For consumer and retailer, it is time to put crunch on credit card surcharges

PLATFORM:In most transactions, the consumer has a choice of different payment methods, writes Feargal Quinn.

THE HEADLINE last week, "Martin admits he cannot ban credit card charges", referred to Micheál Martin's reluctant decision to withdraw his plan to ban retailers from charging customers a surcharge if they pay by credit card.

However, it would have been more accurate if the heading was "Martin saves customers millions of euro".

It is unusual for a politician not to take credit for good news. Let me explain.

When the Consumer Protection Act passed through the Oireachtas last year, it included a restriction on credit card surcharges. The decision by the then minister for enterprise, trade and employment to withdraw this section was because he believed that it was likely to be incompatible with an EU directive.

Attention has focused on credit card surcharges, but the law, if enacted, would have barred a retailer from offering a discount to a customer who was willing to pay in a less expensive manner.

Retailers would have been forced to charge the same price to a customer who was willing to pay cash or use a debit card, which costs the retailer far less. Payment by credit card is an expensive method for a retailer because of the exorbitant "interchange fee" that retailers have to pay.

If the facts are given in full, the truth is that it is not the retailers who are taking consumers for a ride, but the banks and credit card companies, which are making unfair profits from retailers and consumers alike. Retailers do not choose to set surcharges but they are compelled to do so in order to recoup fees they are charged by the banking sector. There is no chance for retailers to negotiate on these fees - they are simply set. These "interchange fees" are set by banks and card schemes as a percentage of every transaction where a credit card is used. Out of these fees, the banks cover the costs of fraud, the costs of "free gifts" given on credit cards (such as air miles) and, in some cases, advertising campaign expenses. The remainder is profit.

I would hasten to say that I understand consumers' anger when they are asked to pay a surcharge on credit card transactions.

On the face of it, such charges are unfair but, paradoxically, surcharging is in fact fairer. The alternative is to raise the price of goods or services directly - this, however, puts the cost of interchange fees on to all consumers, whether they use a credit card or not.

So, in the majority of transactions, where the consumer has a choice of different payment methods, he or she can choose to pay less or to use a card and pay a little more.

This, surely, is more equitable for all.

To the consumer, it looks as if the retailer makes money by surcharging, but this is not the case.

In reality, the surcharge is the sharp end of a pass-the-costs process employed by the banking sector on every credit card transaction.

The retailer has no say in how much this fee should be and, in many cases, the basis on which it is calculated, or what costs it is supposed to cover, are kept hidden.

There is no transparency for the retailer and no choice: this means a hidden tax on consumers and confusion as to true costs. What is needed is to address the problem where it arises.

The European Commission recently published a decision on the interchange scheme of credit card company Master- Card. Because this is a European-level decision, it only addresses fees charged across member-state borders, but the finding was that MasterCard's current fees breach European competition law. This decision should be followed at national level.

This would attack the cause of the problem. Sections 48 and 49 of the Consumer Protection Act will, unfortunately, only alleviate some of the symptoms but, in the long run, the disease will break out elsewhere.

In the meantime, European consumers have a right to be given the whole picture to understand that they are being made to pay a hidden tax which costs them collectively €15 billion a year.

So, if the finger of blame is to be pointed, I would ask that it is pointed at the correct target: the anti-competitive interchange fee system.

The new Minister, Mary Coughlan, should act on that without delay.

Feargal Quinn is an Independent member of the Seanad and chairman of EuroCommerce