Payment Services Directive 2 Surcharging banned (e.g. credit/debit cards)

Background

The first Payment Services Directive (PSD) was implemented in the UK through the Payments Services Regulations in 2009. It was designed to establish a European-wide legal framework for payment services by setting the information requirements and the respective rights and obligations of payment service users and providers. It also introduced a new category of PSP (Payment Services Provider), namely ‘payment institutions’, i.e. providers of payment services unconnected to the taking of deposits or the issuing of electronic money, by laying down the authorisation requirements.

When reviewing the PSD in 2012, the European Commission found that the legislation had introduced a number of benefits. However, legislation needs to remain relevant to the environment to which it relates. The financial services industry, not least the payments sector, is experiencing rapid change as markets develop, customer needs evolve and technological capabilities advance. The PSD needed to be updated to make it future-proofed for the new breed of PSPs that are becoming increasingly active in the pan-European market.

EU Member States, including the UK, must implement the Directive into national law by 13 January 2018.

The FCA will continue as the competent authority responsible for authorising and supervising payment service providers under PSD2. The Payment Systems Regulator, a part of the FCA, will also be responsible for certain aspects which relate to payment systems.

Relevance to Insurance Brokers/Intermediaries

As indicated by the title of the Directive, the main affect will be felt by those firms that provide payment services in full. Where it will affect client firms will be if any firm makes a charge as and when the client opts to pay premium(s) by card.

Under the current system, firms can charge consumers who pay with a credit or debit card, both in person and online. Usually, this fee is a surcharge on the payment being made.

Since April 2012, the government has prevented firms from charging fees that are ‘excessive’. But many consumers still face surcharges of up to 3% on some transactions – a substantial amount, especially on big purchases.

The new ban, which will take effect from 13 January 2018, will mean “retailers and traders” are no longer allowed to charge consumers for using a credit or debit card when making a purchase.

This will apply to transactions on any credit or debit card, including Visa, Mastercard and American Express. The same will apply to government services, such as local authorities and the DVLA.

Action required

If you do collect payments from clients who use their card, you will not be allowed to add a surcharge to the payment being taken, with effect from 13 January 2018.

Therefore, you will need to ensure that:

all staff are aware of this position so that they do not make a surcharge, in error;

computer systems have been amended not to expect a surcharge;

any on-line services have been amended in line with the ban;

the Terms of Business document is amended to remove any mention of a surcharge when using a card.

If you need any help with this matter, please contact us.