In September 2016, new legislation will restrict credit card surcharges. As a result of these changes, card holders can also expect reward schemes to be less generous.
Frequent flyers and airlines are expected to be the most affected, along with banks. New rules will restrict business from charging a fixed fee when paying by credit card. Instead, companies will now charge a percentage of the purchase price when a transaction occurs.
Who Imposes the New Credit Card Legislation?
The Reserve Bank of Australia (RBA) and the Australian Competition and Consumer Commission (ACCC) will govern the new credit card legislation. These regulators aim to cap fees businesses charge consumers for credit card use.
These expenses, known as interchange fees will be capped at 0.8 percent of the cost of a credit card transaction. The change will come into force in July 2017. At present interchange fees are as high as 2 percent.
The new rules introduced by the RBA, flagged in December of 2015, will also cap American Express (AMEX), interchange fees. This change has been introduced as a number of banks are offering customers an AMEX card as a companion card when a new Mastercard or Visa is issued.
Before this, these cards had not been subjected to interchange fee regulation. Now they too will be capped at 0.8 percent.
How Will These Changes Affect Credit Card Users?
The introduction of the cap on interchanges fees will lower bank revenue, especially in relation to the companion card. Those cards issued directly by AMEX will not be affected.
With banks earning less from the use of credit cards, then it is expected that they will react by reducing rewards that they offer to credit card users. According to Mastercard, millions of Australians had a platinum card or higher, with rewards, and these card holders were the most likely to be affected by the changes. Based on expert analysis, it is estimated that banks and airlines will lose between $600 and $800 million in revenue when the legislation comes into force. Therefore, to recuperate this loss of revenue banks may try to raise annual credit card fees or charge higher interest rates on card purchases.
Also from September, big businesses who charge surcharges for the use of a credit card when paying for goods or services will also be regulated. These firms will only be able to charge a fee to recoup the cost imposed on them by a third party when a credit card is used. For instance, if a customer uses a credit card to make a purchase and the business terminal provider charges them .25 percent of the purchase price for that transaction, then this is the only fee that can be charged for the use of the card.
At present, Qantas charge $7.00 for all domestic travelers using a credit card to pay for flights. Virgin Australia, on the other hand, charges $7.70 for a booking and service fee and says that this price includes a credit card acceptance fee.
The RBA suggest that the new changes will reduce card costs for credit card users. However, financial experts are suggesting that these changes will encourage consumers to spend more on their credit card so that they get the same amount of frequent flyer points they were receiving previously.
How Can You Better Manage Your Credit Card?
According to data, Australians rack-up $32 billion in credit card debt annually. Of this sum, $5 billion is paid in interest.
To avoid being a contributor to this interest debt, you can look critically at how you use your credit card, then determine how you can reduce your spending. Here are a couple of tips to help you achieve this:
- Set yourself a budget – Do not just buy an item because you want it. Work out if you can afford to purchase the item.
- Plan ahead – Know how you will pay for the item and when. Use the interest-free period on your credit card. Pay off the item in full before your next statement is due.
Are you seeking to consolidate debt and reduce payments? If you said YES, then contact eChoice. We can help.
Written by eChoice
Since 1998, eChoice has helped more than 50,000 Australians secure a home loan through its network of over 25 lenders and hundreds of loans. Best of all our service is cost and obligation free!