The Minister for Enterprise, Trade and Employment proposes to commence the remaining provisions of the Consumer Protection Act 2007 (No. 19 of 2007) later this year. The particular provisions (Sections 48 and 49) relate to the imposition of additional charges by traders in instances where customers choose to make payment for goods or services by a particular method. The Minister has invited Dublin Chamber to comment on several matters of these sections. Dublin Chamber of Commerce invites members to comment on this proposal, please contact Patrick King (01 6447227 or patrick@dublinchamber.ie).

Department of Enterprise, Trade and Employment Summary of Sections 48 and 49 and the issues surrounding them

Section 48 of the Consumer Protection Act 2007 prohibits retailers who accept payment for goods and services by more than one of the “relevant methods” of payment prescribed under the Act, namely cash, direct debit or credit card, from imposing an additional charge on a customer by reason of accepting payment by one “relevant method” of payment over another. Furthermore, the Section provides that an additional charge is deemed to have been imposed if the price charged by a trader for a product where a customer uses one of the prescribed methods of payment is greater than the price charged for the product where one of the other prescribed methods of payment is used. Section 48 also allows the Minister to make regulations prescribing other methods of payment as relevant methods for the purposes of the section.

Section 49 of the Act provides that where traders impose additional charges in instances of customers making payment by a particular relevant method and where the imposition of such charges is not prohibited by Section 48 (i.e. by reason of the fact that the trader only accepts payment by one relevant method or that the trader accepts payment by different relevant methods and imposes the same additional charge in respect of each of those relevant methods), the trader is required to ensure that any representation by the trader of the price payable for a product must state that price as a single amount inclusive of the foregoing additional payment charges.

Concerns raised in relation to the introduction of Sections 48 and 49

The inclusion of Sections 48 and 49 in the Consumer Protection Act gave rise to representations and concerns being raised by a number of traders, their trade associations and others particularly in relation to the impact of the sections on their businesses.

Principal among these concerns was the view that the said sections and in particular Section 48 would prevent traders from passing on the cost of accepting payment by particular relevant methods of payment with consequent significant impacts on the traders’ businesses, that the provisions would undermine price transparency, that the provisions would prevent traders from incentivising customers to use more efficient methods of payment and that the provisions were not in accord with the Unfair Commercial Practices Directive.

With regard to the passing on of the costs involved in accepting payment by particular methods, a number of traders and their trade associations particularly in the travel agent industry were concerned that because of the competitive trading environment and the tight margins under which they operate, Section 48 could have the effect of obliging traders to either cease accepting payment for holidays by particular methods of payment such as credit cards or to increase the price of holidays to all customers irrespective of the method of payment chosen or indeed to sell some holidays at a loss which in turn could lead to the closure of some travel agents. By way of contrast it has also been argued that all methods of payment involve some element of cost and Section 48 in no way prevents traders from recovering costs arising from accepting payment by particular payment methods. It is also the case that the vast majority of traders do not impose additional charges/surcharges by reason of accepting payment by particular methods.

In the area of transparency, some traders have argued that imposing additional charges when customers make payment by particular methods such as credit cards makes it transparent to the cardholder the cost of paying with a card and that the effect of prohibiting surcharging as proposed in Section 48 would be to remove that transparency.

In contrast, others maintain that notwithstanding the practice of retailers in particular sectors, such as the travel trade, engaging in surcharging, the majority of cardholders are not aware of the merchant fee imposed by credit card companies on retailers acquired for the purpose of facilitating payment by credit card. It has also been argued that given the prevalent practice of “blending” under which the same additional charge/surcharge is applied to different card products irrespective of any variations there may be in merchant fees that there is little pro-competitive price transparency in the current surcharging practices.

A further concern raised was that Section 48 by obliging traders not to discriminate in terms of the price of goods and services by reason of the relevant method of payment chosen to pay for such goods and services would have the effect of preventing traders from offering discounts to customers who agree to use more “efficient” payment methods such as direct debit. Others have argued that the practice of discounting in respect of payment methods is somewhat arbitrary in that traders often only offer discounts where the traders preferred “efficient” method of payment is used and do not offer discounts in respect of other “efficient” methods of payment. It has also been argued that discriminating in favour of “efficient” payments does not take into account the limitations of such methods in terms of the customer’s ability to withhold payment or only make part payment where the level of service is below par. Concerns have also been expressed that discounting in respect of customers who agree to make payment by methods such as direct debit could effectively penalise many vulnerable groups of consumers who are outside the mainstream of financial services.

