July 17 2013 by Ellen Roseman
Canadian retailers would like to make customers pay surcharges on some credit card transactions. They told the Competition Bureau that credit card issuers were jacking up the fees that merchants had to pay for premium credit cards.
After several years of study, the Competition Tribunal will release its decision next week. I published a blog post in May, giving both sides of the story.
The Canadian Bankers’ Association (CBA), which represents credit card issuers, is trying to spin the story in its favour. Here are comments from media relations director Maura Drew-Lytle, sent to me in case I planned to cover the release.
The federal Competition Tribunal is considering whether or not to eliminate two credit card rules which currently benefit consumers. We have now been told that this long-awaited decision will be released publicly on Tuesday, July 23, 2013.
Here is some background information that may be helpful if you decide to cover the Competition Tribunal’s decision. The outcome could have a profound impact on our well-functioning credit card system in Canada, how and where Canadians use their cards and the rewards programs they have come to value.
Background on Competition Tribunal Hearings
In December of 2010, the Competition Bureau announced that it had filed an application with the Competition Tribunal to strike down two credit card rules as anti-competitive.
The first, the honour-all-cards rule, requires that if a merchant says it accepts a Visa or a MasterCard branded credit card, then it must accept all credit cards of that brand.
The second is the no-surcharging rule, which prohibits merchants from adding an extra charge – a “retail checkout fee” – to customers paying with a Visa or MasterCard credit card.
The Competition Bureau filed an application with the Competition Tribunal to strike down these rules, which it calls “restrictive and anti-competitive rules imposed on merchants who accept their credit cards.”
The Competition Tribunal, made up of three independent panel members, heard the case in the spring of 2012, taking testimony from a witness list that included merchants, credit card companies, economic experts and the banking industry. The CBA was an intervener in the case on behalf of credit card issuers.
The banking industry believes that these rules are important protections for consumers when they use credit cards and overturning these rules could have a very negative impact on how consumers use their credit cards.
Let’s assume for a moment that the honour-all-cards rule is struck down.
You’ve taken your family out for dinner and when you pull out your Visa card to pay, you’re told that while the restaurant has a sign in the window showing they accept Visa, they don’t accept the kind of Visa card you have.
Or you could be in the grocery store with a cart full of groceries. You wait patiently in the checkout line but, when you offer your MasterCard as payment, you’re told that the store accepts some MasterCards but not yours.
Eliminating this rule would cause a great deal of uncertainty and frustration for consumers, because they may not know whether their credit card would be accepted until they finish their shopping and try to pay for their purchases.
On top of all that, the card that consumers use most to accumulate rewards points may not be accepted as much any more.
Eliminating the honour-all-cards rule could also hurt retailers. The Consumers’ Association of Canada did public opinion research and found that if retailers began accepting only certain types of Visa and MasterCard credit cards, 79 per cent of Canadians would simply go to a different retailer.
Overturning the no-surcharging rule would allow retailers to add an extra charge, a “retail checkout fee,” to a purchase made with a Visa or MasterCard credit card.
Retailers are already allowed to offer a discount for other forms of payment, but very few do. The Consumers’ Association of Canada is strongly opposed to eliminating the no-surcharging rule, as are 84 per cent of Canadians according to their research.
Australia provides a good example of what can happen when surcharging on credit card purchases is allowed.
In 2003, Australian regulators allowed surcharging in the hopes that retailers would pass on the cost savings to consumers. But that hasn’t happened.
In fact, some retailers are imposing surcharges that are much higher than the cost of their credit card acceptance, sometimes double according to consumer groups in that country.
So Australians are paying twice for retailers to accept credit card payments.
Retailers Benefit from Credit Card Acceptance
There’s one thing that has been missing in the whole debate about the cost of credit card acceptance, and that’s the many benefits that credit cards give to retailers.
Credit cards provide retailers with fast, guaranteed payment that can reduce lines at the check-out. If every payment transaction took an extra 30 seconds, that would add another 27 million hours of staff time each year.
Retailers have many expenses that are part of their costs of doing business: rent, wages, utilities, supplies, technology and a fee to accept credit cards, to name a few.
But few people know that cash is one of the most expensive forms of payment for retailers, if you include time and effort spent handling, counting, reconciling and depositing cash every day, not to mention higher security costs, such as armoured transport and safety concerns for a store’s employees.
Credit card payments allow merchants to offer customers credit without taking on the risk. New payment options, such as contactless cards, also benefit merchants and make it easier and faster for customers to make purchases.
Canada has a very sophisticated credit card industry, with a lot of choice and competition for consumers. If either the rule on no-surcharging or on honour-all-cards is eliminated, the retail experience for Canadians could be drastically changed, and not for the better.
We will be commenting when the Competition Tribunal decision comes out and have spokespeople available for interviews then.