Some FNB business customers have been scratching their heads after receiving a warning from the bank about surcharging.
The notice, from FNB Merchant Services, was headlined Surcharging: warning: “This notice serves as a reminder that in terms of Your Merchant Agreement engaging in the practice surcharging is strictly prohibited. Surcharging involves penalising a customer for using a card to tender payment for goods and/or services ie a Merchant charges a card holder more than a cash-paying customer. The amount charged to all customers should match the displayed or advertised price of the goods and/or services.”
The notice continues, saying surcharging is prohibited in terms of the domestic card clearing rules, which are set by the Payments Association of South Africa (Pasa), the Card Association Rules and in terms of the Merchant Services general terms and conditions, which form part of business banking merchant agreements.
It says if customers surcharge, the bank reserves the right to immediately terminate their merchant agreement; and impose fines or penalties.
What’s going on here, Grant (surname withheld for professional reasons), a psychometrist from Joburg wanted to know.
“I was wondering if you were aware of this. This is a letter I received from my bank recently. What it says is that you can’t charge more for your service if paid by card, as this is ‘surcharging’.
“What it really means, however, is that you aren’t allowed to give a client a discount if they pay cash! Because that may suit the merchant, who does the work, and it may suit the client, who pays the bill, but it doesn’t suit the bank, who writes the laws.
“Do you think consumers are aware or this? And notice the threats to terminate service and steal money out of your account if you don’t comply. I certainly wasn’t aware of this before this letter arrived. And I routinely give a cash discount.”
He said he had a client who wanted to pay him via electronic funds tranfer (EFT) but insisted on the cash price. When he refused, because an EFT is not cash and there are bank fees involved, he received the letter from FNB.
“Perhaps it’s a coincidence, perhaps not. I agree it is very likely in the terms and conditions. But I think that banks would cringe in shame if the public knew that they bullied merchants into denying them a cash discount, while advertising themselves with ‘how can we help you?’ Just sickening.”
Surcharging is prohibited in South Africa though. The Consumer Protection Act says that a supplier may not require a consumer to pay more than the displayed price, ie inflate the advertised price.
Leticia Mentz, the manager for industry capability development and communication at Pasa, said the rules governing card payments were that no surcharges were allowed.
“As rightfully referenced in the merchant letter, surcharging on a card transaction is strictly forbidden and is stipulated as such in the Pasa rules. In practice this means that if a merchant advertises a product (or offers a service) for R100, the merchant is not allowed to process a card transaction for R110.”
However, she says there is no prohibition around discounting for cash - and FNB’s letter does not make mention of that either.
“The Pasa rules also don’t reference this anywhere, as it is not a payment system issue. If the merchant advertises a product for R100, and at the time of payment he offers the customer a discounted price of R90 (because it is a cash transaction), that is his prerogative.”
In some countries, such as Egypt and Australia, price gouging is commonplace. Price gouging or speculation is when sellers spike the prices of goods or services. This usually happens during times of crisis - emergencies - but it’s essentially profiteering.
In some states in the US, businesses aren’t permitted to add additional fees when customers choose to pay by credit card but they are allowed to post a credit card price and charge less when customers choose to pay cash.
In Australia, many businesses pass on transaction costs to customers. In the EU, businesses are prohibited from charging extra when credit or debit cards are used. And in the UK, it’s illegal to charge extra for credit or debit cards.
Service providers and many others - from petrol stations to restaurants and one-man retail operations - have been known to try passing on their bank charges for card transactions on to their customers. But this is illegal. They may refuse to take a card but if they do take such payments, they are bound by the merchant rules - and may not pad the prices to cover bank fees.
* Georgina Crouth is a consumer watchdog with serious bite. Write to her at [email protected], tweet her @georginacrouth and follow her on Facebook.