On 28 June 2011, the Office of Fair Trading (the 'OFT') published its response to a super-complaint from consumer body Which? in relation to payment surcharges.
Payment surcharges are additional charges which are presented to the consumer separately to the headline price of the goods or services they are buying (in effect 'paying to pay'). These charges usually vary according to the payment mechanisms which the consumer chooses. The charges are only added to the total price when a consumer selects which payment mechanism they intend to use.
The use of payment surcharges is variable across and within different industries, although in passenger transport markets, surcharges are particularly common. Budget airlines have been picked out as noteworthy offenders, with consumers complaining that there are no practical alternative ways of paying without incurring surcharges. During 2009 it is estimated that these "hidden" payment surcharges cost UK consumers buying travel tickets more than £300m.
Senior director of the OFT's goods and consumer group, Cavendish Elithorn, said: "Consumers find it harder to shop around and find the best deal if they have to invest time and effort in discovering surcharges. This also weakens competition between retailers which is bad news for the UK economy."
The OFT has found that the ability of a firm to impose payment surcharges is driven by a lack of competitive constraint on the retailers' pricing structure caused by lack of pricing transparency and perceived scarcity, rather than by market power. Surcharging makes the total price the consumer pays less transparent and it can exist in competitive markets, even where consumers have some awareness that they may incur surcharges. Ultimately, the lack of transparency prevents consumers from purchasing elsewhere, and therefore competition between retailers is reduced.
The OFT has recommended that no surcharges should be applied to debit card payments, which are by far the most commonly owned payment card in the UK and the standard online payment mechanism. With regards to other payment mechanisms, the OFT considers that the provision of sufficient, clear and timely information on the surcharges or discounts that customers may incur are essential. Further, to provide certainty for businesses and consumers, it has recommended that the government introduce measures to prohibit retailers from imposing surcharges for payment by debit card so that there is a standard payment mechanism that consumers can use without being charged.
The OFT has made it clear that it will take enforcement action against any business that continues to use misleading surcharging practices.
Notably, the OFT has provisionally decided not to launch a market study or make a market investigation reference to the Competition Commission in response to the super-complaint. It is the OFT's belief that the concerns raised by the complaints are adequately dealt with by its proposals. Comments on the OFT's provisional stance are requested by 6 September 2011
Critics have argued that the OFT has not gone far enough and that both unfair credit and debit card charges should be prohibited, not just those applied to debit cards. It also remains to be seen whether the suggested changes will be implemented and how long this process may take.
To view Community Week, Issue 527 – 1 July 2011 in full click here.
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