The public and the media are becoming much more aware of their rights due to new rules about credit and debit card charges, so companies need to avoid the pitfalls, says Paula Macfarlane, senior solicitor at Abta
Abta has a history of working closely with government departments to ensure that industry pricing is clear and transparent for consumers.
Our work with the Office of Fair Trading (OFT) to ensure all non-optional charges are included in headline prices being the most recent example.
This was a significant issue within the industry at the time with clear potential for confusion and consumer detriment with a whole raft of charges being excluded from headline prices.
The practice of companies making charges for credit and debit card payments was excluded from this process as long as they offered customers at least one payment option which did not attract a charge.
However the law has now changed and new guidelines from BIS and the OFT change the way all businesses are permitted to set card charges.
In summary, debit card charges must be included in prices and credit card charges, while they can be added to the price, must be no more than the cost to the business of taking the payment and we have just produced updated detailed guidance for Abta members on abta.com
In respect of debit cards, the OFT’s guidance states that paying by debit card is unavoidable for most people and therefore the cost should be in the price.
Even if there is an alternative free method of payment such as a prepaid credit card, this is not used by the majority of people.
If companies wish to continue making charges for debit cards this can only be done by raising the initial main price charged to customers.
With credit cards, it will still be legal to make a charge for payments but this charge cannot be more than the cost to the business of taking the payment.
Currently many travel businesses charge a standard 2.5% on credit card payments. This might still be acceptable, as using a percentage charge is still permitted, and the BIS guidance doesn’t state that this necessarily needs to be lowered.
However businesses will need to carefully calculate the actual cost to their business of taking payment by credit card and make sure their charges are not above this cost.
The costs which they can legitimately take into account include the Merchant Service Charge and IT and equipment costs for the particular payment method, such as card
Companies may also include costs associated with risk management, active fraud detection and prevention measures and also any processing fees attached to reversing or refunding a payment.
There has been some publicity given to figures previously published by the OFT of a typical 2% charge for credit cards and 53p for debit card payments. Companies should not rely on these figures as they were only intended to give an estimate of the kind of costs involved.
Companies must assess their own costs and charge accordingly.
This is an important area to get right, customers are aware of their rights and the media has already been targeting travel companies to ensure that they are not breaking the law.
In addition to the Government’s own guidance, Abta members should check our own detailed guidance, available on abta.com
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