Opinion: Retail council hopeful that feds will crack down on Visa, MasterCard

The Retail Council of Canada appears confident that merchants will soon get relief from what it calls excessively high fees that are charged to retailers when their customers pay by credit card.

The Harper government has been urging the big banks and credit-card companies to lower these fees voluntarily.

If the banks and credit card companies fail to comply, the Retail Council of Canada says it expects the government to force them to do so.

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Phil Norris, a spokesperson for the Competition Bureau, said in an e-mail to OBJ that the bureau believes “Visa’s and MasterCard’s rules have effectively eliminated competition from merchant acceptance of their respective credit cards, resulting in increased costs to businesses and, ultimately, consumers. Canadian merchants who accept Visa and MasterCard credit cards pay a fee ranging from 1.5 to three per cent, or more, of the cost of each purchase.”

In a decision one year ago, a federal tribunal ruled that the Competition Bureau had failed to prove that Visa and MasterCard had engaged in anti-competitive behaviour.

Since then, the federal government has been seeking an alternative means to persuade – or force – the banks and credit card companies to lower their fees to merchants.

“We would like to see these fees reduced voluntarily,” Karl Littler, the retail council’s vice-president of provincial government relations and strategic issues, told OBJ. “If not, we expect a reduction to be mandated by the government.”

It is not known whether the government believes it has existing powers that would allow it to require Visa and MasterCard to lower their fees to merchants. If not, presumably legislation would be required.

Mr. Littler said the fees have risen substantially as banks and credit card companies have greatly increased the rewards and benefits offered to card users. But he said his organization does not favour retailers imposing a surcharge on any of their customers who pay by credit card.

The Competition Bureau’s Mr. Norris said in his e-mail to OBJ: “Consumers are generally unaware of the substantial costs imposed on merchants as a result of using credit cards, in particular high-cost premium rewards cards, as the Visa and MasterCard rules prevent these card acceptance fees from being visible to consumers. These costs are ultimately passed on to all consumers, regardless of how they pay for their purchases.”

Indeed, this controversy goes way over the head of most consumers, even though it affects everyone. Last year, the Consumers’ Association of Canada and Consumers Council of Canada actually applauded the federal Competition Bureau’s failure to prove that Visa and MasterCard had tried to stifle competition, saying the tribunal’s decision protects consumers from “price surprises” at the checkout counter.

Under the two companies’ rules, once a merchant agrees to accept any Visa or MasterCard product, the merchant must accept all credit cards offered by that company, including high-cost premium rewards cards.

Canadian merchants estimate they pay about $6 billion a year to banks and credit-card companies. Of course, the merchants get quite a bit for their money – not least being all those impulse purchases by those of us (including me) who feel the cards burning a hole in our wallets. After all, it’s not really money when you pay by credit card, is it?

So how much is too much when it comes to fees charged to merchants?

Mr. Norris of the Competition Bureau says Canadian merchants pay about twice as much as their counterparts in Europe, but slightly less than retailers in the United States.

At that rate, Canadian retailers could stand to gain as much as $3 billion a year if Visa and MasterCard agreed – or were compelled – to lower their fees to European levels.


Michael Prentice is the OBJ’s columnist on retail and consumer issues. He can be contacted at news@obj.ca.

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