A Variation to the Surcharging Standards:
Final Reforms and Regulation Impact Statement – June 2012
1. Introduction
In 2003, the Reserve Bank (the Bank) imposed surcharging standards on the MasterCard and Visa credit card systems, which required the removal of no-surcharge rules that had been imposed by these card schemes. A similar standard was imposed on the Visa Debit system in 2007 and other international card schemes have provided voluntary undertakings to remove their equivalent rules.[1] The removal of these rules has allowed merchants to pass on the cost of credit and scheme debit card transactions to their customers via a surcharge, should they choose to do so. The Bank's assessment is that these Standards have contributed to the efficiency of the payments system; surcharging has improved price signals to cardholders about the relative costs of different payment methods and the ability to surcharge has been used as a negotiating tool by some merchants to put downward pressure on their costs of accepting credit cards.
In recent years, however, some surcharging practices that potentially distort price signals – such as surcharging in excess of card acceptance costs – have become more widespread, thereby reducing the effectiveness of the reforms. In light of these developments, the Reserve Bank's Payments System Board (the Board) decided at its May 2012 meeting that there is a case for relaxing the current surcharging Standards to provide card schemes the capacity to limit surcharges. In line with this decision, the Bank will vary the surcharging Standards to allow card scheme rules to limit surcharges to the reasonable cost of card acceptance. The Standards will still ensure that merchants cannot be prevented from fully recovering their costs. The Bank believes that the variation is in the public interest and will improve the efficiency of the payments system by ensuring that the surcharging Standards continue to support their original objectives.
This rest of this paper is structured as follows.[2] Section 2 discusses the original surcharging reforms and the surcharging practices that have developed in recent years that have the potential to undermine the effectiveness of the original Standards. Section 3 details the objectives of the Bank in varying the Standards and its mandate to do so. Section 4 then discusses the draft variation to the Standards, which were released for public consultation in December 2011, while Section 5 summarises the views expressed by various parties during consultation. Section 6 outlines the range of options the Bank has considered in varying the surcharging Standards and Section 7 evaluates and discusses these options. In light of the evaluation, Section 8 states the preferred option to be implemented by the Bank. Finally, Section 9 outlines the variation to the Standards and its implementation.[3]
Footnotes
These surcharge standards are collectively referred to in this paper as ‘Standards’. [1]
This paper should be read in conjunction with the earlier consultation documents: Reserve Bank of Australia (2011), Review of Card Surcharging: A Consultation Document, June, available at <https://www.rba.gov.au/publications/consultations/201106-review-card-surcharging /> and Reserve Bank of Australia (2011), A Variation to the Surcharging Standards: A Consultation Document, December, available at <https://www.rba.gov.au/publications/consultations/201112-variation-surcharging-standards/pdf/201112-variation-surcharging-standards.pdf>. [2]
This document relates to the Bank's Standards under the Payment Systems (Regulation) Act 1998. Merchants also face obligations under the consumer protection framework, including under the Australian Consumer Law, which prevents the levying of a surcharge where there is no alternative surcharge-free payment method. [3]