By Effie Zahos,
, September 2008
I’ll bet you wouldn’t like being charged a fee each time you make a payment off your credit card. You’d think the card issuer would be happy you’re repaying the debt not slap you with a fee and justify the cost by saying it’s a payment handling fee.
This is exactly what happens to Money reader Peita Savage each time she makes a repayment into her GE GO MasterCard.
A payment handling fee of $1.50 applies if she pays through Australia Post and 50 cents if she pays her account by BPAY via the internet or phone.
We’re not talking hundreds or dollars here, but this irritating fee is bugging Peita. “I think that this type of charging is taking advantage of customers,” she says. “I have complained, to no avail.”
Money agrees with Peita on this one but, given only a small handful of cards charge the cardholder for making a payment (Adelaide Bank and BankWest’s low-cost cards both charge a fee of around 20 to 50 cents for paying via BPAY), it’s not really making headlines.
But watch out! Reserve Bank data shows that credit card fees have risen 170% over the past five years.
It seems as though credit card issuers are looking for new and exciting revenue-raising outlets and this may be one of them. The good news for Peita is that after a quick call from Money to GE the BPAY fee of 50 cents will no longer apply after September 3. The $1.50 fee through Australia Post will still apply.
So why do some card issuers charge a payment handling fee while others don’t? Put simply, BPAY charges the credit card provider (Visa/MasterCard/Amex etc) a fee for supplying their service.
The provider naturally enough passes this fee onto the merchant, who may in turn pass this fee onto the cardholder.
Generally the consumer doesn’t pay this fee because the credit card issuer (your bank, credit union, building society or finance company) absorbs the cost in the credit card fee. For some cards however, the cost of using BPAY is not absorbed by the credit card issuer, and is passed onto the card user.
With an interest rate of up to 28.99 percent pa on outstanding balances and an account service fee of $2.95 a month, you’d think the GE GO MasterCard could at least absorb some of these fees, given a small proportion of the $1.50 fee is actually kept by GE.
Financial research house Cannex notes another nasty fee attached to BPAY. “Depending on your merchant, if you pay a bill by credit card using BPAY it can be treated as a cash advance rather than a purchase,” says financial analyst Frank Lopez.
“This in turn means that you’re generally paying interest on that payment from day one. As cash advances usually offer no interest-free days, this can also affect your balance if you’re on an introductory offer. On many cards the cash advance rate is higher than the purchase rate, so be aware of the potential difference in these rates.”
The reason behind this is that the merchant chooses not to absorb the BPAY fee charged by your credit card issuer. The issuer instead gives them the cash, so that your BPAY credit card payment ends up being treated as a cash advance. Renters who pay their landlord with a credit card often get slugged with this fee.
For more on banking check out this month’s Money.
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