Firms are to be banned from fleecing customers with “rip-off” fees when using credit and debit cards .

New Treasury rules mean retailers will be stopped from adding the hidden charges at the checkout, a practice which particularly drives up the cost of goods and services bought online.

Stephen Barclay, Economic Secretary to the Treasury, said: “Rip-off charges have no place in modern Britain and that is why card charging is about to come to an end.”

Until the new rules are implemented in January, the fees will remain. But here, consumer experts offer tips on how to avoid stealth charges when paying on plastic...

FlyBe charges customers 3% to pay with cards (
Image:
PA)

What's the new law?

Currently, fees are added to payments made on credit and debit cards, with airlines and holiday companies among the worst offenders – levying fees of up to 3% for using plastic.

All such fees will be banned in the new year. This means as well as the travel industry, ticket-booking websites, universities, corner shops and takeaway apps, plus services such as PayPal , will all be stopped from imposing the fees – which vastly inflate the cost of cheaper items.

Government agencies, such as the DVLA and local authorities, are also subject to the ban.

The Treasury said firms caught breaking the law will be forced to reimburse customers and face fines.

Withdrawing cash abroad can be expensive (
Image:
Getty)

How to avoid fees

James Daley, of consumer group Fairer Finance, which started the Red Card for Card Charges campaign, said: “Shopping around is key. Since I started my campaign, Monarch has scrapped its 3% fee, Virgin Atlantic dropped its 1.5% levy and easyJet reduced its fee from 2% to 1%.

“If booking an expensive holiday, these fees will add up and won’t be obvious until you examine the payment page, so do your
homework first.

“Also, if you are using a service provided by a local government, such as pest control, compare the fees charged by private firms, as often savings can be made.”

Always insist on being charged in local currency (
Image:
Getty)
That way you avoid the 'dynamic currency conversion' rip-off (
Image:
Getty)

The holiday card charges

Millions of holidaymakers will be tricked out of £634million this year when using credit and debit cards to withdraw at ATMs or when buying goods abroad.

Making payments in pounds rather than the local currency at shops, restaurants and even at cash machines leaves tourists out of pocket after they are tempted into a poorer exchange rate.

The practice, known as “dynamic currency conversion”, allows retailers and foreign banks to set their own conversion levels – adding up to 10% on bills.

The cost of paying in pounds on cards while abroad is the equivalent to £100 per trip for each person.

Fees average 6% per transaction but can be has high as 10%.

Banks also charge holidaymakers to use cards abroad, with average fees of 2.8% for debit and 3.5% for credit cards.

And £190million in fees will be paid by Brits for withdrawing cash, says foreign exchange firm FairFX. The average ATM fee is 2.9% for debit cards and 4.9% on credit.

Banks charge holidaymakers to use cards abroad (
Image:
Getty)

How to avoid fees on holiday

Ian Strafford-Taylor, chief executive of FairFX, shared his tips...

  • If you’re asked what currency you want to pay in, always choose local currency. And the same if you’re using an ATM.
  • Be vigilant. If you’re billed in pounds, refuse it. Write “DCC rejected” on the receipt and insist on being charged in local currency.
  • Debit and credit cards are a good back-up for travel money but if you want to guarantee your rate, use a prepaid currency card which locks in your exchange rate when you buy. If you’re using a prepaid currency card loaded with pounds, similarly always choose to pay in local currency to avoid third-party charges and rates.

Helen Saxton, of Moneysavingexpert, added: “Withdrawing cash on your credit card is recorded on your credit record. If another lender saw that, it would likely see it as a danger sign that you can’t manage your money – and it may question whether you’d be able to pay
it back.

“It’s also expensive to withdraw cash on a credit card. And while that fact doesn’t affect your credit score, it does affect your finances. That’s why our usual mantra is – ‘never, ever withdraw cash on a credit card’.

“The only exception to the rule is when using a specialist overseas credit card when on holiday, as it’s a cheap way to get cash – often beating the bureaux de change.”

Worst offenders

  • Flybe - 3% (min £%)
  • Swinton Insurance - 2.5% (min £5)
  • North Norfolk District Council - 2.5%
  • East Herts District Council - 2%
  • Ryanair - 2%
  • Flight Centre - 2%
  • Queen Mary University - 2% (on tuition fees)
  • DVLA - £2.50 flat fee
  • Thomson Airways 2% (max charge is £95 per transaction)
  • Tameside Met Borough - 2%