Be prepared to pay fees to use your credit card
Previously, merchants who charged a surcharge for credit card payments did not follow the rules set by Visa and Mastercard. (Archives)
As of October 6, Canadian merchants outside Quebec may impose additional fees on customers who pay by credit card. These surcharges were previously prohibited by Visa and Mastercard, which had to change their policy following a legal appeal.
These surcharges cannot exceed the fees that financial institutions charge merchants when they accept payment by credit card, according to the rules established by Visa and Mastercard. According to the experts interviewed, these interchange fees vary between 1 and 3% of the amount of the transaction in Canada.
Companies that choose to impose a surcharge must inform customers and clearly state its value. They are also required to notify Visa and Mastercard of their intention to collect these new fees at least 30 days in advance.
This new policy does not apply to merchants in Quebec since Quebec legislation prevents a company from charging an amount higher than the advertised price. The merchant who charges such fees is committing an offense liable to criminal prosecution, notes Charles Tanguay, head of media relations at the Office de la protection du consommateur.
A survey conducted by the Canadian Federation of Independent Business (CFIB) of its members reveals that at least 19% of companies surveyed intend to introduce additional fees for credit card payments.
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Most merchants remain undecided on this issue, according to Jasmin Guénette, vice-president of national affairs at CFIB. There is always the fear of losing sales, of losing customers if we implement additional fees, he explains.
This is precisely the concern of Nadège Nourian, the owner of a pastry business in Toronto.
Nadège Nourian has owned a baking business in Toronto since 2009.
We are in extreme inflation. […] How are we going to pass even more costs on to consumers? It is not possible, argues Ms. Nourian. According to the owner, her customers will turn to her competitors if she implements such fees, when she has already had to increase her prices given the rise in the price of her ingredients.
Due to physical distancing measures, Nourian says her customers were almost exclusively credit card users during the pandemic. Faced with this strong trend and the simplicity of processing this form of payment, she no longer accepts cash in her business.
Although credit cards make it easier to employees, the owner recognizes that interchange fees are a considerable expense for her business.
Interchange consists of fees that the merchant pays to the bank of the credit card holder who made the payment to compensate, among other things, for the advantages of the card. (Archives)
Ms. Nourian estimates that she pays tens of thousands of dollars a year in transaction fees, she who operates four branches and hires about fifty employees.
< p class="e-p">She is not the only one to observe an increase in credit card use. According to a report by credit reporting firm Equifax, monthly spending associated with this form of payment increased by 17.5% in the first quarter of 2022 compared to the same period last year.
In its 2021 Annual Report, the Payments Canada Association notes that rewards and cashback continue to be the number one reason consumers turn to the card credit.
However, someone has to foot the bill for these benefits, a responsibility that has traditionally fallen to companies. The more privileges the card offers to its holder, the more it costs merchants to accept it, notes Mr. Guénette of the CFIB.
In 2018, the federal government signed an agreement with Visa, Mastercard and American Express to lower their card transaction fees to an average of 1.4% for five years, a rate that the Department of Finance recognizes as one of the highest in the world.
Given this rate and the total value of transactions paid by credit card, which Payments Canada estimated at nearly $570 billion in 2020, Canadian merchants would be shelling out approximately $8 billions of dollars annually in interchange fees.
These fees deemed unreasonable by merchants were the target in 2010 of a class action that forced Visa and Mastercard to allow merchants to impose a surcharge for credit card payments.
The allegation was that banks and credit card companies had implemented a system that [prevented] competition for interchange fees, says Jeff Orenstein, one of the lawyers who represented Canadian merchants in this case.
With these anti-competition rules, the costs were higher than in a [free] market, details the lawyer from the firm Consumer Law Group in Montreal.
No verdict has been rendered in this dispute. Several major Canadian banks as well as Visa and Mastercard have reached settlements worth a total of $188 million with class members.
Permission to Impose Surcharges to consumers when paying by credit card was one of the terms negotiated in these agreements.
In anticipation of this policy change, telecommunications giant TELUS applied in August to the Radio-television and Telecommunications Commission (CRTC) to approve a 1.5% surcharge for its customers who pay by credit card. /p>
In just under a month, the CRTC has received 4,325 messages from Canadians objecting to the imposition of these additional fees.
“It's amazing. They shouldn't be able to overcharge us for using a credit card. This is obviously against the interests of consumers. They want us to pay to pay?
— Excerpt from Sudbury resident Brian Kind's message to the CRTC
If this was a small business only initiative, I would be much more supportive [ to these surcharges], argues Madeline Goetz, a Toronto resident.
Mr. Guénette wonders if consumers will sympathize with the reality of small traders. In this sense, he recalls that they pay higher interchange fees than multinationals, since they have a reduced ability to negotiate with financial institutions.
That's not has nothing to do. We smile at them and if they say no, it's no, illustrates Ms. Nourian, who says she pays 2% interchange fees on average.
As for TELUS' application, the CRTC has so far delayed its decision. The telecommunications company did not respond to questions from Radio-Canada.
During the 2019 election campaign, the Liberal government promised to reduce the interchange fees imposed to merchants, a commitment reiterated in the 2021 budget.
There is nothing that has been done at this time, argues Mr. Guénette. CFIB says it continues to press Ottawa to deliver on its promise.
When the Department of Finance announced its deal with the three payment card networks in 2018, it offered Canadian small and medium-sized businesses savings of $250 million per year, for an average fee reduction of 0.1 percentage point.
SMEs would like the federal government to continue its efforts. Small businesses should perhaps be helped more than big businesses that make a lot of profits, believes Ms. Nourian.
By email, Adrienne Vaupshas, the Minister's press secretary of Finance, Chrystia Freeland, argues that the government is committed to reducing the costs associated with credit card fees in a way that will benefit small businesses and protect existing rewards points for consumers.
Ms. Vaupshas did not give a deadline for achieving this commitment.
For its part, the CFIB has called on the Quebec government to align itself with the other provinces of the country and to allow merchants to impose fees on customers who pay by credit card.
The Consumer Protection Office says it is not aware of any proposed legislative change on this subject in Quebec.