The other principal concern relates to the suggestion that Section 48 is not in accordance with the maximum harmonisation nature of the Unfair Commercial Practices Directive, the provisions of which were given effect by the Consumer Protection Act 2007. In contrast it is contended that Article 3(9) of the Directive (which states that “in relation to financial services, as defined in Directive 2002/65/EC, and immovable property, Member States may impose requirements which are more restrictive or prescriptive than this Directive in the field in which it approximates”) and Article 2(b) of Directive 2002/65/EC (which defines “financial services” as “any service of a banking, credit, insurance, personal pension, investment or payments nature”) effectively exempt Section 48 from the maximum harmonization provision of the Unfair Commercial Practices Directive.

Legislation and the No Discrimination Rules (NDR)

Prior to the enactment of Section 48, the practice of retailers imposing additional charges solely by reason of payment method (commonly referred to as retailer/merchant surcharging (or credit card surcharging where the retailer imposes a charge for paying by credit card)) was not illegal. Notwithstanding this, the rules of the various payment card schemes included a specific no discrimination rule, which prohibited retailers from imposing any additional charges for use by customers of their credit cards, where such a charge was not imposed in respect of other forms of payment. In so far as the major credit card schemes are concerned, the Visa payment card scheme continues to have a no-discrimination rule (NDR), whereas the Mastercard scheme abolished its NDR in 2005.

In terms of the position in other countries, it is understood that although a small number of Member States of the EU, including the UK, have enacted legislation permitting the practice of merchant surcharging, the majority of member states do not have legislation in this area.

At a European level, whilst it is understood that the current EU Commissioner for Competition in commenting on the NDR rules of payment card schemes has expressed the view surcharging renders transparent to the customer the costs of paying with a card, the compatibility of the NDR rules of the various payment card schemes with competition law was considered by the European Commission in 2001.

The Commission in giving clearance to the rule concluded “that on the basis of empirical evidence the abolition of the no discrimination rule would not appreciably increase competition”.

It is also understood that the Payment Services Directive, currently under discussion at European level, may include particular provisions in relation to payment card surcharging. Whilst the Directive may include a provision prohibiting payment card schemes from preventing retailers from imposing additional charges and/or discounts in instances where consumers use a particular payment instrument, it is likely that this provision may be qualified to allow Member States to prohibit the practice of merchant surcharging in the light of the need to encourage competition and promote the use of efficient payment instruments.

Issues on which the Minister is seeking views

As indicated above Section 48 prescribes cash, credit card and direct debit as “relevant methods” of payment for the purposes of the Section.

In essence, therefore, a retailer who accepts payment by more than one of the aforementioned relevant methods cannot impose an additional charge solely by reason of a customer choosing to make payment by one relevant method over another. The Section allows the Minister to make regulations prescribing other payment methods as relevant methods. As part of the consultation process, the Minister is seeking views as to whether he should make regulations extending the list of relevant payment methods. Views are sought on the following questions-

1. What is your view as to whether other methods of payment such as debit card, cheque, electronic funds transfer etc. should be added to cash, credit card and direct debit as relevant methods for the purposes of Section 48 and are there any other methods of payment which you feel should also be prescribed?
2. Will the prescription of additional payment methods pose particular difficulties for you or your business and, if so, what are those difficulties?
3. What effects will the commencement of Sections 48 and 49 have on you in your day to day activities?
4. Where payment charges are imposed by traders and where they are not in conflict with Section 48, what is your view as to effect of requiring such charges to be included in the price and will Section 49 help to ensure that the cost of the product is more transparent in terms of the final price that the consumer ultimately pays?
5. Are there specific aspects of Sections 48 & 49 on which you would like to receive guidance?

