Ask LH: Can A Business Charge Me A Fee For Using My Credit Card?

Hey Lifehacker, I recently picked up some new gear, including a Thrustmaster Warthog HOTAS joystick system (yes!). At the checkout, when I said I wanted to pay with my credit card, I was told there would be a 3 per surcharge on credit card payments. Is this legal? Thanks, My Joy Got Stuck

picture from Shutterstock

Dear MJGS,

This is one of those perennial Ask topics, which means that it’s one that we’ve covered before in some detail. Then again, that’s because credit card surcharges remain a ongoing pain point for Australian consumers.

The really short answer is that yes, it’s entirely legal for a business to tack on a surcharge when customers opt to use a credit card.

Businesses pay a fee for credit card transactions, and they’re allowed to pass that fee onto consumers if they wish.

A business is only permitted to recover "reasonable costs" when it comes to credit card surcharges, but there’s plenty of evidence that suggests that business are, shall we say, a little flexible when it comes to an interpretation of what "reasonable" constitutes.

It may be tempting to switch over to paying via EFTPOS, but there, as we’ve noted previously, businesses can pretty much charge what they like, although there’s an obvious incentive for them not to make EFTPOS charges too onerous.

You could argue with a business that its surcharge quantity was excessive, but that’s not likely to bear much fruit. If you were particularly keen you could check with the issuing authority what its general surcharge rates are, but they’re under no specific obligation to let you know the financial arrangements of an individual business, so at best that’s only likely to be indicative.

Which ultimately means that the best option as a consumer remains to vote with your wallet, and make it clear to the business that they’re losing your custom due to excessive credit card surcharges. That naturally will depend on the kind of deal they're offering, because if you really want that Thrustmaster Warthog HOTAS and their deal including surcharge is still cheaper than the rest, it may be a false economy.

Cheers Lifehacker

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    As per previous articles on this subject, I have noticed a lot of Comm Bank merchants stipulating "Minimum Transaction" amounts. Reported 3 in as many weeks.

      There is a good reason for this. eftpos charges a flat rate for its' transactions (put through SAV/CHQ accounts)... from memory, it's 12c per transactions. This means that for a $1 purchase, they are paying 12% in interchange, which is huge (for comparison, the highest interchange paid on credit card transactions is between 2-3%). They need that minimum purchase amount to scale down the cost of interchange fees.

        As a business owner I know you can get the EFTPOS charges as a % just like AMEX/MC/VISA and anyone paying more than 1.XX% isn't pushing their bank hard enough to do a better deal on the charges. AMEX are the hardest as they usually charge higher % when your transactions for the year reach certain thresholds.

        Last edited 17/03/15 2:41 pm

        Yes, but some banks don't allow this. I guess Comm Bank is one of them.

        Comm Bank stipulate that you are not allowed to have a minimum charge amount.
        They can have a surcharge on EFT transactions, but no minimum charge.

    To be fair, there is a surcharge for you paying by CC (either from the bank or pass down from MasterCard or Visa), so the merchant does make less when you pay by CC instead of cash.

      It's the cost of doing business, isn't it? We don't nickel and dime customers for holding the fridge open too long, or taking extra napkins, so why do we do it with EFTPOS transactions?

      The perpetual cash-is-cheaper fallacy.

      What does it cost you to process a credit card payment other than the fees (both transaction and possibly merchant terminal fees), and waiting for the cash to be paid into your account?

      With physical money you have to have the hardware for its safekeeping (much more expensive than a merchant terminal), the physical labour of counting and banking it, and the insurance required to mitigate the risk of it being stolen and accepting counterfeits. I venture that in the labour costs alone, that is worth more than 2% of the value of the amount transacted in cash.

      Last edited 18/03/15 11:25 am


        I always carry a $100 note for when a merchant enforces their minimum charge.

        It probably wouldn't surprise you how many merchants are happy to waive their minimum when you offer to pay for a $4.50 coffee with a $100 note.

    Surcharges are the next target for the RBA. They have an issues paper out at the moment in the wake of the Financial System Inquiry... but they noted that any reform based on the Murray review would take a long time, and they want to tackle surcharging straight away and so are going to 'fast track' the surcharging bit of the reform.

    Exactly how they are going to do that, when the surcharging restrictions directly follow on from the suggested interchange caps and restrictions, is anyone's guess.

      Interestingly, at the time of it's release the Murray report was broadly misinterpreted by the media suggesting the end of surcharging when it actually acknowledged surcharging can improve the efficiency of the payments system.

