Travel firm Iglu tries to introduce £25 booking fee for customers not paying by bank transfer

Ahead of new European rules on credit and debit card charges, some British holidaymakers were told they will incur a £25 fee to pay with plastic.

Iglu, a leading travel agent which sells cruise and ski holidays, sent customers an email saying payments by credit or debit cards “will incur a £25 handling fee per transaction”.

Travellers were told that only payments made by bank transfer would escape the fee.

The EU regulations, known as Payment Services Directive 2, take effect on 13 January. The intention was to be consumer-friendly by banning firms from levying credit card charges, which can amount to 2 per cent or more. The customer is supposed to be able to choose their preferred means of payment without penalty.

But the rules were apparently drafted without consideration for the special characteristics of the travel industry. Unlike most retailers, travel agents face a severe slump in profits as a result of the changes. The “interchange fee” – the margin banks charge each other – is now capped at 0.3 per cent for credit cards and 0.2 per cent for debit cards. But other elements can increase the card-handling cost to around 2 per cent. Agents are required to pay the fee on the entire price of the trip, even though their commission is a fraction of the total.

Iglu typically earns 12 per cent in commission from tour operators. On a £1,000 holiday, its margin would be £120. Under the new rules, though, assuming a 2 per cent handling charge on credit card payments, it would lose £20 — one-sixth of its revenue. It is telling customers: “Iglu.com are in a healthy financial position, however we are not in a position to absorb the increase in costs that will likely incur as a result of the change in legislation without making certain provisions.”

An Iglu Cruise customer who did not want to be named told The Independent: “The Government needs to close this loophole as a matter of urgency.

“Some might say that the legislation should perhaps have been more carefully and comprehensively drafted in the first place. It always pays constantly to ask the question ‘What if?’.”

When The Independent contacted Iglu, the company said the plan to charge a fee had now been dropped after consultations with ABTA, the travel association.

A spokesperson for Iglu said: “We originally considered adding a charge for customers paying over the phone, in order to fund an accounts team who would be taking these manual payments. However, we have now been advised by ABTA that asking customers to pay for phone payment isn’t viable, so going forward we will not be charging a fee.”

While credit or debit cards will be allowed for paying deposits or for imminent departures, for most customers the only way to pay the balance of a trip would be by bank transfer. The spokesperson said: “The refined process will be as simple as now and will be at a lower consumer cost with the same protection.”

But the customer who contacted The Independent said: “Bank transfers are a notoriously risky way of settling bills. As far as I am aware, once you’ve pressed the ‘go’ button, they’re irretrievable; so as a result of just one small mistake, the supplier doesn’t get the money and the customer never sees it again. Tough.”

Once the new EU regulations take effect, Iglu will switch off its secure online payments portal.

When the UK Government announced the changes last July, the economic secretary to the Treasury, Stephen Barclay, said: “Card charging in Britain is about to come to an end.

“This is about fairness and transparency, and so from next year there will be no more nasty surprises for people at the check-out just for using a card.”

A spokesperson for ABTA said: “It is a particular problem for travel firms given the high value of transactions and that regulation designed to reduce the costs of taking card payments has not been effective – leaving travel companies picking up the bill for these payments which in some cases may be extremely high.

“As the current legislation has largely not succeeded in reducing consumer costs, partly as a result of focusing only on one element of the overall cost of taking card payments, ABTA is calling for an urgent, properly considered, review of the card payments system.”