New regulations that ban businesses from imposing excessive fees on consumers making payments will extend to small businesses from 12 June 2014.
The Consumer Rights (Payment Surcharges) Regulations 2012 (the 'regulations') - the first of many legislative changes that form part of the major ongoing overhaul of consumer protection legislation - came into force for most businesses on 6 April 2013.
However, there was a temporary exemption for small businesses and some new businesses that expires on 12 June 2014. Such businesses will have to step into line with others and comply with the new rules for contracts entered into from that date.
What is a small business?
Small businesses are defined as those with fewer than 10 employees.
What are the new rules?
The Regulations ban those acting in the course of a business from imposing excessive charges on consumers in relation to making payments.
Essentially, businesses are allowed to recoup the cost of processing payments from consumers, but no more.
The rules are not restricted to fees charged for paying by credit or debit card, although clearly this is where surcharges are most frequently seen. Businesses should be aware of the following points:
- The ban does not affect fees that are the same regardless of the payment method used, i.e. processing or booking fees or administration charges. It only applies where the size of the fee is based on the method of payment
- Businesses are only entitled to recover direct costs exclusively attributable to the method of payment being used, so general overheads cannot be included but merchant service charges payable to banks, for example, can
- Traders cannot seek to get round the ban by presenting lower charges for using certain payment methods as "discounts" from the headline price; the same rules will apply
- The rules apply regardless of how the sale is made, including shop sales, online and telephone sales etc. However, the rules do not apply to certain business sectors, for example contracts to provide health services and gambling contracts
What happens if businesses get it wrong?
It is important that businesses are aware of the new rules and review their processes to ensure that they are compliant, because:
- Any obligation to pay an excessive surcharge is unenforceable against a consumer, meaning that a consumer is not legally obliged to pay it, and there is an automatic obligation on businesses to repay any excess, meaning that consumers are entitled to a refund and could sue to recover any overpayment
- Businesses that breach the rules are also at risk of enforcement action being taken against them
If you would like any support or further information on the changes, please contact us.