While the issue of credit card surcharges is often discussed, not many of the arguments against them mention how debit cards can also be affected.
But some companies lump all cards together and charge excessive fees for paying with plastic, particularly when it comes to airlines.
While companies accepting debit cards and credit cards do face charges from the processors (Amex, MasterCard, Visa etc), these are usually below 1% of the total transaction and only ever go up to 2%.
But research has shown these charges could be six times as much as that when you pay by card for your airfares.
Qantas, for example, charges $2.50 for domestic purchases and $10 for international flights made on a debit card if you book a week or more in advance.
While Qantas at least separates debit cards from credit cards (which incur a $7 fee for domestic flights and a $30 one for international tickets), Virgin does not.
Domestic flights with Virgin will cost an extra $7.70 if you use a credit card or a debit card and it is $30 for international bookings.
Tiger Airways, on the other hand, charges an $8.50 booking fee for any online purchases.
With some domestic flight options costing $100 (or less), these charges could cost you anywhere from 2.5% to 8.5% – a lot more than the estimated 0.89% that it costs to process a MasterCard or Visa card.
Changing Surcharge Conditions
In response to research around these excessive surcharges, the Reserve Bank of Australia revised its surcharging standards to help limit excessive costs to consumers.
“The Standards now allow card scheme rules to limit a merchant’s surcharge to ‘the reasonable cost of acceptance’, which includes – but is not limited to – the merchant service fee that the merchant pays to its financial institution,” the RBA outlined.
“The Standards therefore continue to ensure that merchants have the freedom to impose surcharges on the cards they accept, and that they can fully recover their acceptance costs.”
The RBA also said that alternative payment options that do not incur a surcharge should also be offered to customers.
While these new standards came into effect in March 2013, there has not been much change to the charges you have to deal with when you book flights online.
Consumer action group CHOICE, which has been behind the issue for years, has said that airlines “flout Reserve Bank rules”, with new research suggesting people are still being charged as much as before.
The latest survey commissioned by CHOICE found almost half of all Australians who reported paying a credit card surcharge in the last three months said they were not offered or made aware of an alternative, surcharge-free payment method.
The research also found that 44% of respondents who used their credit card in the past three months reported paying a surcharge.
“Meanwhile the worst surcharging offenders are openly ignoring Reserve Bank of Australia (RBA) rules designed to limit these fees,” CHOICE said in a media statement.
CHOICE said it is “obvious the new surcharging rules are not working as intended” and has welcomed the Federal Government’s intervention, referring the issue to the Commonwealth Consumer Affairs Advisory Council.
The consumer group’s CEO, Alan Kirkland, also noted that merchants have had more than enough time to revise their position on these fees.
“The worst excessive surcharging offenders – Cabcharge, Qantas, Virgin Australia, Jetstar and Tiger – have continued charging Australians millions more in surcharges than it costs to process these transactions,” he said.
“We urgently need strong enforcement and policing of the surcharging rules, beyond what Visa and MasterCard can bring to bear through their commercial dealings.”
While regulation bodies like the RBA and consumer watchdog groups like CHOICE are doing everything they can to reduce these costs when you want to pay with a debit card or credit card, it may take more than them to get airlines to change their ways.
And now it seems Australians have had enough. The Commonwealth Consumer Affairs Advisory Council – a body of experts advising the Treasury – recently conducted a surcharge survey that received more than 2000 responses.
The results of this survey, which the Federal Government reviewed in mid-June, showed a “palpable rage” towards merchants that apply surcharges.
Airlines bore the brunt of the attack from consumers, with high surcharges that made people feel they were being ripped off for making payments in what often seems the most convenient way online.
Nearly 40% of all people who completed the survey complained about airline surcharges, often referring to costs of up to $17 for flights that are advertised at less than $100.
That works out to be over 17% of the total ticket price, and both MasterCard and Visa have said airlines should not charge much more than $1 for these transactions.
In an interview with News Limited, Assistant Treasurer David Bradbury said that these costs were particularly concerning for people shopping online where cash is not an option and other payment methods are often too unfamiliar to feel safe.
Airlines, on the other hand, appear to be aware of the issue and may even be planning to change their approach, according to News Limited, which reported:
“One airline told News Limited the new RBA rules were so confusing its lawyers had hired other lawyers just to interpret them. That airline is willing to accept a cut in surcharges, as long as it doesn’t end up losing money on accepting payment by card. Another airline expressed a similar view.”
Consumer feedback so far has, at the very least, got the attention of airlines.
So while using your debit card and credit card for airfares is currently a costly exercise, there is hope that our feedback will help reduce these fees in the near future.