James Daley

By James Daley

Getting charged for paying by card is one of those things that always feels patently unfair. If you're going to run a business, then you need to take your customers' money somehow. It's ridiculous to penalise people for paying you.

Presumably, most companies also need to keep the lights on in their office, or pay an accountant to do their taxes each year. These aren't things that customers get itemised charges for - so why should it be ok to get a charge for paying by card? It's just a cost of being in business.

One of my proudest moments as a consumer campaigner was blowing the lid off part of this scandal a few years back. I was working at Which?, and persuaded my colleagues to use the organisation's special powers to launch a so-called "super-complaint" (or "super-dooper complaint" as Ryanair was fond of calling it). This forced the Office of Fair Trading to look at an issue where we thought consumers were being mistreated. The OFT agreed that things needed to change, and soon enough new rules were being put in place, preventing companies from passing on any more than the cost of processing a card transaction.

What's the real cost of paying by card?

These new rules put an end to charges for paying by debit card. That's because it typically costs companies a few pence to process a debit card transaction - not the £48 that Ryanair was charging a family of four for paying for their flights by debit card.

However, when it came to credit cards, the OFT conceded that it wasn't quite clear what the real cost was - as there was so little transparency in this area. Nevertheless, the new rules made it clear that companies should not be passing on any more than the costs that they incurred.

Which? bandied around the figure of 2% as being the absolute limit of what customers should be charged for paying by credit card - and hey presto, most of the airline industry settled on charging customers exactly that. So on a long haul holiday, where a family of four might spend £4,000 on their flights - they'd still be hit with up to an extra £80 for paying by credit card.

A new cap on charges

Things carried on like that for several years. But last month, new rules came into place which capped part of the amount that banks charge companies for processing card transactions. When an airline or retailer processes a card transaction, they are forced to pay something called the Merchant Service Charge to their bank. Part of this charge is made up of an “interchange fee”. (This is a world plagued by jargon).

In December, interchange fees were capped – at 0.2% for a debit card transaction and 0.3% for credit cards.

Interchange fees are only part of the Merchant Service Charge, but payments experts suggest that it makes up around 70% of the fee that retailers are charged. So with this new cap in place, it’s hard to see how companies could justify charging any more than 1% for paying by credit card.

Before December’s cap came into place, the payments industry said that the average interchange fee was roughly 0.85%. This also begged the question: why have we been paying 2% to airlines such as Easyjet and Ryanair for the past four years?

Many organisations don’t charge anything for paying by credit card. And some – such as Councils – charge much closer to 1%. All this suggests that perhaps the airlines were never abiding by the new rules.

Now that the 0.3% cap on interchange fees has come into place, at the very least we should expect to see credit card fees come down. The UK Cards Association estimates that almost £900m in savings should be passed onto consumers.

Who's policing the rules?

But the likes of Ryanair and Easyjet are still charging 2%. While British Airways charges a fixed fee of £5 a ticket – which can amount to a double digit percentage on cheaper shorthaul flights.

The reason that companies have been getting away with this is that no one is enforcing it. Strictly speaking, it falls to the under-resourced Trading Standards. But consumers are also in their rights to challenge companies in the courts.

I’m seriously considering doing just that. I’ve spent several thousand pounds on flights over the past few years – and I’d like to challenge the airlines to justify the excessive credit card charges that they’re passing onto their customers.

When Radio 4’s Moneybox covered the issue on Saturday, the airlines said they were complying with the rules – but weren’t able to provide a breakdown of their costs.

Some companies have already started to change their fees. Budget airline Jet 2 got rid of its credit card fees altogether in December.

The good news is that everyone else may be forced to follow suit in a couple of years – when new European rules banning card surcharges come into force. For now, it’s down to the likes of Moneybox and ourselves to shame the worst offenders into doing the right thing. If you’ve seen examples of companies charging for paying by card, let us know.