In August 2002, the Reserve Bank of Australia announced a number of reforms designed to improve efficiency and competition in Australia’s credit card system. For consumers, the biggest of these changes involves the cost of using credit cards.

Financial institutions have always charged businesses a fee each time a customer pays for goods or services by credit card. But businesses have never been allowed to pass these fees directly onto their customers. In many cases, the fees have been recovered in less direct ways such as overall higher prices.

From 1 January 2003 this restriction was lifted.

Businesses now have a choice - to pass the fee onto customers or not. Consumers also have a choice - to pay the fee or avoid it by not using a credit card.

The reform does not mean businesses are obliged to pass on the fee. But if they do they have a number of obligations.

Obligations of businesses that charge fees

The obligations of businesses that charge fees are as follows:

• Customers must be informed that fees apply to purchases made by credit card. This can be achieved through clear and prominent messages on bills as well as clear and prominent in-store and/or point-of-sale signage. Where businesses supply services, they should provide this information before the contract to supply is entered into or, if there is an existing contract, once any fee for credit card payment is introduced. The need to inform customers of any credit card fee also applies to Internet, telephone and mail order sales.

• Customers must be told the amount of the credit card fee (expressed in $ or as a percentage), before they make the purchase or sign a contract.

• Customers must not be misled into thinking that the business has no choice about charging a credit card fee.

• Businesses must not enter into agreements or understandings with other businesses, such as whether or not to impose a credit card fee or the amount of the credit card fee that will be charged. Agreements or understandings like this are illegal under the Trade Practices Act and significant penalties may be imposed on the businesses involved.