Credit Card Processing Fees

After being stung by a flood of premium credit cards in the market that carry higher processing fees for merchants, Canada’s independent businesses on Wednesday asked the government to figure out a way to block the banks from sending out cards with new fees and features if consumers haven’t asked for them.

The Canadian Federation of Independent Business, representing 105,000 small and medium-sized enterprises across the country, also implored senators probing Canada’s credit and debit card systems to allow retailers to refuse certain credit cards or offer discounts for other payment methods that don’t cost merchants as much to process.

In recent months, both MasterCard and Visa Canada have introduced higher interchange rates, passed on to banks, to process payments with “premium” credits. The cards were distributed unilaterally to some bank customers last year. The Competition Bureau last week testified that it has launched an investigation into whether the companies, by hiking the fees, violated a provision of the competition act, outlawing the abuse of a dominant position in the marketplace.

Testifying at the Senate banking committee’s hearings on Wednesday, CFIB President Catherine Swift said this is just the latest example of why greater transparency and oversight of these financial institutions is needed — and new regulations if necessary. Swift also pleaded for Ottawa to block any shakeup of Canada’s debit market, which the business federation argues will result in higher merchant fees passed on to consumers through higher price tags.

Both Visa and MasterCard plan to enter Canada’s debit market by the fall to compete against Interac. Currently, the non-profit association that dominates the debit market with low transactions fees set on a cents per transaction basis rather than on a percentage of the value, has already applied to the Competition Bureau to become a profit-driven operation in anticipation of Visa and MasterCard entering the market.

Warning of increased debit fees for businesses if the restructuring of the debit market occurs, the CFIB testified that Interac should remain as Canada’s debit transaction system because it has served merchants and consumers well. The CFIB also argued debit charges should not go the way of transaction fees for credit cards, which are set as a percentage of the value of the sale.

The Conservative government heard the same message Wednesday in the House of Commons, where the New Democrats consumer protection critic called for regulations to prevent credit-card companies like Visa Canada from “fleecing” consumers.

By Sarah Schmidt, Canwest News Service April 2, 2009

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