Budget airlines and travel companies will have to stop hiding card fees for online payments or face enforcement action, the Office of Fair Trading announced today.
And it wants transaction fees for debit cards banned – as they are the online version of cash.
Airline, rail and ferry customers often have to click through multiple pages online before the payment charge is added to the end price.
Transaction booking fees are defended by companies, such as Ryanair, EasyJet and other budget airlines, as an administration fee associated with the cost of booking. However, they typically hugely outweigh the actual cost of processing a payment.
The OFT has now ordered firms to make payment charges clear in the headline price, to stop a surprise card surcharge at the online checkout.
It also wants to abolish payment fees for debit cards, as they are the online equivalent to cash and called for the Government to change the law to stop sneaky surcharges on customers.
The OFT said that it has found considerable evidence of travel firms using drip pricing practices for card payments online. Drip pricing is where additional charges are added to the total price after consumers have filled in a number of web pages during the payment process.
The investigation focused on the travel sector, where the OFT estimates UK consumers spent 300million on payment surcharges during 2009, and aims to cut the cost for travellers when booking online - but the rules should be applied to all online traders.
Budget airline Ryanair said that it would be ‘unaffected by the OFT investigation’ despite applying an administration charge at the checkout. It charges customers 6 each way, per passenger, to pay for flights using a credit card. For a family of four going on holiday that would add 48 to the cost of return flights. It argued that as this charge can be dodged by using a special card payment method, it is optional.
Ryanair’s Stephen McNamara, said: ‘Ryanair is unaffected by the findings of the OFT investigation into the Which? (Who or What) complaint on debit/credit cards fees as we don’t impose any debit/credit card fees.’
‘The airlines optional fees, including its administration fee, are fully avoidable by all passengers by using a pre-paid Mastercard.’
He added: ‘We are upfront about our fees and already comply with the OFT guidelines – customers can access our administration fee information via link in the masthead on the site’
The super complaint on sneaky fees
The announcement on surcharges was made following a super complaint to the OFT from consumer group, Which? in March earlier this year.
Which? highlighted low-cost airlines as the worst offenders, with cinemas, hotels and even some local authorities starting to copy them.
The consumer group previously said that on average it costs 20p per debit card payment and no more than 2% of the total value for a credit card transaction.
Peter Vicary-Smith, chief executive of Which?, said: Thousands of people have told Which? that hidden or excessive card fees are unfair, and were delighted that the OFT supports this view – its a victory for consumers.
We want to see the measures recommended by the OFT put in place as quickly as possible and finally put an end to the practice of card surcharging. While we understand that some of the regulatory changes will take some time, we urge the OFT to take steps immediately to ensure that consumers know the true cost of their purchases up-front.
Businesses can start to be upfront and fair over card charges today theres no point waiting until the OFT forces action. Industry shouldnt drag its feet over this.
If businesses continue to mislead consumers by imposing hidden card charges the OFT can take enforcement action to stop them.
Prashant Vaze, head of fair markets at watchdog Consumer Focus said: This is a victory for common sense. The OFT has confirmed what we all suspected – that online firms have been pulling the wool over their customers eyes.
Consumers have rightly been baffled about the reasons why they are being asked to pay unreasonable charges when using debit cards, especially when they bear no relationship to the costs these companies actually incur. Customers want traders to be honest with them about costs from the start and not face hidden charges added at the end.
‘Consumers would also warmly welcome the Government taking steps to end unwarranted surcharges on debit cards altogether.