By Gareth Vaughan
MasterCard says preliminary feedback from the Commerce Commission on businesses charging consumers credit card surcharges on top of the purchase price for goods and services is that the consumer watchdog doesn't think it breaches the Fair Trading Act.
Albert Naffah, MasterCard's New Zealand country manager, told interest.co.nz in a Double Shot interview retailers or businesses that surcharge are generally ones who don't face much competition.
"I know that the Commerce Commission is keeping an eye on that, there’s one live investigation as well," Naffah said. "Their preliminary feedback to us has been they don’t think there is a breach of the Fair Trading Act."
The live investigation is into Air New Zealand. Naffah said he couldn't comment on that specific probe.
"But when they’ve looked at others before their view is that they haven’t seen an obvious breach of the Act and so they haven’t taken any action."
Naffah, who is leaving MasterCard to take up a role with ASB's parent Commonwealth Bank of Australia in New York, warned businesses against surcharging.
"Businesses need to understand their obligations. They cannot use this (surcharging) as a profit centre. If they choose to surcharge, there are downfalls to surcharging (and) it has got to reflect their cost," said Naffah.
A surcharge designed to generate a profit or cover non-credit card related costs risks infringing the Fair Trading Act.
Naffah said businesses that accept credit cards get "a whole bunch of benefits." These include potential cost savings because they can operate a direct model meaning they don't have to set up an expensive shop front to collect payments. Credit card payments also increase security for businesses, Naffah said, because they don't have to store cash on their premises.
A useful article by law firm Lane Neave on credit card surcharges is available here.
In August 2009 the Commerce Commission announced it had reached a settlement with MasterCard which meant merchants would no longer be prevented from applying surcharges to payments made by customers with credit cards. Any surcharges would now be disclosed to cardholders at the time of sale and bear a "reasonable relationship" to the merchant's costs of accepting MasterCard credit cards. Merchants would also be able to encourage customers to pay by other means.
This deal came after the Commission had claimed MasterCard's credit card scheme rules providing for the payment of multilateral interchange fees, together with related rules, breached restrictive trade practices provisions of the Commerce Act. The Commission said the settlement was expected to reduce overall costs to consumers of payment systems by decreasing interchange fees and facilitating merchant steering towards lower cost payment methods.
MasterCard's settlement with the consumer watchdog saw it agree to cough up $3 million towards the Commission's costs, and closely followed a similar settlement between the Commission and Visa, which saw Visa cough up $2.6 million.
In October 2009 the Commission announced settlements with ANZ National, ASB, Westpac New Zealand, Bank of New Zealand, Kiwibank/New Zealand Post, TSB Bank, and The Warehouse Financial Services over claims they had breached the Commerce Act. The Commission had alleged a breach by the seven agreeing and implementing Visa and MasterCard credit card scheme rules in New Zealand which, among other things, provided for the payment of multilateral interchange fees.
The Commission alleged these rules substantially lessened competition by artificially inflating the cost to retailers of accepting credit cards and ultimately raising prices paid by all consumers. The Commission estimated savings to retailers over the three years from 2009 resulting from the settlements would be worth $70 million to $80 million.
"This represents a significant reduction in the cost of doing business for retailers who offer credit card payment options, and we would expect to see this passed on to consumers over time through lower retail prices," the Commission said.
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