Consumer groups and the majority of participants in the payments industry will be pleased with the Government's decision to ban excessive merchant surcharging on card payments but they will be hoping that it can come up with a better solution than the one proposed by the Financial System Inquiry.As part of the Government's response to the FSI, Treasurer Scott Morrison said the Government would legislate to ban merchants from imposing unfair card surcharges that are greater than the cost to them of accepting payment by card.The Australian Competition and Consumer Commission will be responsible for enforcing new surcharging regulations.In its final report, the FSI said surcharging could improve the efficiency of the payments system by providing accurate price signals to customers on the cost of using different payment methods. It supported the principle that merchants can surcharge to reflect their relative costs of accepting different payment methods.However, it acknowledged the high level of consumer dissatisfaction with excessive surcharging (5000 submissions were on the topic) and recommended that appropriate levels of surcharging could be achieved by providing merchants with clearer surcharging limits.It recommended a three-tiered approach: low cost system providers, such as systems subject to debit interchange fee caps, should have the right to prevent merchants from surcharging; medium cost providers, such as systems subject to credit interchange fee caps, should be required to apply surcharge limits set by the PSB; and higher cost, unregulated system providers should continue to apply reasonable cost recovery rules.In its response to the FSI report, the Australian Payments Clearing Association said the three-tiered approach appeared "complex and potentially difficult to implement."APCA said the problem was in monitoring and enforcement - a view echoed in a number of other submissions.The Australian Bankers Association said a simple cap or upper limit would be preferable to the three-tiered arrangement.American Express said: "The proposed three-tiered surcharging standard is overly complex and requires the RBA to choose a limit for the 'medium cost' tier, which will ensure almost all merchants either under or over-recover their card acceptance costs."According to the Reserve Bank's most recent surcharge data (which was released in June last year), consumers are paying surcharges on 4.1 per cent of their card payments, with the median value of charges 1.8 per cent of the purchase price.The median for payments using Visa and MasterCard was 1.5 per cent and the median for payments using American Express and Diners was two per cent."Based on other information about the range of merchant service fees, surcharges up to around these levels would not seem obviously at odds with the card acceptance costs of many merchants," the RBA said."However, card surcharges were distributed across a relatively wide range, with a small proportion of reported surcharges being ten per cent or more of the payment value."