Ruling Could OK User Fee for Premium Credit Cards in Canada

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A ruling this week on a complaint against Visa and Mastercard could drastically change how consumers and merchants utilize credit cards in Canada.

The federal Competition Tribunal is set to issue a decision Tuesday on whether rules imposed on merchants by the credit card companies are too restrictive.

Under the current rules, merchants must accept all Visa and MasterCard offering, but are prevented from charging an additional fee to those who pay with premium cards, which come with higher costs. If the court strikes down the rule, it could allow merchants to either reject certain cards that offer incentive points, or charge customers more for using them.

In May of 2012, Canada’s Commissioner of Competition filed a formal complaint with the tribunal, accusing Visa and MasterCard of engaging in anti-competitive behavior. The complaint says consumers have been forced to pay an estimated $5 billion worth of hidden fees each year as a result.

“Without changes to the rules, merchants will continue to face high costs for accepting credit cards, and all consumers, even those who use lower-cost methods of payment like debit or cash, will continue to pay higher prices,” Commissioner Melanie Aitken said in a statement at the start of hearings.

According to the Retail Council of Canada, the current rules allow Visa and MasterCard to charge escalating interchange fees to merchant who accept their cards without allowing them the choice of rejecting those cards that carry higher fees.

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Interchange fees are charged by the banks and credit card companies on every credit or debit card transaction. Fees typically range from 1.54 percent for accepting a basic credit card to as high as 2.65 percent for “premium” cards that offer cardholders travel points or other incentives.

If the ruling is struck down, consumers could soon face retailer surcharges for using premium cards.

“If merchants were allowed to surcharge – add an extra cost – that would be a very bad consumer experience,” said CBA president Terry Campbell. “If they were allowed to, in effect, discriminate among cards or accept some cards and not accept others, again that would not be a good customer experience. Changes to those two rules could negatively affect the interests of consumers.”

Overall, critics are hoping the tribunal ruling will move the federal government toward imposing a cap on interchange fees, as is the case in Australia, New Zealand and some European Union countries.