Why are airlines still charging us to pay by credit card?

Getting charged for paying by card is one of those
things that always feels patently unfair. If you're
going to run a business, then you need to take your
customers' money somehow. It's ridiculous to
penalise people for paying you.
Presumably, most companies also need to keep the
lights on in their office, or pay an accountant to do
their taxes each year. These aren't things that
customers get itemised charges for - so why should it
be ok to get a charge for paying by card? It's just a
cost of being in business.
One of my proudest moments as a consumer
campaigner was blowing the lid off part of this
scandal a few years back. I was working at Which?,
and persuaded my colleagues to use the
organisation's special powers to launch a so-called
"super-complaint" (or "super-dooper complaint" as
Ryanair was fond of calling it).
This forced the Office of Fair Trading (OFT) to look at
an issue where we thought consumers were being
mistreated. The OFT agreed that things needed to
change, and soon enough new rules were being put
in place, preventing companies from passing on any
more than the cost of processing a card transaction.
What's the real cost of paying by card?
These new rules put an end to charges for paying by
debit card. That's because it typically costs
companies a few pence to process a debit card
transaction - not the £48 that Ryanair was charging a
family of four for paying for their flights by debit
card.
However, when it came to credit cards, the OFT
conceded that it wasn't quite clear what the real cost
was - as there was so little transparency in this area.
Nevertheless, the new rules made it clear that
companies should not be passing on any more than
the costs that they incurred.
Which? bandied around the figure of 2 percent as
being the absolute limit of what customers should be
charged for paying by credit card - and hey presto,
most of the airline industry settled on charging
customers exactly that. So on a long haul holiday,
where a family of four might spend £4,000 on their
flights - they'd still be hit with up to an extra £80 for
paying by credit card.
A new cap on charges
Things carried on like that for several years. But last
month, new rules came into place which capped part
of the amount that banks charge companies for
processing card transactions. When an airline or
retailer processes a card transaction, they are forced
to pay something called the Merchant Service Charge
to their bank. Part of this charge is made up of an
“interchange fee”. (This is a world plagued by jargon).
In December, interchange fees were capped at 0.2
perceny for a debit card transaction and 0.3 percent
for credit cards.
Interchange fees are only part of the Merchant
Service Charge, but payments experts suggest that it
makes up around 70 percent of the fee that retailers
are charged. So with this new cap in place, it’s hard to
see how companies could justify charging any more
than 1 percent for paying by credit card.
Before December’s cap came into place, the
payments industry said that the average interchange
fee was roughly 0.85 percent. This also begged the
question: why have we been paying 2 percent to
airlines such as Easyjet and Ryanair for the past four
years?
Many organisations don’t charge anything for paying
by credit card. And some such as councils charge
much closer to 1 percent. All this suggests that
perhaps the airlines were never abiding by the new
rules.
Now that the 0.3 percent cap on interchange fees has
come into place, at the very least we should expect to
see credit card fees come down. The UK Cards
Association estimates that almost £900 million in
savings should be passed onto consumers.
Who's policing the rules?
But the likes of Ryanair and Easyjet are still charging
2 percent. While British Airways charges a fixed fee
of £5 a ticket which can amount to a double digit
percentage on cheaper shorthaul flights.
The reason that companies have been getting away
with this is that no one is enforcing it. Strictly
speaking, it falls to the under-resourced Trading
Standards. But consumers are also in their rights to
challenge companies in the courts.
I’m seriously considering doing just that. I’ve spent
several thousand pounds on flights over the past few
years and I’d like to challenge the airlines to justify
the excessive credit card charges that they’re passing
onto their customers.
When Radio 4’s Moneybox covered the issue on
Saturday, the airlines said they were complying with
the rules but weren’t able to provide a breakdown of
their costs.
Some companies have already started to change
their fees. Budget airline Jet 2 got rid of its credit
card fees altogether in December.
The good news is that everyone else may be forced to
follow suit in a couple of years when new European
rules banning card surcharges come into force. For
now, it’s down to the likes of Moneybox and
ourselves to shame the worst offenders into doing
the right thing. If you’ve seen examples of companies
charging for paying by card, let us know.