Credit card fee changes: The hidden impact on small businesses & consumers

Press release

Companies will no longer be able to charge fees for using credit cards, following the implementation of a new EU directive.

credit card twiddlytwaddlytwoo.co.uk

Since April 2013 traders have not been able to charge consumers fees that exceed the cost for using a particular method of payment. However, from 13 January 2018 companies will no longer be able to charge any fees for the use of credit or debit cards. This includes payment methods such as Apple Pay and PayPal, too. The change also applies to Government departments and local councils. So, for example, DVLA will no longer charge you a fee for paying by credit card when you renew your road tax.

Is this good news for consumers? Helen Dewdney, The Complaining Cow and author of How to Complain: The Essential Consumer Guide to Getting Refunds, Redress and Results! thinks so. (That’s me that is).

She asks “Who isn’t annoyed when they have to pay a fee for paying for their car tax or to Ryanair for booking their flight?” Dewdney is emphatic that traders have had long enough to know this change has been coming to be able to plan and not pass increases in costs to consumers. “That goes for those Government departments, too, so there should certainly not be an increase in council tax fees and road tax to cover the supposed ‘loss’, thank you very much!”

She adds “Used wisely, many people pay by credit cards to defer payment and also to get cashback rewards!”

Scrapping the credit card payment charge on picture of card reader

However, not everyone welcomes the changes. David Taylor, who blogs at Thinking Thrifty and runs a café, fears that with no charge it’ll encourage card payments even further for really small amounts. He is considering not taking credit card payments any more, admitting that he will lose some custom “but if that custom is making me a loss, ironically, I can’t afford the custom anyway.”

Not all small businesses agree though:

Richard Allen of Reflections Detailing – a car restorer – has never charged a fee for using credit cards. He says “It’s just a cost of doing business and in the grand scheme of things, it’s a pretty small cost. I didn’t know it was coming though. But actually it costs me more to handle cash in any case!” He notes that credit card transactions incur a fee of 2.389%, debit card transactions 0.495% and cash 2%. Every card transaction also has a 5p authorisation fee. No company ever charged for handling cash!”

Then there’s places like Just Each which had a 50p credit card  charge. They have had to scrap that and have introduced a 50p service charge for all transactions. Keep and eye out for those and come back here and tell us so we can have a rogue’s gallery!

The Taxman cometh
The HMRC has received criticism for abolishing credit card payments. A spokesperson for the HMRC said “We will no longer be accepting personal credit card payments from 13 January as new rules mean that we can no longer pass on what our bank charge for processing a credit card payment. It would be unfair to expect other taxpayers to pick up this cost. There are a range of ways for people to pay us depending on the type of tax being paid, including debit cards, Direct Debit, Faster Payment and BACS.”

Dewdney believes that people should put money aside as they earn it to pay their tax. “However”, she argues, “for some people less able to plan financially, or who suddenly find themselves in a difficult financial situation, the short notice (announced a few weeks before Christmas and nowhere on the HMRC website) will be very unhelpful.”

If you are struggling to pay your tax see Debt Camel’s 10 things you should know if you can’t pay your tax bill

Open banking changes
The arguments for and against the banning of charges are only part of the bigger picture. The ban comes in on the same day as the introduction of Open Banking which could potentially bring greater benefits for consumers.

Sara Williams is a Citizen’s Advice advisor and UK Money Blogger of the Year 2017 for Debt Camel, covering debt and credit ratings. She says that large retailers may try to bypass the current payment mechanisms and provide payment apps directly to customers. “Getting rid of charges for using cards will be generally good for consumers.” But she warns consumers to “Look out for side-effects. Card companies may reduce their charges to business and cash back credit cards may disappear as a result.”