      Here are my main take-aways from the Inquiry:

      1. It is aimed at controlling the cost of transactions between card issuer and card acquirer by recommending setting fixed caps (rather than weighted averages). This is just one component of the Merchant Service Fee (MSF), however, as there are the scheme charges to go on top and then the acquirer fees on top of that. There is no intent to control the ‘price to the merchant’ which can be determined by market forces.

      2. It also recommends combining all payment mechanisms (think eftpos, Visa, MasterCard, AMEX, Diners etc) into one ‘regime’ where below a certain amount they have to be percentage based, and over a certain amount a fixed cost. This is to try and drive transactions onto cards (rather than cash) on the lower priced items without having exorbitant costs (think current fixed Debit charges on $1-$5 items), and also reduce costs on higher priced items at the top end (think credit % charge on $1,00-1,500). In reality what they are saying is they all need to price as a fixed cost and a percentage cost, and charge the lower of the two.

      3. It also recommends making it easier for merchants to surcharge customers in a way that better reflects the cost of the transaction to them. The recommendation goes on to give an example of three tiers of card processing costs “Low-cost, Medium-cost and higher-cost”. The intention would be that all payment types would fit into one of these categories, and clear and simple rules around what surcharge amounts could be levied against each would be made available. This would mean that merchants would be able to surcharge without gouging their customers. Think an airline that takes a payment by debit card (low-cost method) that currently charges $7.50. It is proposed this would not be possible.

      4. Despite the (poor) interpretation to the contrary by the media, the inquiry actually states: “The Inquiry agrees with the RBA that surcharging can improve the efficiency of the payments system by providing accurate price signals to customers. In addition some consumer groups, such as Choice, acknowledge that accurate surcharging can provide positive outcomes”

      Whatever the actual outcome of the Inquiry, there is a long road ahead with the RBA having to review and put out discussion papers and then go through the the difficulties of getting the companion cards (AMEX and Diners) to agree to be under the same pricing mechanism which would potentially have a big impact on their revenues and therefore be hotly contested.

    It really stinks, big businesses like Telstra save a fortune in not having to handle cash, cheques etc. and not having to employ as many people to do it, so then they charge the customer the fee as well.

    Small shop I work in, we sometimes tell the customer that our eftpos is down, just so we can get some cash back in the shop, as the boss will never take cash out from the bank.

      And how many people walk away and go elsewhere because all they have is a card?

    Pay cash!
    Businesses can and should charge credit card fees back to customers. It is a very competitive world and many businesses run on 6% or lower margins. When a business owner operates in a market where most transactions are done by card the business can lose half of his already tiny profits to the credit card companies.

    A business has 2 options:
    charge a fair price for product/service and add the credit surcharge to the bill thus rewarding people who pay cash with a slightly reduced price.
    charge everyone a 3% higher price on all products and services thereby penalizing all customers even the cash payers for the gouging practices of the banks and credit houses.

    When I see a sign on a business' window that says "Cash Only" I always smile, because I wish I could get away with putting that sign on the door of my business, but i can't because card purchases account for >80% of my business.

    Be nice, Pay cash. Everyone wins, except the #@$% sucking banks.

      When I see a sign that says "cash only" on a register, I walk in the other direction! As you note, the world is all about card payment now, so why should I go find an ATM and then walk around with some strange amount of change in my pockets for ages just so you can save 12c on the transaction?

        I do too, but I suspect these policies are more often because the business owner is a tax avoider.

      I remember when businesses had big costs in cash and cheque handling, including the overheads of security, storage, counting, taking it down to the bank (often having to close the business while they did so) etc. Those weren't passed on as customer levies.

        No, they were just passed on by higher prices.

      Seriously, 3%?! Change Banks.

      If you're running anywhere near 6% margins, your turnover must be considerable - I'm going to assume you're taking well over $500 per day. You should be paying half of 3%.

      Second, with credit card transactions you get automatic reconciliation with your accounting system, no risk of theft from staff, no issue with incorrect change given, and no need to pay someone to go to the bank each night. Are those benefits not worth the 30c transaction fee and 1% eftpos fee (or 1.5% flat visa/mastercard credit fee)?

      But we all know why small businesses really hate the move to credit cards - if you trade in cash you can under-report your earnings and save paying your income taxes, GST and company taxes.

      A "Cash Only" sign on the door should read "Dear ATO, Please come and audit my business. I'll show you my books, it's okay, I keep two copies, one for you and one for me. "

    There have been times when a surcharge has made me walk away. or the stupid min transaction requirement.

