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Finance Minister Jim Flaherty unveiled a voluntary code of conduct for the credit and debit card industry Friday, but said the government stands ready to regulate if business does not regulate itself.

"The code of conduct encourages choice and competition. It gives merchants the freedom to choose which card networks they use, helps them control their costs and allows them to pass on savings to their customers," Mr. Flaherty said.

Small businesses have lobbied for a code of conduct for years, arguing that credit card companies have too much power to hike merchant fees when small businesses need to accept credit cards to remain competitive.

Under the code, credit card companies would be required to be more transparent about the cost of transactions, which would allow merchants to offer price discounts if customers prefer to use cash or debit cards instead.

The big credit card companies, including Visa Inc. and MasterCard Inc., charge vendors fees to use their credit card system, but merchants have long argued they cannot afford to shun the credit cards without losing customers, who like the convenience and reward programs that the cards offer.

The code also includes a provision banning competitive co-badged cards and disallows negative optioning, which will likely affect plans by the credit card companies to enter Canada's debit market in competition with the Interac Association.

Interac, a non-profit grouping of banks, trusts, merchants and others, dominates the debit card market, offering a comparatively low-cost payment system that consumers and merchants have embraced.

The credit card companies would like to piggyback on Interac's national network by offering co-badged cards, so that the debit cards are tied to a credit card company.

Merchants, represented by small business lobby groups like the Canadian Federation of Independent Business, fear the credit card companies would soon ramp up fees on use of debit cards as well.

"We are particularly pleased that government is being proactive in helping to lay the groundwork in advance of major expected campaigns on the part of Visa and MasterCard in the debit card industry," CFIB President Catherine Swift said in response to the new code.

"These developments will create a better future for merchants and help ensure a fair and transparent credit and debit card market, instead of just letting large industry players call all the shots," Swift said in a statement.

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