Responses to consultation

Chamber members wishing to comment to the Policy Team should contact Patrick King (01 6447227 or patrick@dublinchamber.ie).

Those wishing to respond directly to DETE can do so electronically to conspol@entemp.ie, or by post to:

Consultation on Section 48 and 49
Competition and Consumer Policy Section
Department of Enterprise, Trade and Employment
Earlsfort Centre
Lower Hatch Street
Dublin 2

Responses to the consultation paper should be submitted by Friday 7 September 2007.

Please note that all comments, observations and submissions will be subject to the Freedom of Information Acts 1997 – 2003. Consequently, when submitting material, parties should identify any information which they do not wish to have released together with an accompanying explanation.

For further information and assistance, please contact the Competition & Consumer Policy Section of the Department of Enterprise, Trade and Employment on (01) 6312617.

Appendix

Sections 48 and 49 of the Consumer Protection Act 2007
48.—(1) In this section—
“cash” means cash that is legal tender;
“relevant method”, in relation to payment, means each of the following methods of payment—
(a) cash,
(b) credit card,
(c) direct debit,
(d) any other method or methods of payment prescribed by the Minister.

(2) In this section a reference to a representation includes a reference to a representation made at any stage up to the time the trader accepts payment in respect of the product concerned.

(3) Where—
(a) a trader makes a representation that the trader will accept payment in respect of a product by any one of 2 or more different relevant methods, or
(b) it is the practice of a trader to accept payment in respect of a product by different relevant methods the trader shall not impose an additional charge on any person by reason of the person’s making payment in respect of the product by one of the relevant methods (to which the foregoing representation relates or as regards which the foregoing practice exists) as distinct from another of them.

(4) For the purposes of subsection (3)—
(a) without limiting any of the other means by which that subsection may be contravened, a trader shall be deemed to impose an additional charge, by reason of the person concerned making payment as mentioned in that subsection, if the price charged by the trader in respect of the product concerned is, where one of the relevant methods of payment is used by that person, greater than the price that would be so charged were that person to use another of them,
(b) if the representation or practice referred to in that subsection relates not only to relevant methods of payment but to one or more other methods of payment as well, that fact is immaterial, and
(c) it is immaterial that the trader can show that any expenses incurred by the trader in accepting payment by one of the relevant methods are greater than those incurred by the trader in accepting payment by another of them.

(5) A trader who contravenes subsection (3) commits an offence and is liable on summary conviction to the fines and penalties provided in Chapter 4 of Part 5.
(6) In proceedings for an offence under this section, where evidence is given that on a particular occasion the defendant accepted payment in respect of the product concerned by a relevant method which was different from that which the defendant accepted in respect of the product on another occasion in the period of 12 months preceding the first-mentioned occasion (and that previous method is also a relevant method), then it shall be presumed, until the contrary is proved, that a practice existed on the part of the defendant to accept payment in respect of the product by those foregoing methods.”.

49—(1) Where it is the practice of a trader to accept payment in respect of a product -
(a) by only one relevant method and to impose a charge on a person for the person’s making payment in respect of the product by that method, or
(b) by different relevant methods and to impose on a person the same charge for the person’s making payment in respect of the product by any of those method, the trader shall ensure that any representation made by the trader, or on the trader’s behalf, in relation to the price payable in respect of the product, states clearly that price as a single amount inclusive of the foregoing charge.

(2) For the purposes of subsection (1), it is immaterial that the trader also accepts payment in respect of the product concerned by one or more methods of payment that are not relevant methods of payment and the reference in that subsection to the practice of a trader to accept payment in respect of a product by only one relevant method shall be read accordingly.

(3) A trader who contravenes subsection (1) commits an offence and is liable on summary conviction to the fines and penalties provided in Chapter 4 of Part 5.

(4) In a case falling within paragraph (a) or (b) of subsection (1), nothing in that subsection prevents the inclusion in any representation referred to in that subsection of –
(a) an indication that the single price stated is inclusive of a charge for making payment by the method concerned or, as the case may be, any of the methods concerned, or
(b) an indication of the amount of such charge.

(5) In this section ‘relevant method’, in relation to payment, has the same meaning as it has in section 48.”