From 1 January 2003, as a result of
recent reforms introduced by the Reserve Bank, merchants such as
shop keepers, trades people, utility and other providers have had
the right to charge a fee for accepting payment by credit card.
Previously merchants had to pay their bank for each credit card
payment but were enable to recover the cost from consumers who pay
by way of credit card. (This fee varies between banks but is usually
between 2 and 5 per cent.)
In the January edition of her email newsletter
‘Smart Money’, financial counsellor Sheila Freeman claims that,
despite spending three years reviewing the operation of credit card
schemes in Australia, the Reserve Bank has not considered all the
implications of this reform for the consumer. Though recent media
reports indicate that most businesses are not yet charging for
credit card payments, preferring to adopt a wait-and-see approach,
Ms Freeman believes that all traders will be adding this fee within
twelve months. ‘After all,’ she says, ‘ they are in business
to make money.’
According to Ms Freeman, ‘This means that, once
again, consumers will be ‘ripped off’. This surcharge will have
already been factored in as a normal operating expense of the
business, that is, when a trader prices items for sale, all on-costs
(rent, power, rates, salaries, bank charges and so on) are included
as a percentage added to his cost price. Therefore, in theory,
traders that impose a credit card service fee on customers should
firstly reduce the selling price of their stock by the amount
previously added to compensate for the bank charges.
Ms Freeman doubts that traders will do this.
Instead, she states, ‘the customer will be paying twice for the
convenience of using a credit card – a ‘double whammy’, in
effect. Also, as there is no cap on the amount that can be charged
as a credit card ‘service fee’, merchants are able to profit
further by imposing a higher ‘service fee’ on the customer than
the merchant pays to the bank. In fact, the Reserve Bank has already
received a complaint from a woman who booked theatre tickets on her
credit card and was charged an additional $2.70 per ticket.’
Ms Freeman outlines other ways in which this surcharge will
impact on consumers:
- Customers who avoid the surcharge by paying cash can still be
affected, for example, by missing out on the frequent flyer
points obtained with credit card payments (though the money
saved by not paying the credit card surcharge could go towards
purchasing a flight for cash).
- An increase in cash transactions has further implications, for
example, for taxation (creating more opportunities for ‘black
market’ activity) and crime rates (thieves are more inclined
to steal where cash is kept on premises).
- Those most affected will be the people who operate their
mortgage as a home equity loan. (A Home Equity Loan is when all
your income is deposited onto your mortgage and all purchases
are bought on the credit card, which is paid out at the end of
the month.) Paying an extra 4 per cent to use a credit card will
mean that the interest rate on the home loan will increase by
this percentage; this also means interest is incurred even if
the card is paid out before the due date.
- Consumer debt will escalate dramatically if a credit card is not
paid out before the due date, that is, 16 per cent interest will
be charged, then a 4 per cent surcharge added, and even
more interest on that 4 per cent!
Ms Freeman claims that the Reserve Bank has not adequately
explained the security measures with regard to these new rules for
credit card fees, and asks:
- Which credit law ensures that this sort of over-charging does
not happen?
- Does ASIC or the Reserve Bank have any power to ensure that
merchants adhere to honest and fair practices with regard to
credit card service fees?
