Ask LH: Can Credit Card Surcharges Be Applied Retroactively?

Ask LH: Can Credit Card Surcharges Be Applied Retroactively?

Dear Lifehacker, I recently made a payment for goods of $8000 on my credit card. I asked the merchant if it was okay to pay by CC and the answer was yes — but there was no mention of a surcharge. Six months later, they sent me another invoice for $200 (2.5% processing fee.) Am I legally required to pay this fee? Thanks, Big Spender

Credit card payment image from Shutterstock

Dear BS,

No. If you weren’t told that a surcharge fee would apply, you don’t have to pay. This is clearly stipulated in Australia’s consumer protection laws. As the Australian Competition and Consumer Commission (ACCC) explains on its website:

If you [the merchant] decide to impose a credit card fee, you must ensure your customers are aware — before they enter into the transaction or contract — that a fee will apply and the amount of the fee.

The key here is the word “ensure” — putting a sign up near a POS terminal generally isn’t good enough. The merchant should have explained the surcharge to you verbally.

In any event, you’re not really supposed to get slugged with a 2.5% surcharge even with a warning. Since 2013, merchants have been required to charge processing fees that realistically reflect their own service fees and related expenses. For Visa and MasterCard this is supposed to be in the region of one per cent.

These regulations were strengthened last year when the Federal Government passed a bill to give the ACCC the power to rein in companies that charge excessive surcharge fees. $200 seems ridiculous. The fact they waited six months to chase you up is also pretty dubious.

Our advice is to send the merchant a sternly worded refusal, along with a link to Australia’s price display rules. Tell them you’re considering taking the matter to the ACCC. If that doesn’t scare them off, you can find the steps to making a complaint to the ACCC here.

Cheers Lifehacker

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  • Genuine question: How exactly does a processing fee change just because the cost has changed? How is the processing fee different from $200 to $2000? It’s the same process, no?

    • As far as I know, the credit card companies base their fees around an average. They may be losing money on what it costs to process small transactions, which is made up by the amount they make on big transactions.

      Your $200 example charging $2, the $2000 example charging $20, when the real cost might be $5. If they charge the smaller, but more abundant, transaction the real cost, it becomes a much bigger hit for a much bigger group of people and transactions.

      In the end, they average it out, which means the bigger transactions getting hit with bigger amounts. As there are less of them, less people get affected.

      • The merchant pays a higher percentage rate if their transactions are small, that is why you often see a min. purchase using credit card. It is the merchant protecting their fee rate, and ultimately you.
        There is a misconception that the credit card companies are taking all the merchants fees, they pay third party processors a fee. It is quite complicated.
        As a matter of interest, in Denmark they have the Dankort system, never any lower limit. You can buy a stick of chewing gum, pull out the card and never raise an eyebrow.

  • I recently bought a flight ticket for travel within Europe from an online travel website/agent. I take note of credit card fees, and the site explicitly stated there was no fee, a box with a zero. After I did the payment, there was a fee added to the receipt. I did 3 things:

    1) Contacted the online travel agent. This lead to an email exchange stating:
    a) they had displayed the fee (they didn’t)
    b) they were not bound by Australian law.
    c) If I wanted to pursue it I would have to abide by Greek law, as per their terms and conditions, (even though they are a Czech based company)

    2) I wrote a complaint to Fair Trading NSW. I heard nothing from them.

    3) I filled out a fraudulent action online with my bank (ANZ), noting I had a screenshot showing there was zero charge indicated before payment. I received a confirmation from them that they would investigate. I took the flight. I later received a message that they had investigated and refunded the full amount of the payment, not just the CC fee.

    The Credit Card companies seem to take such kind of fraud very seriously, and only charge a processing fee if you are in the wrong.

  • Having just set up a merchant account for my business I can talk to my own experience with this. Banks providing a merchant facility recoup costs in a couple of different ways. The most common way is to make the business pay a monthly fee and a percentage fee based on the type of credit card. This could be 1% for an Australian based visa or master card up to 3% for an Amex or international credit card. Some banks give you a fixed “average” percentage surcharge. So it doesn’t matter how much you put through ($2 or $2000) the cost of processing remains a fixed percentage to the business. Lets say my business has a fixed percentage of 1.5% but I pay a monthly fee. I might charge my customers a 1.6% transaction surcharge to cover the cost of processing and hopefully also the monthly fee. Any more than this is in my view price gouging and as pointed out, illegal. As for this company sending a bill 6 months later… Haha. Hahahahaha. Ignore it

  • Not quite correct – merchant fees area flat rate % no matter the value of the transaction.
    In fact, the interchange (the rate the merchant bank pays the card issuer bank) rate for “micro transactions” is lower than higher value transactions.
    Typically, standard merchant fees from banks in Australia, are in the realm of 1.2%-1.8% for Visa & MasterCard credit, and 15c-30c for debit cards. Amex charge merchants 1.5% to 3%. The variability between merchants is due to the risk, volume, and buying power of the merchant.
    Merchants place a minimum transaction value (breaching Scheme rules) as they are prepared to absorb the cost on larger margin sales, but not smaller margin sales.. Also is an indicator of the “cash-economy” aka non-disclosure of sales…

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