This legislation includes a comprehensive ban on businesses passing on to consumers any charges levied on the business for making payments by card, regardless of any additional charges applied by banks to businesses. According to the European Commission’s own figures, the ban will apply to 95% of all card payments in Europe and will save consumers approximately €730 million per year.
It is worth noting that draft UK legislation has already been published, to put the EU legislation on a domestic footing. The UK legislation is close to becoming law, so it is unlikely that it will be hindered by the current Brexit climate. That said, whether any future updates or amendments to the new rules will be implemented is uncertain.
At the time of writing, businesses can pass on to consumers all charges that genuinely reflect the costs involved in debit or credit card based transactions, which are payable by that business. The new rules seek to bring an end to this mechanism. As well as reforming the payment services market, it is hoped that this will increase competition and provide additional protection to consumers from hidden charges. In most cases, this means that the final price of an item cannot change depending on the customer’s method of payment. In short, any additional charges, which would make the price different for consumers who paid in cash, compared to a debit or credit card will no longer be allowed, irrespective of how this is achieved.
Following consultation, the Government is well aware that these rules will ultimately have an impact on the profits of businesses, whose customers or clients use card payment as the primary method of payment. That is unless businesses take these increased overhead costs into account by raising prices.
There is, however, an important exception to transactions involving a “commercial card”. A commercial card means a payment instrument used only for business expenses and charged directly to the account of the business, whether that is an undertaking, or public sector entity, or self-employed natural person. These card transactions often involve higher fees for the business and an exception is understandable considering the policy goal is consumer protection and transparency. Despite the narrow scope of the exception, the practical upshot is that everyday business to business transactions using company cards are unlikely to be affected by the ban. Business to consumer card transaction charges will only be permitted by new or micro businesses.
Business owners will no doubt be looking for an answer as to whether or not there is a loophole that they can use to avoid the shortfall in income caused by the ban. Given the European Commission’s wishes to ensure that customers have transparency as to pricing, it is clear that the days of additional charges for card use in consumer transactions are extremely numbered.
If you would like further information on this matter, or if you are unsure whether your business will be affected by the ban, please contact James Hopgood.