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Visa, MasterCard challenge Ottawa on credit cards

Credit card giants Visa Inc. and MasterCard Inc. are digging in their heels against a legal challenge from Canada's competition watchdog, which has accused them of imposing costly conditions on retailers.

In a submission to a federal Competition Tribunal, Visa Canada Corp. is warning that if Ottawa gets its way in the dispute, consumers will end up being hit with unexpected charges from store merchants each time they pull out their credit card instead of cash.

"Fundamentally what we believe they are proposing is anti-consumer and anti-competitive," Tim Wilson, head of Visa Canada, said in an interview. "Our belief is that the Competition Bureau's allegations have no merit."

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The response comes just over a month after the Competition Bureau launched its case against Visa and MasterCard. The bureau is attacking two policies used by the companies that it says are uncompetitive. Both credit card companies require merchants to accept all cards issued by them, regardless of fees, and prevent retailers from adding surcharges on purchases made with premium cards.

Since the credit card companies charge between 1 and 3 per cent on each purchase, retailers are forced to eat the higher costs charged on premium cards, such as those that offer travel points. The extra expense imposed on merchants eventually increases the price of goods in the store, the bureau argues. Retailers in Canada pay about $5-billion in fees, some of which is passed on to consumers.

The Bureau wants retailers to have the right to not accept premium cards if they choose, or to collect surcharges to cover their higher transaction costs. But Visa argues this will result in merchants taking advantage of consumers at the cash register and slapping them with unwarranted fees.

Together, Visa and MasterCard hold about 90 per cent of the market for credit cards in Canada. The debate ultimately leaves both the credit card companies and retailers, who pushed the Competition Bureau to investigate, arguing that they are on the side of the consumer.

"They're trying to be seen as being the advocates for consumers, which is absolute nonsense," said Diane Brisebois, president of the Retail Council of Canada.

"In fact, the reason why the retail council started this battle was because we believed that without oversight, consumers would end up paying more, not less. Because the fees being charged to merchants were just out of control."

The credit card companies had until this week to respond to the Competition Bureau. MasterCard also said it believes the watchdog's changes would have "negative consequences" for consumers, including "uncertainty as to where their cards would be accepted."

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No jurisdiction in the world has prevented credit card companies from imposing a rule that merchants must accept all cards at cash registers, MasterCard pointed out in its written submission.

The Competition Bureau began looking at the issue in 2009, and the investigation has cast eyes on other jurisdictions, including Australia, which has allowed retailers to cover the higher costs collected on premium cards by imposing fees at the register. Visa argues in its submission that those surcharges have reached as high as 10 per cent in Australia.

"Surcharging effectively turns into a profit centre for retailers at the expense of consumers," Mr. Wilson said. "So retailers are shifting a legitimate tax-deductible business expense over to consumers."

However, Ms. Brisebois argues those numbers are being overstated because fewer than one-third of Australian retailers have opted to charge the fees. In a competitive market, merchants can't afford to lose business by introducing surcharges on all cards, since rival businesses will gain an edge by not collecting them.

"Real competition takes care of that, because if your neighbour decides he's not going to surcharge then you're not going to surcharge," Ms. Brisebois said.

The Competition Bureau has two weeks to respond to the submissions made by Visa and MasterCard. The credit card companies say they don't earn revenue from the higher fees, which flow to the banks that are the issuers of the cards.

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