responsibility at the banks for “rorting and charging these ridiculous prices.”

He thinks the $1.6 billion paid on surcharges each year could escalate to $7 billion or more if all merchants decide to pass on the cost of credit card transactions to consumers.

‘NEVER A SOURCE OF PROFIT’

Qantas, which also owns Jetstar, has always said the fees had never been a source of profit and allowed it to recovered about 80 per cent of its related costs.

“Both Qantas and Jetstar plan to move to percentage-based card payment systems, as the standards require,” the airline said in a statement. “It will take some time to make the necessary technology changes, and we’ll provide further details about the new policies closer to the time of implementation.”

It also urged the regulators to make sure the new rules are applied fairly to all carriers that sell tickets in Australia, not just Australian airlines.

“Most merchants that do apply a surcharge do charge a percentage,” said card payments expert Mike Epstein. “It’s only some, like airlines, that apply a flat fee.”

“It means consumers can now have greater confidence that when merchants do apply a surcharge it will do no more than recover the costs charged to them by their bank for accepting cards,” he said.

One of the world’s largest payments providers, MasterCard, welcomed the changes.

“We are delighted the RBA has finally stepped in to rectify the problem caused by excessive surcharging,” Andrew Cartwright, SVP and Country Manager at MasterCard. said in a statement.

REWARDS CARD FALLOUT

The RBA said the new standard will ensure that consumers using payment cards from designated systems including eftpos, the debit and credit systems of MasterCard and Visa, and the American Express companion card system cannot be surcharged in excess of a merchant’s cost of acceptance for that card system.

It also announced a cap on average interchange rates which will hit premium and ultra-premium rewards cards.

“The really prolific users of rewards programs use premium and ultra premium cards because you earn more points,” Epstein said because the interchange rates banks had been able to offer on those cards was much higher. “Those days will almost certainly come to an end.”

The rate change will mean holders of these cards will either have to spend more to earn a point or need more points to redeem rewards, or both.

Originally published as The Reserve Bank to introduce new rules ending credit card ‘surcharge’ fees