Ban on 'excessive' credit and debit card surcharges

Laws have been passed by Parliament to regulate the amount of surcharges on credit and debit card transactions[1]. The new laws enable the Reserve Bank of Australia (RBA) to set the amount of the maximum permitted surcharge, and empower the Australian Competition and Consumer Commission (ACCC) to enforce against businesses that impose ‘excessive’ surcharges.

What is ‘excessive’?

The laws do not prevent a merchant from applying a surcharge to a card transaction as long as the surcharge is not ‘excessive’. On 26 May 2016, the RBA issued a standard stating that the permitted surcharge is, at any time, an amount not exceeding the ‘cost of acceptance’ for that merchant accepting that card at that time[2].

The ‘cost of acceptance’ is the average cost per transaction of accepting a card. The first step in calculating the ‘cost of acceptance’ of a merchant is to find the sum of the actual costs incurred by the merchant in accepting the payment by credit or debit card over a 12 month period. These costs include:

  • Fees charged by the bank of the customer or the merchant;

  • Fraud-related chargeback fees paid to the bank; and

  • Fees paid to other payment service providers for terminal renting and servicing, gateway services, fraud prevention costs and insurance.

Internal costs to the merchant are not included.

The second step in calculating the ‘cost of acceptance’ of a merchant is to express the total costs incurred by the merchant as a percentage of the total value of the card transactions between the merchant and its customers. The surcharge applied to customers must not exceed the ‘cost of acceptance’.

This means that the permitted surcharge will vary from business to business, depending on the value of the transaction and the actual costs paid by the merchant to accept payment by credit or debit card.

Banks must provide calculation information to merchants

Commencing from 1 June 2017, banks will be required to issue a monthly and an annual statement setting out the merchant’s transaction costs and the value of the card transactions processed for the merchant. This will assist the merchant in calculating its ‘cost of acceptance’.

When does the new regime commence?

The commencement date is 1 September 2016 but there is a transitional concession for smaller merchants and the regime will apply to them from 1 September 2017.

‘Large merchants’ will be required to apply the ‘permitted surcharge’ standard from 1 September 2016 onwards.  A large merchant is one that meets two or all of the following criteria as at 30 June 2015:

  • Consolidated gross revenue of $25 million or more;

  • Consolidated gross assets of $12.5 million or more; and

  • Above 50 employees (including casual, part-time, full-time employees and those employed on any basis).


The new rules include an anti-avoidance provision targeting arrangements entered into for the purpose of avoiding the application of the standard.


Merchants should keep accurate records of:

  • Current acceptance costs (by retaining contracts, invoices and other relevant documents); and

  • The date that the surcharge was paid, and the amount of the surcharge imposed on customers (by retaining receipts and tax invoices).

Merchants will be assisted in calculating their ‘cost of acceptance’ by using the statements issued by the banks.

Enforcement and penalties for non-compliance

The ACCC has the power to:

  • Issue a ‘surcharge information notice’ to a merchant or its bank requesting information or documents regarding:

  • The amount of a payment surcharge; and/or

  • The cost of processing the payment on which a surcharge was paid.

  • Failure to reply to the notice is an offence.

  • Issue an ‘infringement notice’ if it has reasonable grounds to believe that a person has charged an excessive surcharge. The penalty payable under an infringement notice is:

  • $108,000 for a listed company;

  • $10,800 for a non-listed company; and

  • $2,160 for a person other than a company.

  • Commence Court proceedings against a merchant for charging an excessive surcharge.

If a merchant is issued with an infringement notice by the ACCC, there is an incentive to make payment under the infringement notice. The ACCC may not commence criminal or civil proceedings for an alleged contravention if the penalty under the infringement notice is paid.

If a Court finds a merchant guilty of breaching the ban on excessive surcharges, it may impose penalties up to a maximum of $1,164,780 for a company, and $233,100 for a person other than a company. This maximum penalty is significantly higher than that under an infringement notice.

A Court may also impose other penalties such as orders to undertake a community awareness program, to publish an advertisement of the infringement, to attend trade practices awareness training or to implement a trade practice compliance program.

Making payment under an infringement notice will potentially avoid the time and costs of litigation and ensure that the penalties payable by a merchant are not in the discretion of the Courts.

Action points

If you charge for credit or debit card payment be sure to:

  • Calculate the ‘cost of acceptance’ as soon as possible so that you do not apply an ‘excessive’ surcharge; and

  • Retain adequate documentation of the costs of acceptance and the amounts charged to customers.

The new rules target the level of surcharge. Merchants should also remember that charging any surcharge requires agreement from the customer. Merchants may wish to review their customer engagement protocols to ensure that these existing requirements are also being met.

Authors: Priti Joshi and Oliver Shtein

[1] Competition and Consumer Amendment (Payment Surcharges) Act 2016 (Cth)

[2] Payment Systems (Regulation) Act 1998 (Cth), Standard No. 3 of 2016