Should credit card surcharges be banned?
No
Frankly, I believe that the National Consumer Agency has better things to be doing. It should be prosecuting businesses for false and misleading advertising and for unfair commercial practices. It should be prosecuting garages for turning back clocks. It should be prosecuting scammers for promoting pyramid schemes. It should not be prosecuting consenting adults for freely agreeing the price they pay for goods.
So why does a business offer a discount for paying in cash? It's simply because it costs them less. If I pay by credit card, the business has to pay the credit card company 3 per cent of the purchase price. If I buy something from an impoverished artist for €400 with my credit card, the artist gets €388 and the credit card company gets €12. That's why I go across the road to the ATM and pay by cash. I would prefer to see that €12 in the artist's pocket or in mine.
There are some companies that compete on the basis of being low-cost providers. They cut costs wherever they can and they pass these on to customers. The discount retailers Aldi and Lidl don't accept credit cards because it would cost them as much as 3 per cent. Some travel agents accept credit cards but impose a surcharge. This is a competitive free market in operation. As long as companies display the surcharges for credit cards prominently, then customers should have no complaint.
James Adam auctioneers charges 2 per cent extra if you pay by Visa and 3.5 per cent extra if you pay by American Express. Why? Because American Express charges James Adam more than Visa charges for these payments. James Adam sells paintings on behalf of clients at auction. If they sell something for €1,000, they charge a commission of 15 per cent or €150. If they did not charge a surcharge for someone paying by American Express, they would lose 3.5 per cent of this 15 per cent or almost a quarter of their revenue. If surcharges on credit card payments are banned, many businesses will simply stop accepting credit card payments. How can this be in the interests of consumers?
The best protection for consumers is competition, choice and information. The Government should not regulate prices except where monopolies exist. It should make sure that businesses do not engage in anti-competitive practices. It should make sure that companies do not abuse their power to exploit consumers through misleading advertising and unfair commercial practices. But it should not get involved in setting prices.
The same principle applies to payment by direct debit. It is far cheaper for a large company that bills customers monthly to collect payment by direct debit. It is very expensive to process cheques and cash. Those customers who are cheaper to process should get the benefit in terms of reduced price. Many voluntary groups offer members inducements to pay their annual membership subscriptions by direct debit. This could be a reduced rate, a free T-shirt or an additional month's free membership. If the proposed legislation is implemented, they could be prosecuted.
It is argued that charging less for direct debits penalises people who don't have bank accounts. But why don't they open bank accounts? It's not difficult.
Encouraging people to use direct debits would encourage them to have bank accounts, which would be good for consumers. And the law should not be changed to penalise the majority for the protection of a minority.
The Government has devoted considerable resources to a project called betterregulation.ie. This is a pet project of the Taoiseach. The principles include reducing red tape and requiring higher standards of evidence before introducing new regulations.
A regulation should only be implemented if it's clearly in the interests of consumers and has no negative side-effects for the people whom it is supposed to protect. At the end of the day, consumers pay for all regulation through higher prices or through taxes for implementing the legislation. Few consumers will benefit from a ban on payment surcharges. We will all pay for it.
Brendan Burgess is the founder of the consumer website Askaboutmoney.com. These opinions are his own.
