Charges levied by companies on customers paying by debit or credit cards will be scrapped next year, the UK government will announce today.
The new rules, which come into effect in January 2018 under an EU directive,will ban companies from all bank card charges.
Consumers currently face charges of up to 20 per cent for making purchases such as flights or fast food by card or other services such as PayPal.
These fees are already banned in several EU countries including France, Germany, Italy and Portugal.
The rules will also tackle surcharging by local councils and government agencies such as the DVLA.
Consumer groups and UK Finance, the financial trade association, have welcomed the move.
But the Federation of Small Businesses in Scotland (FSB) warned retailers might need to pass on some of the costs to consumers, while travel operators said the card fee ban would hike holiday costs.
Businesses usually say the surcharge is to cover the cost of processing a card payment.
The total value of surcharges for debit and credit cards was an estimated £473 million, according to Treasury figures. Economic Secretary to the Treasury, Stephen Barclay, said: “Rip-off charges have no place in a modern Britain and that’s why card charging in Britain is about to come to an end.
“This is about fairness and transparency, and so from next year, there will be no more nasty surprises for people at the check-out just for using a card.
“These small charges can really add up and this change will mean shoppers across the country have that bit of extra cash to spend on the things that matter to them.”
The government has previously capped the costs that businesses face for processing card payments and said it will engage with retailers to assess if there is any more that can be done to help.
The Association of British Travel Agents (ABTA) advised its members in May that the new rule would have “a significant impact on members’ businesses” and advised them to start planning in advance for the changes by taking preemptive action such as increasing headline prices and offering incentives to customers to use payments methods other than cards.
Mark Tanzer, ABTA’s chief executive, said the ban came from new EU legislation and added: “As it is a pro-consumer measure there is no scope to overturn it.”
Noel Josephides, chairman of Sunvil travel company, predicted that the ban would drive up prices, negating the impact intended by Brussels.
Treasury consultation documents appear to flag up a similar view, stating: “Merchants... would be expected to see a reduction in revenues... It is expected they will pass on the majority of the costs to consumers through higher prices.”
Stuart Mackinnon, a spokesman for the FSB in Scotland, said members would be examining the implications of the change to see how they might impact on the business sector. “Many Scottish small businesses have to absorb surcharge fees when paying suppliers,” he said.
“Further public agencies such as HMRC add on a charge of up to 2.4 per cent for those who pay their taxes by credit card. Therefore, some in the Scottish business community will welcome these changes.
“On the other hand, some retailers feel that they have to pass on some of the costs which payment companies charge to them.
“They might want assurances that these moves won’t put further pressure on Scotland’s high street operators. The FSB will look closely at the changes proposed by Treasury.” Gareth Shaw, money expert at consumer organisation Which?, which started the “Report Rip Off Charges” campaign against surcharges in 2011, said: “This welcome news is long overdue. Which? has been campaigning for an end to unfair card surcharges for years now and triggered the process of reform with our super complaint back in 2011.
“Previous action to protect consumers from excessive card surcharges has been difficult to enforce, leaving consumers paying over the odds just for paying by card. These new rules will finally put an end to this unfair practice.”
Which? also said that consumer rights under Section 75 of the Consumer Credit Act would be unaffected, meaning that the credit card company is jointly and severally liable for any breach of contract or misrepresentation by the retailer or trader.
Richard Koch, head of cards at UK Finance, said: “Cards are being used for more payments than ever and it is right consumers who want to pay with cards will not have to pay extra fees to do so. Ending the practice of surcharging is great news for everyone who uses a card and we are pleased these measures will soon be in place.”