    Charge me for the "privilege" of playing you money fine I'll go else where

    If companies weren't allowed to have a 3% surcharge, they'd simply put their prices up and make everyone pay the 3%, whether they use credit card or not.

    And we'll see more businesses do what Good Guys do ("Pay less for cash") where they just give a discount if you don't pay with credit card

    Here is a question that needs to be asked.

    Can an online store charge a fee if you pay for items online using Paypal and is that legal?

    Came across an online store who was and I cancelled my purchase as I can get the same item from another online store who doesn't charge fees.

    Who else has came across this?

      Same situation - PayPal charges a fee for the transaction, that's how they get their money. As long as it's reasonable (and 1-3% is usually reasonable) it most certainly is legal.

        Paypal do not charge me any extra. Maybe they charge the supplier. Have just checked apyment of about $1600 to Medibank.

          They charge the merchant. Same as every other financial institution, How do you think Paypal makes money?

    Must say I agree with Alex here. Either walk away right there at the cash register, if you can get said item or service at the same or similar price somewhere else or pay up! I don't agree that 3% is a reasonable amount most are about half that (and if not then business owners need to get a better deal from your bank or change banks!)
    In the end consumer putting up with minimum EFTPOS or CC fees are making it worse. Where I am we absorb the costs in our price we know it is 1.5% for CC (it's online so only option is CC) so we just calculate that into the profit we make on each item - no more no less.

    Name and shame. The only way these companies will change is if they get told by their customers or potential customers, it's not appropriate.

      That will only work in a face to face conversation with a business stake-holder. Sales staff will either not bother to pass this on or not dare to, because their (tax-avoiding) boss will shoot them down.

        Yeah, no point in telling the sales staff, why you're not buying something, that'll do just about as much as yelling at your computer when you get flogged credit card fees for buying something online. A much better option would be to leave reviews on the various review aggregate sites venting your frustration. Let the public know what's going on, and make sure everyone knows it's unacceptable.

      I'm the other way. I complain if they don't charge extra for credit transactions. It means that they've added the surcharge on the base price - so you pay the 2.5%-3% extra even if paying cash. Only people that pay credit should have to pay it.

        I'm sure their cash transaction costs are higher, although I'm not unfamiliar with employers expecting staff to do the cash as an unpaid half hour after the final shift.

          They still have to do cash no matter how many cash transactions there were that day.

          And the banks 3% charge on every purchase would work out to be a lot more than if everyone paid cash - retail outlets that have $25,000 spending in one day, will be paying $750 in fees. People aren't that slow doing their work.

          That's why most companies if they don't have a surcharge, give a discount if paying by cash.

            From experience, employers are passing off the cash management cost to employees as unpaid labour, not to mention taking advantage of the possibility of not declaring it.

    Might be a silly question but I always wondered about PayWave in this case? PayWave was originally designed to be for those really small amounts you could just pay instantly. Now you get some shops first having to slap on the extra charge on their registers before you can even attempt to hold your pass against the pin machine. Also charges for PayWave are sometimes more ridiculous than when you use Eftpos or normal credit. Kind of defeats the purpose of PayWave really.

      Pawave/Payoass fees are higher than normal EFTPOS and the same as credit card transactions -as it is a credit transaction. VISA & Mastercard designed Paywave/Paypass (and AMEX have theirs as well) to make people use cash less,so they get more money. The financial institutions don't care who pays for it - whether it's you or the retailer.

    Just out of curiosity, who wears the liability for credit card fraud in Australia? Banks or merchants?

    Are the businesses supposed to indicate in advance that they're charging a fee for using a credit card? I used a Menulog-based system for ordering pizza and they tacked on an extra $1 after I'd paid, without any prior warning.

    I got charged 1% for using paywave at a restaurant - not happy about that.

      Fair percentage, but I do not understand why a restaurant (usually high profit margin) needs to do that.

    Yes, they should indicate there is extra card charge before payment.

    pccasegear drive to melb 1hr to find they wont accept cash to pick up $1500 worth of parts,then charge 2% of total amount due fee for privilege of paying them with card when i had exact amount in cash with me.To be fair it does state on there site methods of payment which i hadn't thought to check mainly because I'm old school (70) and didn't think cash could ever be a prob.I think with me it is forcing me in one direction that i object to.So after quite a few thousand spent with them over the years its see you later pccasegear.

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