In September 2018, the ACCC imposed an infringement notice against Fitness First for contravening the Competition and Consumer Act 2010 (Cth) (CCA) provisions relating to excessive payment surcharges. Fitness First has paid $12,600 under the ACCC infringement notice for its breaches of the CCA.
The imposition of payment surcharges is regulated by Part IVC of the CCA and the Reserve Bank of Australia Standard No.3 (Reserve Bank standard). The CCA provisions and the Reserve Bank standard operate closely together in regulating how businesses can impose payment surcharges.
The CCA prohibits 'excessive' surcharges under section 55B. The phrase 'excessive' is defined by reference to the Reserve Bank standard, where payment surcharges are deemed to be excessive if either:
- the surcharge is a type of payment covered by a Reserve Bank standard; or
- the surcharge exceeds the permitted surcharge amount provided in the Reserve Bank standard.
According to the Reserve Bank standard, a 'permitted surcharge' is an amount that does not exceed the company's cost of accepting the payment method. The cost of acceptance is defined as 'the average cost per card transaction' that is applicable for the payment method that has incurred a surcharge. As stated by ACCC Deputy Chair Mick Keogh, businesses "must ensure the surcharge amount does not exceed their cost of acceptance for any given transaction".
Excessive surcharging therefore occurs when a business charges their customers a fee to pay by credit card, debit card or certain other payment methods, and this amount is more than the business's cost of acceptance of the payment method. This means businesses can only pass the true cost of processing card transactions as specified by their bank.
The Reserve Bank has indicated approximate figures companies may charge, including:
- 5% for a debit card;
- 1% to 1.5% for a Visa or MasterCard credit card; and
- 2% to 3% for a bank-issued American Express card.
The CCA confers regulatory powers upon the ACCC in relation to excessive surcharging. The ACCC can issue infringement notices to obtain information that evidences a payment surcharge and the cost for payment processing. Furthermore, the ACCC can issue a penalty infringement notice against a business where it has grounds to believe that the business has breached excessive surcharging provisions. Companies that fail to comply with ACCC infringement notices also attract CCA statutory penalties and may have proceedings initiated against them.
Pursuant to section 55J of the CCA, the maximum penalties that can be imposed by an infringement notice for a breach are:
- $126,000 for listed corporations;
- $12,600 for a body corporate; and
- $2,520 for persons other than a body corporate.
Court action may also be taken against a business, in which the ACCC can seek pecuniary penalties, with maximum penalties of:
- $1,358,910 for a body corporate; and
- $271,950 for a person other than a body corporate.
Payment of a penalty infringement notice is not an admission of a contravention of the CCA.
From December 2017 until April 2018, Fitness First allegedly charged a 50 cent flat rate surcharge on memberships that were paid via direct debit through credit, debit and EFTPOS cards. For members on a 'Passport' membership at $46 per fortnight, the surcharge amounted to approximately 1.09%. Fitness First incurred a 0.81% processing cost for the debit payment methods.
As a result, the payment surcharge exceeded the cost of accepting the debit payment and therefore contravened the CCA. Fitness First was fined $12,600 after the ACCC issued an infringement notice for this contravention.
This highlights the risk that companies undertake when imposing flat rate surcharges. In particular, a flat rate charge for small amounts of money may go unnoticed and can easily risk breaching the CCA provisions. The ACCC stated "if businesses want to set a single surcharge across multiple payment methods, the surcharge must be set at the level of the lowest cost method, not an average".
What does this mean for businesses?
The fine issued to Fitness First follows a number of companies that have also received penalties for non-compliance with excessive surcharge provisions. This includes penalties for similar contravening conduct, which were imposed against Red Balloon in November 2017 and against both Cruisin Motorhomes and Europcar in July 2018. Overall, the ACCC has demonstrated its commitment to enforcing the regulations for excessive payment surcharges.
Businesses should be aware that the ban applies to:
- all businesses that are either based in Australia or use an Australia bank;
- surcharges imposed "in trade or commerce" (section 55B(1) CCA); and
- both corporations and certain other persons where the payment surcharge was charged for processing a payment by means of an electronic communication, or similar means.
The ban does not apply to businesses who choose not to impose a payment surcharge, such as a business that incorporates payment system costs into their overall prices.
To ensure compliance with payment surcharge regulations, businesses should have a comprehensive understanding of both the CCA provisions in Part IVC and the Reserve Bank standard. As stated by the ACCC Deputy Chair, Mr. Keogh, "the onus is on businesses that choose to impose surcharges to get it right". Businesses should be proactive in ensuring their payment procedures and policies abide by the regulatory framework.
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.