British retailers will be forbidden from forcing customers to pay surcharges when they use a credit card, under new rules announced by the U.K.'s Treasury Ministry on Wednesday.
"Rip-off charges have no place in a modern Britain," said Economic Secretary to the Treasury Stephen Barclay.
British consumers sometimes face steep surcharges for using a credit card — as much as 20 percent for purchases such as airfare, the Treasury says. The new rule, which takes effect in January, will also apply to government agencies.
"These small charges can really add up and this change will mean shoppers across the country have that bit of extra cash to spend on the things that matter to them," Barclay said in a news release about the change.
The government also said it will look at doing more to limit the costs of processing payments that credit card companies impose on retailers.
The move will save British consumers hundreds of millions of dollars. The Treasury cited figures from 2010 that showed the total value of surcharges for debit and credit cards was estimated at 473 million pounds — at least $700 million at the time.
In the U.S., at least 11 states forbid retailers from adding surcharges to credit card transactions, according to the National Council of State Legislatures. But many U.S. retailers are allowed to charge customers a surcharge for using plastic rather than cash, and even some states that outlaw surcharges allow stores to offer a discount for using cash.
New York is one of the states with a surcharge ban — but in March, the Supreme Court gave a partial victory to merchants who are challenging the law on the grounds that it could be seen as regulating free speech (New York's law prohibits retailers from telling customers about the surcharge). An appeals court had ruled that the law was a price regulation — but the case is returning to lower courts for further arguments and review.
Back in 2012, credit card companies Visa and MasterCard, along with big banks such as JP Morgan Chase & Co. and Citibank, agreed to pay some $6 billion to settle a lawsuit from retailers who said the companies had conspired to raise the fees they charge merchants. When that settlement took effect in 2013, it cleared the way for retailers to add surcharges to credit card payments — something that's commonly covered by contract, rather than state or federal law.
"Currently, merchants can pass along fees in the form of a surcharge equal to what they pay to accept the card, up to 4 percent," according to the CreditCards.com website.
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