The following article is by Paula Macfarlane Senior Solicitor, ABTA for Travel Law Today 4th ed. which can be downloaded from ABTA's Member zone and read here.
Find out more about credit and debit card charges at our forthcoming seminars:
Travel Finance Conference – 20 February (London)
A Beginner’s Guide to Travel Law – 5 December (Manchester)
Essential Business Travel Law – 25 January (London)
Travel Law Seminar – 22-23 May (London)
The travel industry has had a difficult time in recent years over the charging of fees where customers wish to pay by credit card. The current law, which restricts the amount of any fee to the amount of any charges incurred by the trader, has been widely misinterpreted by consumers and the press and we have seen articles accusing the travel industry of ripping off customers by charging fees. Whilst all sectors of commerce are subject to these rules, it is the high average transaction values of holidays that make this a much more visible issue in the travel industry. And the story is not over yet. The Payment Services Directive 2 comes into effect from 13 January 2018 and, from that date, businesses will not be able to charge any fees for taking payment by personal debit and credit cards when selling goods or services. Again, this doesn’t just affect the travel industry; it applies to payments for all goods and services.
Why is this happening?
In December 2015, EU rules put a cap on the level of interchange fees that could be charged for any card transaction. Interchange fees form part of the merchant service charge paid by businesses to their payment service providers. The EU believes that, as a result of that cap, charges faced by businesses should have reduced and there should be less need to pass these costs on to consumers by way of separate fees for paying by card. However, as the cap was expressed as a percentage of the transaction value rather than a fixed amount, the level of charges faced by travel companies has not reduced and, in many cases, has increased. For example, interchange fees on debit cards used to be 8p and are now 0.2%. Therefore, the interchange fee on a £1,000 booking has increased from 8p to £2.
What cards are affected?
The ban on charges will apply to all personal credit and debit cards, including American Express, but does not apply to commercial cards which are cards issued to businesses which are limited in use for business expenses where the payments made with the cards are charged directly to the account of the business. The ban applies to PayPal too, and other arrangements for making payments such as Apple Pay. The new Regulations are written widely and will catch any personalised device or personalised set of procedures used to initiate a payment order.
Does the ban only apply to customers in the EU? The new law will be based around whether the payment service providers of both the payee and the payer are located in an EEA state. If your provider is based in an EEA state (EU countries plus Iceland, Liechtenstein and Norway) then:
The ban will apply where your customer’s card is from a provider based in the EEA
If the customer’s card is from outside the EEA then the total ban on charging won’t apply. The current rules will however apply – that you can charge a fee but only at a level to cover your costs.
What should you be doing now?
Prepare for the fact that, from 13 January 2018, when a client pays with a personal credit or debit card, unless your payment service provider, or the customer’s payment service provider is based outside the EEA, you won’t be able to charge them a card fee. If you set your own selling price, you may choose to increase headline prices to deal with this loss of revenue. If you’re an agent that can’t control the price, you might consider charging a booking fee. This would need to be applied to all bookings, not just those where payment is taken by card. If you applied a booking fee only where a card was used, this would be the same as charging a card fee and would breach the new law. Consider if you will offer clients other methods of payment such as bank transfers if these are lower cost for you. Consider if you will be able to offer incentives to your clients to use payment methods other than cards. The latest advice from the Government is that you can offer non-monetary incentives, such as free access to airport lounges for example, but that money off incentives are likely to breach the law. It’s important to shop around when selecting a merchant acquirer. You might be able to find a better deal to lower your costs.
Is this the end of the story?
When the Directive was being approved by the EU, ABTA spelled out the negative impact of a ban on card charges on the travel industry. In common with most consumer legislation, it can be very difficult to get the EU to overturn any legislation that they view as beneficial for consumers. Although we were not able to overturn the ban, we did manage to maintain the right for businesses to refuse card payments, or to encourage customers to use other methods of payment available. We are continuing to raise our concerns with the Government about the issue of interchange fees and the high costs incurred by our Members when taking card payments. Meetings with the Treasury have achieved a recognition by them that interchange fees have increased, and statements that the Government is committed to engaging with industry on the issue, and will be encouraging the Payment Systems Regulator (PSR) to conduct a review of the business impacts of the Interchange Fees Regulation. However, any change will not be immediate and all companies should plan for the changes to come in January.