In our last bulletin we reported regarding the "Which?" super-complaint and ensuing UK Office of Fair Trading (OFT) investigation into payment surcharges in the passenger transport sector. Since then there have been further developments in this area.
Shortly after our last bulletin was published, in late June 2011 the OFT published its response to the "Which?" super-complaint, following its consideration of the various responses given by 60 interested parties who received a request for information regarding such charges from the OFT. Those parties included UK and other European airlines, tour operators, operators in the rail, road and ferry sector, banks and consumer organisations.
In its response, the OFT stated that on-line trading had created new concerns for consumers and one of the most significant was the concept of "paying to pay". Although the OFT's response considers all modes of transport, it noted that this practice is particularly prevalent in the airline sector because of the high proportion of on-line transactions where customers are unable to pay by cash, cheque or other method. Research conducted by the OFT indicated that UK consumers spent £300 million on airline payment surcharges alone in 2010 demonstrating that the amount spent by consumers on such charges is significant.
Further, additional market research of the OFT indicated that 87% of consumers in the UK object to credit card charges and 91% to debit card charges.
The OFT identified three main features which it believes result in consumer detriment. First, a lack of transparency where effectively compulsory payment surcharges are revealed towards the end of lengthy on-line transactions - the practice of "drip-pricing", much criticised in the "Which?" super-complaint, so that it becomes difficult for consumers to compare headline prices effectively. Second, the lack of any reasonable, practical alternative which could avoid the payment surcharge. And finally, the fact that payment surcharges often appear to exceed a reasonable estimate of the retailer's actual payment processing costs.
The Payment Services Directive and the Consumer Rights Directive
The OFT made two principal recommendations: First, it suggested that to reduce the detriment of "drip-pricing", the UK government should introduce measures to prohibit debit card charges by traders altogether so that the headline price is apparent immediately for the majority of consumers (debit cards being the most popular payment method according to the OFT's research). It noted that this objective could be achieved through the UK implementation of the Payment Services Directive (PSD) or the Consumer Rights Directive (CRD).
Article 52 (3) of the PSD, adopted on 13 November 2007, gives Member States the right to forbid or limit surcharges taking into account the need to encourage competition and promote the use of efficient payment instruments. However, this particular provision of the Directive was not transposed into UK law and was omitted from the Payment Services Regulations 2009 upon the recommendation of HM Treasury. However, the OFT went on to state that it considers that legislation on the issue would be more effective on an EU-wide level and referred to Article 19 of the CRD, which states as follows:
Fees for use of means of payment
Member States shall prohibit traders from charging consumers, in respect of the use of a given means of payment, fees that exceed the cost borne by the trader for the use of such means."
The CRD was adopted by the EU Council of Ministers on 11 October 2011, but will not come into force until 2013. In the meantime, the UK government has indicated that it intends to bring forward implementation of the provision in the CRD regarding payment surcharges by introducing new rules in the UK banning "excessive surcharges" on credit and debit cards by most "retail sectors" before the end of 2012. However, in practical terms it may prove difficult to enforce this provision, as it will be necessary to establish what the actual cost to an airline of processing a payment is. Not only would the actual cost paid by the airline to the payment provider need to be considered but also an airline's overheads such as the appropriate part of its staff, telecommunication and property costs would need to be taken into account, and these may not be easy to identify.
The Consumer Protection from Unfair Trading Regulations 2008
The OFT also stated that it would seek to improve transparency and overall presentation of payment surcharges on operators' websites through use of the Consumer Protection from Unfair Trading Regulations 2008 (CPRs), which prohibit misleading practices in consumer transactions that could lead consumers to take transactional decisions they would not otherwise have taken. The OFT stated that some traders have indicated that they are willing to change their practices in line with its recommendations by not charging for debit cards and by improving the transparency of the payment surcharges which they levy. However, for those traders that do not voluntarily make such changes or where commitments to change practices have not been implemented within a reasonable time, the OFT said that enforcement action would be considered.
Proposed Regulations for enforcement of Article 23 of Regulation 1008/2008
As most readers will be aware, the principal legislation in the EU regarding fare transparency is found in Article 23 of Regulation 1008/2008, and its provisions were discussed in our last article on this topic. The UK Department for Transport has appointed both the UK CAA and OFT to enforce Regulation 1008/2008 in the UK, and a Statutory Instrument which is currently in draft form is intended to provide formal enforcement powers to the CAA on pricing issues which were excluded from the main UK implementing regulations adopted in 2009. As noted in the OFT response, currently the CAA is enforcing Regulation 1008/2008 through its powers under the CPRs, under which the penalty on summary conviction for an offence would be a fine not exceeding the specified maximum (currently £5,000), or on indictment a fine or imprisonment for a term not exceeding two years.
The draft Statutory Instrument referred to above (The Operation of Air Services in the Community (Pricing etc) Regulations 2010), which will give the CAA direct enforcement powers in relation to Article 23 of Regulation 1008/2008, makes infringement of Article 23 a criminal offence, with a penalty on summary conviction of a fine not exceeding the specified maximum (currently £5,000).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.