Extra charge levied by retailers for using a credit card

pattycake · 3 June 2005 at 7:15PM

I have read on another web site that it is illegal in the USA for retailers to add any charges to visa/mastercard credit card payments.

I have found that, for example, many tour operators add up to 2% if you use your credit card even on-line. How can this be right?

Surely the rules applied by visa/mastercard should apply in this country too.

Can any-one shed any light on this please.

Wig · 3 June 2005 at 9:52PM

I would also like to know, it must be legal to add a credit card handling fee because lots of places do it. But I can't think of any examples other than travel e.g. booking ferry tickets, plane tickets etc through a broker or from the ferry company direct, they do add a percentage fee. So why don't retailers e.g. Tesco's add a handling fee (on top of the cash price)? Lidl etc don't accept credit cards, you would have thought if they were allowed to surcharge they would. So why is there this apparent difference between general retail and travel? Maybe it's something to do with that old coconut "the warsaw convention".

Weyres' other example is not quite the same because the cash price is the same as the card price.

klondyke · 3 June 2005 at 10:57PM

Can't remember the exact details, but there was a time when it wsn't illegal, but against the T&Cs of Visa/Mastercard for the participating retailers to add a handling charge. Jo Public was asked to report any retailers who committed such a sin. BUT, this was quite hard on small retailers who are charged by the CC company for each transaction - so they stopped accepting CCs. The eventual fallout, several years ago, was that retailers ARE now allowed to add a handling charge, but larger ones don't as it loses custom. Swings and roundabouts ...

Hence it can be worth haggling over price if you are willing to pay cash rather than CC for large purchases (tho' take into account the pros and cons of the lower price against 0% CC deal, insurance etc).

I thought the bit on supermarket checkouts was to do with VAT - ie the 'handling fee' to the CC company, if seen to be paid by the customer (which as mentioned above is now 'allowed') is treated differently than if paid by the shop. Summat like that anyway. The amount the customer hands over in these cases is the same as they would without all the legalese.

JonSimmonds · 3 June 2005 at 11:21PM

Weyres wrote:

Hi Pattycake,

Retailers are now required to have some sort of statement put at the bottom of every receipt where the transaction has involved a card. It will be something along the lines of '2.5% of this transaction is paid to the credit card company as a handling fee...' The amount that you pay to the retailer is the same whether you pay cash or card. But if you use a card, the retailer pays 2.5% of the balance to the credit card company as a handling fee. It is some sort of EU legislation that this information has to be made available to the purchaser. It caused all sorts of ructions when I worked in retail - it confused many customers into thinking that they were paying an extra 2.5% on top of their bill....

What you are refering to there could be more of a "tax avoidence scheme" rather than charging the customers more. I saw something on the news a while back about this, apperently if they say they pay the 2.5% to a credit card company as a handling charge, then they dont have to pay any tax on that charge, ill try to dig up more info on it.

My local shop across the road charged 50p to use any card, i asked him why once and he doesnt have the volume of card sales to cover the fees the card merchants charge

MarkyMarkD · 3 June 2005 at 11:41PM

It's a VAT wheeze.

Banking services are not VATable, but most shopping is (except food and books).

So if the shop uses the 2.5% VAT wheeze, it works like this:

If the shop sells you stuff for £117.50 normally, they pay £17.50 in VAT and keep £100.

If they sell you stuff for £117.50 and use the "wheeze", they split it so that 2.5% (£2.94) goes to their card handling subsidiary, and they get the other £114.56 on which they pay £17.06 of VAT and keep £97.50.

So overall, they have £97.50 and their card handling subsidiary has £2.94 = total £100.44.

Shop gains 44p - VATman loses 44p.

It sounds like a lot of faff for 44p on £100 of pre-VAT sales. But 0.44% of lots and lots of sales = lots of extra profit.

JonSimmonds · 3 June 2005 at 11:44PM

MarkyMarkD wrote:

It's a VAT wheeze.

Banking services are not VATable, but most shopping is (except food and books).

So if the shop uses the 2.5% VAT wheeze, it works like this:

If the shop sells you stuff for £117.50 normally, they pay £17.50 in VAT and keep £100.

If they sell you stuff for £117.50 and use the "wheeze", they split it so that 2.5% (£2.94) goes to their card handling subsidiary, and they get the other £114.56 on which they pay £17.06 of VAT and keep £97.50.

So overall, they have £97.50 and their card handling subsidiary has £2.94 = total £100.44.

Shop gains 44p - VATman loses 44p.

It sounds like a lot of faff for 44p on £100 of pre-VAT sales. But 0.44% of lots and lots of sales = lots of extra profit.

Glad someone else could work out the maths as its to late for me!!

thats exactly what i ment, although any childrens clothing product is also vat free

Xbigman · 4 June 2005 at 3:17PM

I think thats wrong. You pay 17.50 vat on £100. You'd pay nearly £20 on 117.50.

OK I'm being picky. Your main point is right though.
Regards

X

MarkyMarkD · 4 June 2005 at 6:09PM

No, I'm right. £117.50 was the VAT inclusive amount hence £17.50 is the VAT.

pattycake · 4 June 2005 at 6:26PM

Thank you all for your input however, it still does not address my original point. My American friends on a another site (dedicated to travel) are appalled that we Brits are charged extra to use visa/mastercard. One of them sent a link showing the "rules" laid down by visa etc and this clearly showed that it was not allowed to charge extra to use the card. Another rule was that an outlet could not have a minimum amount before a card could be used.

The argument that tour operators cannot afford to pay the handling fee hardly seems to hold up if small retailers have to bear the cost.

Incidentally, I did not use my credit card but paid by switch. The extra cost would have been in the order of £40. No way, Jose.

doodle_bug · 4 June 2005 at 6:46PM

MarkyMarkD wrote:

No, I'm right. £117.50 was the VAT inclusive amount hence £17.50 is the VAT.

You are right, but I could see where xbigman was coming from.

VAT is worked out differently to normal % equations 17.5% of 117.50 is over 20. But, to work the VAT out you divide the inclusive price by 117.5 and multiply by 100 eg. £167 inc VAT is £142 ex VAT aprox. If you did £167 minus 17.5 % it would be £137 aprox. Clear as mud!!!

pin · 4 June 2005 at 7:01PM

pattycake wrote:

Thank you all for your input however, it still does not address my original point. My American friends on a another site (dedicated to travel) are appalled that we Brits are charged extra to use visa/mastercard. One of them sent a link showing the "rules" laid down by visa etc and this clearly showed that it was not allowed to charge extra to use the card. Another rule was that an outlet could not have a minimum amount before a card could be used.

The argument that tour operators cannot afford to pay the handling fee hardly seems to hold up if small retailers have to bear the cost.

Incidentally, I did not use my credit card but paid by switch. The extra cost would have been in the order of £40. No way, Jose.

Firstly US rules don't apply to us in the UK. Visa rules in the US don't necessarily apply to us in the UK.

Secondly companies (all companies that is) are well within their rights in the UK to pass on the cost of credit card transactions to the customer, as long as they they make that clear.

Finally it just isn't travel companies that do it, for example Ikea, pass on the cost of card transactions to the customer.

Under the Consumer Credit Act buying with a credit card gives you extra protections.

Extra charge levied by retailers for using a credit card

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