A Variation to the Surcharging Standards:
Final Reforms and Regulation Impact Statement – June 2012
4. The Draft Variation to the Standards
The Payment Systems (Regulation) Act requires the Bank to publish any proposed variations to standards for public consultation. Accordingly, the Bank published a consultation document setting out its reasoning for its proposal and draft variations to the surcharging Standards on 16 December 2011 – A Variation to the Surcharging Standards: A Consultation Document. This document followed an earlier consultation document, Review of Card Surcharging: A Consultation Document, published on 8 June 2011, that set out the Board's preliminary proposals for addressing concerns regarding surcharging practices.
The main element of the draft variation was to allow card scheme rules to impose a limit on surcharge levels. Specifically, the draft variation provided that neither the rules of a designated card scheme nor any participant in the scheme could prohibit a merchant from recovering part or all of the reasonable cost of acceptance by charging fees or surcharges to credit cardholders. The practical effect of this provision of the draft variation would be that scheme rules would be able to impose some limit on surcharge levels, but they could not prevent merchants from fully recovering their costs. The provision also clarified that card scheme rules could not prevent a merchant from differentially surcharging different card products either within a card scheme or across card schemes.
The reasonable cost of acceptance was left largely undefined; the merchant's cost of acceptance includes, but is not necessarily limited to, the applicable merchant service fee. This approach was deliberate, to recognise the difficulty in capturing the difference in the types of acceptance costs faced by merchants in different industries. To define these costs prescriptively would risk including costs that could not always be attributed to a particular card's acceptance or excluding some legitimate costs of card acceptance. Nonetheless, the draft Standards clarified that the merchant could determine the cost of acceptance by reference to:
- the cost to the merchant of the card transaction in relation to which the fee or surcharge is to be levied (i.e. a different surcharge for each different card type);
- the average cost to the merchant of acceptance of all credit cards of all types issued under the scheme (i.e. a single surcharge for all credit cards for a particular scheme. The same would be true of all Visa Debit cards under the Visa Debit Standard); or
- the average cost to the merchant of acceptance of a subset of credit cards issued under the scheme that includes the type of credit card in relation to which the fee or surcharge is to be levied (e.g. one rate for ‘standard’ card transactions and another rate for ‘premium’ card transactions. The same would be true of
Under the draft Standards, merchants would also be able to apply a surcharge on either an ad valorem or a flat-fee basis, though schemes could ensure that merchants following either approach could recover no more than their reasonable acceptance costs, measured by one of the approaches outlined in (i) to (iii) above.