Goodbye to the Extra Credit Card Charge! - Carrington Dean stars-five-icons

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23.01.2018

Goodbye to the Extra Credit Card Charge!

Last week, one of life’s little annoyances was finally sorted out – the Credit Card charge, when you are charged simply for using your card to pay. No longer will you have to pay to pay, or be punished for ordering takeaway when you don’t have any cash to hand. But, has making this charge illegal really changed anything for the consumer? Or will companies simply come up with new, and equally annoying, ways to take a little bit more of our hard-earned money?

The law in question, announced in July 2017, is the result of an EU directive, but has been added to by the Treasury so that American Express card holders, and PayPal and Apple Pay users will also benefit.

Credit Card charges

More and more people are choosing to live a cash-less existence. Innovations such as contactless, android pay, and other apps have made it increasingly more useful to rely on plastic and technology to pay. But, haunting this convenient, futuristic utopia has been credit charge charges – an excuse to charge you just to be able to spend your own money.

Conservative estimates of the amount that these surcharges were costing consumers are at £316 million a year in 2010. It’s possible that this number was as much as £630 million. Companies got so used to being able to rely on these fees that it became a significant part of their business model. ‘Payment card/admin fee revenue’ accounted for 13% of Just Eat’s 2016 revenue, for example. Even government departments were in on it – the DVLA’s flat fee of £2.50 on credit card payments of vehicle tax accounted for approximately £8.5 million a year. Ryanair, Easyjet, and Flybe all had previously charged Credit Card fees between 1-2.5%, as had many major cinemas.

All these unnecessary charges are now gone, so does this mean a brave, new world where companies stop trying to take advantage of the consumer? This is unlikely. Flybe has openly criticised the ban by reasoning that it ‘will inevitably result in price increases as businesses seek to recoup the associated costs they incur, which includes processing usage and covering fraudulent transactions.’ They add,

‘This will disadvantage the majority of those who now choose to rather pay for goods and services by cash or with a debit card.’

Similarly, consumer body Which? has reacted with caution, rather than jubilation, simply stating that ‘the government and regulator need to closely monitor the situation’.

The End of Taking Advantage of the Consumer?

Already, evidence is mounting that Which? is right to be cautious. With a potential cumulative profit of £630 million on the line, companies were unlikely to simply accept this new ban. It has only been a week, but already, a number of companies have found inventive solutions to continue charging their customers a little bit extra.

Just Eat has chosen to replace their scrapped 50p card payment with a 50p ‘service charge’ on all their orders, regardless of the use of a card or cash, and described this move as ‘fairness for all’. Similarly, many cinemas will continue to charge a ‘booking fee’ online, and could even raise that amount to cover their losses.

On the other hand, HMRC has chosen to take away the option to pay using a credit card entirely, and it is notable that they argue that they have never made money off their previous 0.8% surcharge. Indeed, their reasoning for removing the ability to pay with a credit card is that now, the only way to afford the fees that come with credit card use would be to spend taxpayers’ money on it. A spokesperson said:

‘There is a range of ways for people to pay us depending on the type of tax being paid, including debit cards, direct debit, Faster Payments and Bacs’.

It is also important to note that shops and pubs can still enforce a minimum spend before they will allow you to use a card. This means you may not be paying extra for nothing, but you are still being obligated into spending more than you otherwise would, and those little amounts can add up.

The Impact on the Consumer 

Ultimately, companies might actually make a greater profit from the outlawing of credit card charges as now many of them are choosing to charge all their customers, rather than just those who use a credit card. However, some companies, particular those who did not make a large profit to begin with, or who are government bodies, such as the DVLA, seem accepting of the new law, so this, at least, might work in our favour.

Another issue, that hasn’t really been discussed, is how this move makes it even easier for people to use their credit cards which, let us not forget, puts us into debt. HMRC’s decision to no longer offer credit card payments all together is the most pertinent example. While many would argue that getting into debt to pay your tax is poor financial practice, and this is true, there are some people who are financially struggling to the extent that the alternative is falling into tax arrears. For those people, credit card debts, which are ‘non-priority’ debts with less significant penalties for delayed repayment, are preferable to tax arrears, which can result in very punitive measures taken against you.

If you are struggling with your debts, it may be worth exploring a debt solution, such as a Trust Deed or IVA. Contact us today and we can help you understand your options and find you a solution for your situation.