Moneris Solutions, the country's largest payment processor, is being investigated by the Financial Consumer Agency of Canada over a possible violation of Ottawa's new code of conduct for the payments industry.
Finance Minister Jim Flaherty has instructed the FCAC to expedite its probe and is again raising the prospect that he will bring down tougher, binding regulations if industry players do not voluntarily comply with the code.
Moneris, like other payment companies, acts as a middleman between retailers and credit- and debit-card networks like Visa, MasterCard and Interac, providing services and products such as the card terminals found near the cash registers of most stores and restaurants.
The FCAC's investigation stems from a complaint by a business group over how Moneris is notifying thousands of merchants about upcoming changes to the fees it charges for processing credit cards. The Canadian Federation of Independent Business accuses Moneris of leaving retailers in the dark about whether the changes, which come into effect in April, will amount to an increase in their total fees.
Moneris is owned by Bank of Montreal and the Royal Bank of Canada and handles payments for more than 350,000 stores in North America, according to its website.
The dispute is the latest flashpoint in the growing political storm over the fees that merchants must pay to accept plastic. Ottawa created the code of conduct last year, partly to ensure that merchants are fully aware of the costs associated with taking credit cards and other payments. Separately, the Competition Bureau has launched a case against Visa Canada Corp. and MasterCard International Inc., arguing that the rules the two companies impose on store owners are anti-competitive and overly restrictive, to the detriment of consumers.
The Moneris probe marks at least the second time the FCAC has looked into a possible breach of the code since its voluntary measures took effect about six months ago. Industry sources say the agency's investigation of Moneris represents an important test of the code's efficacy.
"FCAC has commenced an investigation and devised an investigation plan. At our request, this is being handled in an expedited manner," confirmed Annette Robertson, Mr. Flaherty's press secretary.
The federal government, she added, wants to ensure "continued confidence" in the code but added: "If there is not voluntary compliance with the code, we have committed to making the code involuntary." (The FCAC confirmed it is investigating the complaint but noted it would not make its findings public.)
Among its provisions, the code requires that payment processors give retailers at least 90 days notice of any fee increases or the introduction of new fees, to give them ample time to cancel their contracts without penalty and shop around for a new payment processor to work with.
In keeping with that provision, Moneris began notifying merchants on Dec. 30, 2010, that it planned to introduce a new type of fee (called an "interchange differential" fee) and reduce an existing fee for Visa and MasterCard credit card transactions on April 1.
Moneris says the new fee structure is similar to the one used by competing payment companies such as Chase Paymentech and TD Merchant Services, and that it "better aligns the merchant's cost of processing payments with the types of cards that they accept."
The CFIB, however, says the jargon-filled letter is incomprehensible. It argues that for many businesses, the changes could actually amount to a substantial increase in processing fees.
But since the letter is "poorly worded," the group worries many merchants may not understand their fees are about to rise and will miss the 90-day window to exit their contracts without penalty.
A key problem is the code does not make it clear how much detail payment processors are required to provide retailers when notifying them of fee changes, said one industry source who spoke on condition of anonymity. "It's fuzzy ... This is where FCAC has a role in interpretation."
But the code does require "increased transparency and disclosure" for merchants about their costs, including easy-to-understand details in agreements with processors and monthly bills.
Daniel Kelly, CFIB's senior vice-president of legislative affairs, says the letter from Moneris makes it impossible for merchants to understand the impact of the changes on their fees and that it rejected a request to give them more time to exit their contracts.
"It is unintelligible," Mr. Kelly said. "Nobody will understand from this letter that their fees are going up."
That sentiment was echoed by Matt Standish and Nathan Olivier. The men are co-owners of three specialty retail stores, including Premium Label Outlets in Langley and Kelowna, B.C., which sells skate, snowboarding and surfing clothing, footwear and accessories.
"It doesn't really say anything to you in the letter. It is pretty ambiguous," said Mr. Standish, adding he called Moneris to seek clarification but received none.
Since the men are not sure if their fees are rising, they can't make a decision about whether to switch providers. They also have no idea how the fee changes will affect their profit margins.
"We're like any other small-business owner right now, we're so limited on time," Mr. Olivier said. "I find the last thing we want to do is focus any time on interpreting something that is so vague."
In a statement, Moneris said: "Moneris takes pride in maintaining strong and transparent relationships with our merchants. We are committed to providing clear and concise communications that inform our merchants of changes affecting them in accordance with the Code of Conduct."
Industry sources say the fees Moneris charges vary depending on a variety of factors. The processing fees are higher for "premium" credit cards than for standard ones, for example. Merchants also pay more when accepting a telephone order, because the chances of fraud are higher than on an in-store purchase.
Quick facts about the Code of Conduct for the Credit and Debit Card Industry in Canada
- The code took effect Aug. 16, 2010.
- It was designed to make credit and debit card processing fees and rates more transparent to retailers.
- Signatories include payment networks like Visa, MasterCard and Interac, payment processors and banks that issue credit and debit cards.
- While it is technically a voluntary code, the Financial Consumer Agency of Canada is responsible for monitoring compliance.
Some of the code's key provisions:
- Increased transparency and disclosure by payment card networks and payment processors to merchants about their processing costs.
- Retailers are entitled to a minimum of 90 days notice of any fee increases or the introduction of new fees.
- Once a merchant receives notice of a fee increase or a new fee, it has 90 days to cancel its contract without penalty.
- Premium credit cards can be given only to consumers who specifically apply for or consent to have such cards.
Rita Trichur