At present, no law prevents merchants from setting surcharges to recover their costs of accepting payments. Merchants are permitted to pass surcharges on to customers who choose to pay using a method that is more expensive for the merchant to offer. Under the primary Act, the Commerce Commission can issue merchant surcharging standards for the purpose of ensuring that surcharges are no more than the cost to the merchant of accepting that payment method. The Commerce Commission has not yet issued any merchant surcharging standards.

Merchant surcharges often apply to credit card and contactless debit card transactions, generally ranging from 0.7 to 2 percent. The Commerce Commission estimates that consumers pay up to $150 million in payment surcharges each year, of which an estimated $45–65 million likely exceeds merchants’ reasonable costs. On a per-transaction basis, for the use of electronic cards in New Zealand, this means consumers are paying around 3 cents per transaction in surcharges that exceed merchants’ reasonable costs.¹

Clause 13 of the bill as introduced would amend the regulation-making power in section 54 of the principal Act so that regulations could also be made for the purposes of new section 28B. This new section (inserted by clause 7 of the bill) comprises two elements:

• New section 28B(1)(a) specifies the ban as announced. It would prohibit merchants from charging a payment surcharge for any in store payments made using the EFTPOS, Visa, or Mastercard payment networks.

• New section 28B(1)(b) would allow the ban to be extended to cover “any other circumstances” prescribed by regulations made under section 54.

This second part of the provision is what is known as a Henry VIII power: it would allow secondary legislation to be made to extend the scope of the primary legislation. While such provisions can be a cause for concern, they need not be if safeguards are included to prevent the misuse of the power. The Regulations Review Committee noted that the bill includes several safeguards to limit the misuse of the new Henry VIII power. It recommended that we require officials to justify the use of the power and consider whether more safeguards should be inserted.

We have looked carefully at the proposed regulation-making power and consider that it is justified. The power is intended to provide flexibility to extend the circumstances in which it is appropriate for a prohibition on payment surcharges to apply. It also reflects the dynamic nature of the retail payment system and the potential need to move swiftly to address any unintended circumstances. The ban could be extended, for example, to include online payments or American Express payments.

We note that the Minister’s delegated regulation-making power would be subject to several layers of safeguards. In addition to the controls currently specified in Cabinet policy and in section 54(2) of the principal Act, clause 13 of the bill would insert further statutory safeguards as new section 54(2A). Before recommending the making of regulations to extend the ban, the Minister would need to:

• consult with persons considered likely to be significantly affected by the regulations, or representatives of those persons (section 54(2) of the principal Act)

• consult with the Commerce Commission (new section 54(2A)(a), inserted by clause 13)

• have regard to the purpose set out in section 3 of the primary Act (new section 54(2A)(b)(i), inserted by clause 13)

• have regard to any merchant surcharging standards that may be affected by the proposed regulations (new section 54(2A)(b)(ii), inserted by clause 13).

In addition, the Minister may only make a recommendation if it is for the purpose set out in new section 28A, which is to prohibit surcharges in certain circumstances where it is in the interests of transparency, certainty, and convenience for consumers. Finally, any resulting regulation would be secondary legislation subject to the normal requirements including publication, and review and disallowance by the Regulations Review Committee.

While we consider these safeguards satisfactory, we agree with the suggestion by the Regulations Review Committee that they could be supplemented by requiring publication of the Minister’s reasons for recommending regulations under the new empowering provision.

We therefore recommend amending clause 13 to insert new subsection (2C) into section 54. This would require the Minister’s reasons for making regulations related to new section 28B(1)(b) to be published together with the regulations.