Waleed Aly:
This day a year ago the Reserve Bank announced reforms to stamp out unreasonable credit card surcharges. You know what I'm talking about – when you book a flight or something or book into a hotel and you get this surcharge that just seems pretty much to be a made up figure. Well the Reserve Bank wanted to tackle that. How's it going? Not well according to figures that have been correlated by MasterCard. They say that Australian consumers are being hit with $800 million in credit card surcharges just over the past year. Ouch! Bruce Billson, Small Business Minister joins us now. He is the Minister responsible for consumer affairs, thanks for your time.
Minister Billson:
Good evening to you and your listeners.
Waleed Aly:
So a year ago we were meant to deal with this and it was going to ban airlines, hotels and ticketing agencies and other sorts of groups from slugging customers with these surcharges that were unreasonable. Why hasn't it worked?
Minister Billson:
I think the Reserve Bank's guidelines, if I can call them that, have had some impact but there are still a couple of businesses, some notable high profile examples, where the surcharges are being applied at spectacular amounts that look nothing more than an opportunistic grab for cash off consumers and that's where the focus of the work has been. The Reserve Bank's intervention has been helpful but it hasn't stamped out all of these very unwelcome practices in all parts of the economy.
Waleed Aly:
Well probably because they are just guidelines, they don't have any teeth.
Minister Billson:
Yeah that's right and that's been essentially the issue, and also as MasterCard have revealed today, they actually land on the wrong participant in the transaction. If you and I are the ones issuing those credit cards, it's in our interest to make sure we have businesses that use them yet the guidelines land most heavily on the card issuer rather than on the merchant. The card issuers have found it a little bit difficult, despite considerable encouragement from consumer groups, government regulators and from the card issuers themselves to see merchants change behaviour in some examples.
Waleed Aly:
So when you say a little bit difficult, are you suggesting in a coded way that they are not really interested in seeing this change?
Minister Billson:
No I think they are. MasterCard and Visa would actually like people to use their card and if they find a customer or merchant using their card, that's a good thing. But then if they find them using the card as a bit of a price gouge on consumers, then it's one of those conversations where they say "look we would really rather you not behave in that way." But other than to say "don't use our card any longer" there aren't many tools available for them to bring about a change in behaviour.
Waleed Aly:
There is also no incentive for them then, is there?
Minister Billson:
That's right, those incentives are difficult. The card issuers want merchants to use them yet we've seen some examples of egregious behaviour from merchants claiming to be selling products at a certain price but when you conclude the transaction, you are paying a whole lot more. Now where that is misleading or there have been concealed charges or what is known as drip pricing, where you think you are buying an item or a service or booking a hotel room and then you find layer upon layer upon layer of additional costs that give you a final figure looking very different from the one you thought you were signing up to. There are some tools available to the ACCC to investigate that but where it's just an opportunistic chance to perhaps advertise upfront that there's a heavy surcharge that comes with the transaction, the toolkit is pretty thin.
Waleed Aly:
So if the card issuer doesn't have any incentive to do anything about this and there seems to be no instrument that can stop this kind of gouging that we are talking about, doesn't that point directly to Government failure? There has been no forceful response from Government to create that incentive.
Minister Billson:
Well I think that is one way of looking at it. I've inherited the policy settings that have been in place for a year and the advice I receive from the Commonwealth Consumer Affairs Advisory Council and from Government agencies was to see whether the Reserve Bank's intervention would actually work.
We've seen some positive responses from thoughtful merchants recognising that they are not treating their customers with due respect by applying a surcharge which was gargantuan in costs compared to the actual cost of using the card. There has been some change in behaviour but there are a few recalcitrant people out there. My message to them is to think about their customers and to change their behaviour or further intervention may be justified on behalf of the government.
Waleed Aly:
Well more than a few, $800 million in 12 months. The idea that we can rely on some kind of self-regulation within the industry seems absurd to me. There was a government commissioned report last year that was recommending that the ACCC get more teeth to deal with this and start to get tough on it. At the time, as I recall, you said that was unnecessary. Did you get that wrong?
