Legal: no more charges

Changes to credit card payment surcharges will have an impact across the travel supply chain

The present regime for charging for the use of credit cards (‘surcharging’), is that traders may only pass on the true cost to them of taking the card payment. Since the significant reduction in interchange fees, the real price of taking payment by card has fallen dramatically. Many traditional percentage-based charges are, therefore, no longer appropriate and may be attacked as unfair. However, the entire landscape in this area is about to change with the introduction of the revised EU Payment Services Directive 2 (PSD2) in the UK. This will ban surcharging on the use of credit cards for payment with a wider scope than anticipated, and by new rules which come into force on January 13, 2018.

As part of the implementation of PSD2 into English law, the government has conducted a consultation with interested parties which included ABTA, AITO, ATOL, British Airways and Lufthansa, who no doubt expressed their views as to the cost of implementing the proposed ban on card surcharges.

As might be expected from financial legislation, the language of PSD2 is extremely complex, and covers a range of proposed changes in the financial sector. Hidden within the response of HM Treasury to the discussion process is the detail of the consultation and the government policy decision. This noted that a number of respondents thought that there should be no surcharging ban (which is not an option under PSD2) or that the ban should not be extended further. These objections to the ban stemmed from the restrictions it places on being able to pass costs on to the consumer.

Other respondents who said there should be no surcharging ban argued that a second-best outcome was extending the ban to “all payment instruments”.

Those respondents proposing a complete ban on surcharging argued it would increase competition by providing a level playing field, and further that a ban on all surcharging would be easier to enforce, thus helping to protect consumers.

The government response sets out that it decided to extend the surcharging ban to “all retail payment instruments”, to create a level playing field and to present a clearer picture for consumers that would enable them to be confident there would be no additional charges when they come to pay. The government agreed that a blanket ban on all surcharging for all retail payment instruments would be easier to enforce, rather than having to analyse which costs might and might not be passed on to the consumer.

What does this mean?
The statement of government policy set out in the HM Treasury response to the consultation clearly indicates that the scope of PSD2 and the ban on surcharging will extend to payment methods such as PayPal and American Express. This new extension has taken some traders by surprise, and requires last-minute changes to their business models. The ability to broaden the scope of PSD2 is contained in the (again complex) Payment Services Regulations 2017. The final draft of the Regulations (PSRs) was laid before Parliament on July 19, 2017. As the Regulations merely implement the Directive, it is highly unlikely that any changes will be made to the final draft PSRs as they progress through Parliament to become implemented under English law from January 13, 2018.

It seems that the surcharge ban is not limited to consumer-driven transactions but will also affect business travel where a card is used. Card charges incurred by traders in the travel business will have to be absorbed, and may result in price increases payable by users of the service provided. Given the frequency with which cards are used to purchase items such as flights or accommodation, these charges, once absorbed, will need to be included in the headline price for the services. Travel suppliers will need to ensure that their agents or sub-contractors are aware of these changes so that pricing models can incorporate any absorbed increase in cost.

Given the likely overall review of travel suppliers and agents’ commercial agreements to cater for GDPR (General Data Protection Regulation), this is an area that can be addressed now, to be ready and shipshape for the PSRs in January and GDPR in May 2018.

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