Excessive card charges to be banned
Shoppers will no longer have to pay inflated card charge fees, following the government's decision to ban excessive debit and credit card charges.
Online retailers have been criticised for profiting from card charges but from the end of 2012 retailers will only be able to charge customers the costs of processing a card payment without adding on any extra costs. A consultation into card charges will begin at the start of 2012.
Kevin Mountford, head of banking at MoneySupermarket.com, says the government's ban will "provide greater transparency and stop certain companies hiding behind artificial transaction costs".
He cites a MoneySupermarket.com report looking at the travel market, which found that one particular airline was charging £6 per passenger for both outbound and return journeys despite the fact that this was a single transaction.
"Given that in reality, card transaction fees range between 2% and 6%, this would have resulted in costing twice what it needed to be," explains Mountford.
The government's ban follows an Office of Fair Trading (OFT) report in June this year, which investigated the travel industry in particular. It found many customers had to click through several web pages before knowing the total cost when booking fees were eventually added on.
The OFT recommended a ban on debit card charges and greater clarity about charges on traders' websites – but, as a regulatory body, didn’t have the power to enforce these measures.
Consumer campaigner Which? has welcomed the government's announcement, calling the ban on rip-off card surcharges "a huge victory for consumers".
"This announcement goes further than the OFT's proposals, finally putting an end to these unfair and excessive charges," says Which? executive director Richard Lloyd.
Although the ban won't come into effect until the end of 2012, Lloyd urges retailers to respond positively sooner: "We want companies to be upfront and fair over card charges today".
Issued by a bank as part of a current account and, in a nutshell, serves as electronic cash. Unlike a credit or charge card, where you get an interest-free period before you have to settle the bill, the funds spent on a debit card are withdrawn immediately from your current account. Unless you’ve arranged an overdraft, if you don’t have the cash in the account, you can’t spend it.
Used by the holder to buy goods and services, credit cards also have a monthly or annual spending limit, which may be raised or lowered depending on the creditworthiness of the cardholder. But unlike charge cards, borrowers aren’t forced to pay the balance off in full every month and, as long as they make a stated minimum payment, can carry a balance from one month to the next, generating compound interest. As the issuing company is effectively giving you a short-term loan, most credit cards have variable and relatively high interest rates. Allowing the interest to compound for too long may result in dire financial straits.