Credit card and PayWave surcharge rates have drawn significant attention from the Commerce Commission and highlight the importance of consumer protection.
Recently, the Commerce Commission asked Wellington City Council and New Plymouth District Council, among other businesses such as Air New Zealand, to explain their surcharge rates. The surcharge rate at issue for the District Councils relates to parking fees and the Commission has queried whether the surcharge reflects the actual cost of processing these payments.
Currently, motorists in New Plymouth are being charged an extra 50c for a credit card payment on top of the $3 minimum cost for an hour’s parking – which is a surcharge of more than 15%. This was questioned because PayWave fees usually range from 1.5% to 3%, which would amount to just 4.5c to 9c for an hour’s parking. Wellington City Council faced similar scrutiny in April and decided to reduce its surcharge to 30c.
What Makes a Surcharge Legal?
A payment surcharge is an extra fee charged by a merchant to cover transactions and fees charged by service providers. The Retail Payment System Act 2022 provides that the surcharges for payment services should reflect and be no more than the cost to the merchant of the payment services used for accepting retail payments. Businesses and organisations are allowed to pass on these costs to consumers, but they must do so transparently and justifiably.
For example, when a business imposes a surcharge on consumers for credit card payments, the surcharge should only cover the fees charged by the credit card companies together with any reasonable administrative costs. The surcharge should not be inflated for the purpose of increasing profit margins. The business must also be transparent in relation to the surcharge. Consumers must be informed about the surcharge before they make a payment, ensuring that they can make an informed decision about whether to proceed with the transaction, given the surcharges.
The Commerce Commission
The Commerce Commission’s role is to enforce laws relating to fair trading, competition, and consumer borrowing. This recent surcharge issue is just one example of how the Commerce Commission actively monitors and enforces consumer protection laws across New Zealand, and works to ensure that businesses and organisations adhere to fair practices, particularly when it comes to charges that directly affect consumers.
The Commission is also responsible for upholding the Commerce Act 1986, which prohibits anti-competitive behaviour and promotes fair trading in New Zealand. The Commission often investigates cases where businesses might be exploiting their market position, engaging in deceptive practices, or restricting competition to the detriment of consumers.
Recent Enforcement: Anti-Competitive Supermarket Conduct
Supermarkets are often a sore spot for consumers, with many people struggling with the cost of groceries at present. The New Zealand grocery sector is dominated by two major retailers: Foodstuffs and Woolworths NZ.
The Commerce Commission’s 2022 market study into the grocery sector found that competition in the retail grocery sector is not working well for consumers. If competition was more effective, retailers would face stronger pressure to deliver the right prices, quality and range to satisfy a diverse range of consumer preferences. Supermarkets have also been known to engage in anti-competitive conduct to ensure other supermarkets aren’t set up nearby and they don’t need to compete for customers by offering lower prices.
On 8 August 2024, the High Court issued Foodstuffs North Island a $3.25 million fine for lodging anti-competitive land covenants with the purpose of blocking competitors in the grocery market sector. Foodstuffs North Island is one of New Zealand's largest grocery cooperatives, which is known to own retail supermarket brands such as New World, PAK’nSAVE, and Four Square.
Justice Radich stated that Foodstuffs North Island’s conduct of lodging anti-competitive land covenants reflected a deliberate effort to hinder rivals from opening new supermarkets or developing existing ones at three locations in the Lower North Island – Newtown and Petone in Wellington and Tamatea, South Napier. Such conduct breached the Commerce Act which prohibits certain land covenants that harm competition. By blocking other supermarkets from opening new stores or expanding existing ones, the covenants hindered the competition necessary for consumers to receive a fair deal.
The $3.25 million fine imposed by the Court was the largest to date under section 28 of the Commerce Act. This reflects the seriousness of the conduct and sends a clear warning to other businesses about the consequences of engaging in anti-competitive behaviour.
The above situations highlight the critical role of the Commerce Commission in protecting the interests of consumers and ensuring fair market practices in New Zealand. Whether it's scrutinising surcharges or safeguarding against anti-competitive behaviour, the Commission is tasked with maintaining a level playing field where consumers are treated fairly and businesses operate transparently.
As New Zealand continues to navigate complex economic challenges, businesses may be looking for unusual ways to increase revenue, such as through surcharges, or to block the competition at all costs. However, it is important for businesses to remember the law generally requires consumers to be treated fairly and businesses to avoid conduct that decreases market competition.
If you have questions or need advice, please contact our Business & Commercial Law Team.
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