Wile the Competition Tribunal doesn’t have the power to levy a monetary judgment against the two credit card giants it could force them to change their operating methods.
The Competition Bureau wanted retailers to be able to do two things they were not allowed to do:
- refuse to accept high-cost credit cards but still accept others from the same brand name.
- add surcharges to counteract the higher transaction fees charged for premium credit cards.
In July 2012, Visa and MasterCard (along with several major banks) settled a long-running lawsuit that alleged the card issuers conspired to fix retail transaction fees. Visa, MasterCard and the aforementioned banks agreed to pay U.S. retailers at least $6 billion USD – and the terms of the settlement allowed U.S. retailers the right to charge their customers more if they pay with credit cards.
The Competition Tribunal’s Decision
However, on July 23, 2013, the Competition Tribunal decided the case against the higher merchant fees of premium credit cards was unfounded.
While the case was actually dismissed on a technicality, the Tribunal did look at the case and said that it would have declined to issue an order and noted that the proper solution to the concerns raised by the Commissioner is a regulatory framework.
Competition Bureau commissioner Jon Pecman said in a statement that the bureau is very disappointed with the tribunal’s decision and that “We will be reviewing the decision closely to determine our next steps.”
Other Reaction to the Decision
The Consumers’ Association of Canada was “ecstatic” about the decision, claiming that it’s a huge win for consumers.
MasterCard and Visa, as you would expect, fall into the ecstatic camp; both companies immediately issued statements praising the decision.
On the other hand, Dan Kelly, president of the Canadian Federation of Independent Business, called the decision a big loss for Canadian merchants and vowed to fight on.
The Retail Council of Canada was also disappointed. “Canadians are paying more than they should be at the register because of these high fees,” retail council spokesperson David Wilkes said. “Totaling more than $6 billion annually, these fees have a negative effect on merchants and consumers alike” (CBC News).
The Continuing Fight
Throughout 2013 and 2014, the CFIB continued to work on the problem of high credit card processing fees by joining with Interac to launch tools to encourage customers to use debit instead of credit and by lobbying all industry players and government for reductions on processing fees and improvements in disclosure and dispute resolution.
In November 2014 Visa and MasterCard announced the first-ever reduction in interchange fees (10% on average), plus a five-year freeze. (Note that American Express is not part of the agreement.)
In April 2015, the Code of Conduct for the Credit and Debit Card Industry in Canada was updated to to include mobile payments, protect fee reductions and adding a six month limit to auto-renewals.
Changes introduced in 2015 include:
- Merchants will be able to opt out of their contracts if their payment processor raises rates or doesn’t pass on savings from Visa/MasterCard;
- The entire Code will now apply to mobile payments;
- Payment processors can only auto-renew a contract for up to six months, so fewer merchants will be locked in to bad contracts.
Credit card transaction fees for merchants in Canada are still high, however, and the Code doesn’t protect merchants from signing “bad” processing contracts.
What Can You Do as a Small Business Owner?
1) Familiarize yourself with the Code of Conduct for the Credit and Debit Card Industry in Canada.
Both Visa Canada and MasterCard Canada have agreed to comply with this voluntary Code of Conduct introduced by the Minister of Finance on May 17, 2010.
If you have a complaint about a potential violation, you can contact the Financial Consumer Agency of Canada which will determine whether or not the credit card company is in compliance.
You should also read their document What Does the Code Mean for Merchants?
2) Educate your customers about the problem.
Most consumers don’t give much thought to credit card transaction fees and are not aware that some credit cards cost much more per transaction than others. Ask your customers to consider paying by cash or debit instead and let them know about the problem with premium credit cards and higher transaction fees.
The CFIB has put together some customer request signage that you can download and post by your cash register(s).
The Upshot
For the time being, if your Canadian small business accepts credit cards, you have to accept whatever Visa or MasterCard your customer presents as payment, whether it’s a premium card with higher transaction fees or not and are not allowed to add a surcharge to help cover the cost.