The debate over credit card pricing took a new twist in May 2016 when the Australian government instituted a ban on "excessive" merchant surcharging. The new "surcharging standard states that consumers paying with Visa Inc., MasterCard Worldwide and American Express Co. credit and debit cards, as well as locally branded cards, cannot be surcharged "in excess of a merchant's cost of acceptance for that card system."
The new rules – which apply only to cards issued by Australian banks – detail costs that can be included in surcharge calculations and require that surcharges be set at a percentage of each transaction. "Acceptable costs will be limited to fees paid to the merchant's acquirer (or other payments facilitator) and certain other observable costs paid to third parties for services directly related to accepting particular types of cards," the Reserve Bank of Australia explained in a set of questions and answers published in tandem with the new regulations. To achieve this, acquirers will have to provide retailers with annual statements that clearly explain the average cost of acceptance for each regulated card system, in percentage terms, the RBA said.
The largest retailers in Australia (yearly revenues exceeding $25 million) will be held to the new regulations beginning Sept. 1, 2016. All other merchants have an additional year, until September 2017, to begin complying. Noncompliance carries a hefty price tag: as much as $100,000 (US) for each infraction. The Australian Competition and Consumer Commission (which is akin to the U.S. Federal Trade Commission) will oversee compliance.
The RBA, which is Australia's equivalent of the Federal Reserve, has long been critical of interchange. In 2001, Australia became the first country to regulate interchange.
Those regulations capped fees assessed for merchant acceptance of MasterCard and Visa credit and debit card payments, as well as those assessed in domestic card schemes. (AmEx and Diners Club cards were exempt from the regulations because there were no explicit interchange fee charges for those card schemes.) The regulations also eliminated the "no surcharge rules" MasterCard and Visa had imposed on card-accepting merchants.
The RBA's interchange regulations are often referenced by both proponents and opponents of interchange in public debates in the United States. They were cited repeatedly as Congress deliberated over the Durbin Amendment to the 2010 Dodd-Frank financial reform legislation. That legislation led to the capping of debit card interchange at 21 cents per transaction in 2012, which was less than half of the average interchange fee on debit card payments at that time.
The RBA said it was compelled to revisit its position on surcharging because of complaints that some businesses were imposing excessive surcharges, particularly on small-dollar transactions. "With the cost of acceptance defined in percentage terms, merchants will not be able to impose high fixed-amount surcharges on low-value transactions, as has been typical for airlines," the RBA said in a statement.
The ACCC said it will be monitoring compliance closely. "We will focus on education and awareness in the early stages but won't turn a blind eye to possible breaches, particularly for those large businesses clearly on notice of these charges," ACCC Chairman Rod Sims said in a statement.
Visa and MasterCard historically opposed card surcharging and enforced that opposition with rules banning the practice. But the card companies were forced to relent under terms of an out-of-court settlement reached with retailers in 2013. Card company rules have since been changed to permit surcharges on credit card payments, not to exceed 4 percent of the payment amount. But debit card surcharging is still off limits. Also, the laws in 10 states currently restrict or ban surcharges, although most permit retailers to offer discounts for cash and check payments. The 10 states prohibiting surcharging are California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas. Several of those state laws have are being challenged by merchants in federal courts, with mixed results.
In 2015, a federal court upheld the New York law banning surcharges but allowing discounts, as did a federal district court in Texas. However, a federal appeals court in Florida took a different stand, ruling against Florida's no-surcharging law. The Florida Attorney General's office stated in early 2016 that it will file a motion to appeal that decision to the U.S. Supreme Court.
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