Government ban on "excessive" payment charges will make online transactions cheaper

"Misleading" payment charges, especially those charged for online transactions, will be banned by the end of this year according to the Department for Business, Innovation and Skills (BIS).

Under a section of the new European Union Consumer Rights Directive, companies will no longer be able to charge consumers "above cost surcharges".

The aim is to ensure that any fees that some companies add at the last minute to a bill, for example when buying rail or air tickets online using a credit or debit card, are fair and not "excessive".

The move follows recommendations made last June by the Office of Fair Trading (OFT). The Government's consumer protection agency said that UK consumers spent £300m on payment surcharges when booking with airlines during 2009.

It called on the Government to outlaw these "excessive charges" and force companies to "stop charging for paying with any debit card" in order "to make headline prices truly meaningful and comparable."

Mark Hoban, Financial Secretary to the Treasury, said in a statement: "We want consumers to be able to shop around. They have a right to understand the charges they may incur up front and not be hit through a hidden last minute payment surcharge.

"We're leading the way in Europe by stopping this practice. The Government remains committed to helping consumers get a good deal in these difficult times."

The UK will be the first EU member state to enforce this part of the new Consumer Rights Directive; which has to be transposed fully into UK law by December 2013.

Companies will still be allowed to make a charge but only for what it costs them to process a payment.

Speaking to online legal news site Out-Law, Claire McCracken, an expert in consumer protection law at Pinsent Masons, said it will force companies to be more open about unexpected charges.

"On face value it should provide greater transparency for consumers as they will be presented with charges upfront, rather than hidden charges towards the end of a transaction.

"Even if companies try to shift these hidden charges elsewhere, their 'justification' for this will be scrutinised closely and we could see precedents being set in certain sectors to determine just what exactly is justified and what is excessive," she said.

BIS will now proceed with a consultation on the proposed changes.