Minister Billson:
No that was the advice we had received. The advice from the Consumer Affairs Advisory Council was there needed to be greater clarity and more surefootedness in the dual role that ASIC and the ACCC have. There are areas where if the conduct is unconscionable or there is drip pricing or some effort to mislead consumers then the toolkit can deal with that. In other areas of the payment system there are other tools that ASIC can use. But where a merchant is being upfront but behaving in such a way that looks like an opportunistic grab for cash under the guise of a surcharge, that's where the toolkit is wanting. But even in that report you point to, that $800 million in credit card surcharges is across the economy, that includes a vast number of transactions that you and I and your listeners may engage in when we simply buy our groceries or something like that, where a modest transaction fee is embedded in the price of the goods and services we buy and that works its way through to the card issuer.
So that $800 million is across the economy – it's not just these egregious examples where a few recalcitrant businesses are using the credit card surcharge as a great lurk to get a large lick of cash off a customer that is way outside the reasonable cost of them using the card they wish to use to make their purchase.
Waleed Aly:
Sure, I understand not all of it is gauging. That is the voice of Bruce Billson, Minister for Small Business and the Minister responsible for consumer affairs. Bruce it seems to me, I still can't piece this together, you've identified the hole. You've said where there is a gap in our regulatory framework; where we don't have the legislation to deal with it; where the ACCC doesn't have the teeth to deal with it; where ASIC doesn't have the teeth to deal with it. The RBA is issuing guidelines that are not really enforceable in any sort of way. The gap is glaringly obvious – it's dancing a jig in front of you. Why do you not have a really clear legislative response to it?
Minister Billson:
What we are keen to see the marketplace do what it can do at this stage that's worked effectively.
Waleed Aly:
Haven't we seen it?
Minister Billson:
Well we've seen it work effectively with consumers saying to some merchants "this is out of order" and they've changed their ways. There are a few that are resisting and my message is clear to those merchants that want to extract extraordinary sums of money through opportunistic over the top pricing of the use of a credit card to conclude a transaction, that they need to think twice.
Waleed Aly:
Yeah but they've thought twice – this is the point. They've been thinking about this, this has been going on for a long time. The Reserve Bank has made their comment that they are clearly not responding. This is the point when Government steps in.
Minister Billson:
We can't regulate everything. There are opportunities for consumers to have their voice heard and I am encouraged by the campaign that consumer groups are running and that is helpful in bringing about change.
We're trying to be thoughtful when we add additional regulation to an economy that is already groaning under too much. If we can't get the outcome that's needed and reasonable pricing of the use of credit cards to conclude transactions then a further regulatory response may be justified. But we were urged to give this Reserve Bank framework 12 months to run. I think you are timely in raising this issue about a day after the 12 months is over. I've already talked to the regulators about my sense that things aren't working as well as they should be and my message is clear "if this keeps going, then further intervention from the Government is what we need to consider.
Waleed Aly:
It's also timely raising it a day after your government announced a deregulation binge. You're going to have repeal day next Wednesday. That is you have a government here that wants to trumpet to the world that it's all about getting rid of regulation yet here is an example of where it seems to me from everything you've said, everything I've read and everything I've heard that more regulation is emphatically required.
Minister Billson:
Well if we do add additional regulation for the vast number of transactions where the credit card surcharge is something that never crosses our mind because the merchant absorbs that in the cost of goods and services we purchase, you're then applying a remedy that operates right across the economy.
If there is a cap on what the surcharge can be then that starts looking like a minimum fee that gets applied to transactions that aren't even subject to it now. So we need to think carefully about these limited areas within the economy around airlines, some taxis, some hotels and some utility companies who have been identified as continuing to do the wrong thing. Everyone else engaged in the economy is being more thoughtful in the way in which they use credit cards and the way the surcharge is paid.
That's where you are talking about an intervention that would operate right across the economy and we have a few recalcitrant enterprises that I am saying to them absolutely loud and clear "have a think about what you're doing and change your ways." I am also saying to consumers "take this into account when you're exercising a purchase choice." Then when those options are exhausted and it seems as though nothing further can be achieved without the Government putting the dead hand of regulation in, then let's evaluate whether that is justified and proportionate to the scale of the problem.