Payment surcharges occur in a wide range of industries, not just the airline, ferry and rail industries which were identified in the Which? super-complaint. In addition, businesses impose a range of different surcharges both in terms of the level of charges and the way in which charges are calculated.
As a result we do not have a figure for the total expenditure of UK consumers on payment surcharges. However, if we look at just 10 major airlines operating in the UK the OFT estimated that in 2010, UK passengers spent around £300 million on payment surcharges.
Broadly yes, however we do not believe it is necessary to tackle separately the three features raised by Which?
We agree with Which? that payment surcharges make price comparisons more difficult for consumers, which can weaken competition between traders, and result in consumers making uninformed choices between competing providers. We also consider consumer detriment is exacerbated when the lack of transparency is combined with a lack of practical alternatives for consumers to avoid paying the fee.
The OFT believes that making the headline price achievable for the majority of consumers (by prohibiting surcharging for debit cards) and improving the overall presentation and transparency of the surcharges that may apply to other payment mechanisms, will open up surcharges to competitive pressures, which may be expected to reduce the level of surcharges over time. We have, therefore, not considered it necessary to reach a conclusion about whether surcharges in the passenger transport markets are excessive.
We have already discussed our proposed solutions with the airline, ferry and rail ticket intermediary companies. Some already do not charge for using a debit card and several others have already agreed with our proposals to remove debit card charges and improve the transparency and presentation of payment surcharges.
We will continue to work with these traders to ensure their proposals are implemented as soon as is practicably possible.
For those traders who are not willing to make voluntary changes the OFT will consider action under the Consumer Protection from Unfair Trading Regulations 2008, including, where necessary, initiating court proceedings. If court action is necessary, such a process could take a year or longer to conclude. We will endeavour to progress the investigation as efficiently as possible.
In terms of a long-term cross economy solution, we are recommending that the Government introduce measures to prohibit traders from levying surcharges for debit cards, which could take two years or longer to implement.
Consumers may still suffer detriment when surcharges lack transparency, even if they are capped at the cost, to the retailer, of processing payments. Traders' costs can vary and therefore, in the absence of clear and early information and a practical 'free' payment mechanism, consumers might still find themselves facing unanticipated and unavoidable surcharges that may be lower or avoidable with an alternative retailer.
However, if surcharges were limited to traders' direct costs of processing payments it would clearly reduce consumer detriment substantially.
The Consumer Rights Directive (CRD) - the final text of which is yet to be agreed - may impose a limitation upon the level of surcharges and dependent on how it is implemented in the UK this may be sufficient to address the OFT's concerns. We will work with the Government to ensure that the CRD is implemented in the most effective way.
Which? focused its super-complaint specifically upon this sector and surcharges do appear to be more common in the passenger travel industry.
However, our views on surcharging apply across all commercial traders in the UK. Headline prices should include all charges which are effectively compulsory and those surcharges that apply to other payment mechanisms should be provided in a clear and timely manner so that consumers can make informed choices.
If necessary we will consider enforcement action in other sectors in due course, consistent with the OFT's wider prioritisation principles.
Before taking court action, we are required to provide parties with the opportunity to address our concerns voluntarily and for parties, where appropriate, to agree formal undertakings. We have begun this process during the super-complaint 90 day timetable and a number of traders have engaged positively with these informal discussions and made commitments to change.
However, we will not wait indefinitely and if individual traders do not make changes we consider sufficient in a timely manner, we will consider enforcement action to ensure compliance.
It's a possibility. If surcharges are driven down it is possible that traders who rely on them for profit may increase other charges, such as headline prices or fees for optional services.
But, as long as all charges are transparent and effectively compulsory charges are not separated from the headline price, consumers should still benefit from being able to compare the total price better. This is expected to strengthen competition between traders, and this competitive pressure may in turn reduce total charges.
We have not proposed wholesale regulation of surcharges, only that traders should include the costs of processing debit cards in their headline prices, and that they improve the transparency and presentation of other surcharges. We are of the view that traders could do these things quickly and easily, and as a result avoid any future action from the OFT.
Regulatory change, takes time and in the interim the OFT is of the view that this lack of transparency is resulting in significant ongoing consumer detriment and could be a breach of the Consumer Protection from Unfair Trading Regulations 2008 (CPRs). If traders do not improve the transparency and presentation of surcharges the OFT will take action to help consumers.
We believe that free markets based on properly informed consumers able to make realistic choices generally deliver the best outcome for consumers. We are looking for businesses to present prices to consumers in a meaningful and timely manner which facilitates their ability to compare full offer prices across traders, strengthening competition between traders. Making the headline price achievable for the majority of consumers and making sure other payment surcharges are clear and transparent we believe will put pressure on traders to reduce these charges to the competitive level over time.
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