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In April 2010, Ottawa introduced a code of conduct for the payment card industry, to encourage more transparency and accountability. The new rules will come into force in November.Salvatore Sacco/The Canadian Press

Moncton-area entrepreneur Keith Comeau feels frustrated. The owner of Rouge Premier Lounge and Nightclub says he is locked into an agreement with a point-of-sale terminal provider for another year and half, even though their machines frequently break down.

"It's been ongoing," Mr. Comeau says.

The agreement he signed is for a three-year lease of a payment card terminal that he cannot cancel without paying a steep penalty. Mr. Comeau signed the papers after receiving repeated calls offering cheap processing rates. The problems he had with the terminals cost him time and money, he says.

"It's frustrating for small businesses like me," Mr. Comeau says.

He wants the payment industry to change. Mr. Comeau says he doesn't want to see more small business owners go through the same nightmare he has experienced.

Mr. Comeau is not alone in his frustration. The Financial Consumer Agency of Canada (FCAC) received 409 complaints from merchants between April 1, 2011, and May 2013, detailing similar experiences according to agency information. This federal government organization regulates payment card network operators (PCNOs) in Canada, including the major credit card brands as well as Interac.

As part of the multimillion payment industry in Canada, these PCNOs offer services to merchants through a network of processing service providers called acquirers who then sell their terminals and services to merchants mainly through smaller companies often called independent sales organizations (ISOs).

In April 2010, Ottawa introduced a code of conduct for the payment card industry. The new rules will come into force in November. The FCAC established the new regulations after extensive discussion with the credit and debit card industry, as well as the Canadian Federation of Independent Business (CFIB).

"The new rules will provide merchants with clearer information regarding their payments-related contracts, especially in multiple-contract situations," says FCAC spokesperson Julie Hauser in an interview. "In addition, the guidance disallows inappropriate sales and business practices, such as unilaterally modifying a contract without the merchant's knowledge or approval."

She says the PCNOs must make sure their partners are accountable.

"It is the responsibility of the payment card network operators to ensure that the acquirers and ISOs comply with the code," Ms. Hauser says.

A merchant will pay between 2 and 3 per cent of the value of a transaction to a payment terminal provider each time a credit card is swiped depending on the type of card used. Debit card swipe fees average six cents a transaction.

According to the CFIB, the fee a merchant pays to their processing provider, each time a customer swipes a credit card or debit card, raises $5-billion to $7-billion a year for the payment industry in Canada.

Traditionally dominated by large players founded by the major banks, the Canadian payment industry recently welcomed new entries to the market including Square. The flat fees offered by this kind of company make it an attractive option for many small businesses, says payments industry analyst Jeffrey Green.

"They couldn't afford the terminals and merchant accounts," says Mr. Green.

Launched by Twitter co-founder Jack Dorsey, Square is one of a handful of companies offering its clients the opportunity to take credit card payments via a smartphone or tablet for a flat fee. The company claims $15-billion in payments processed in North America annually.

"They identified something nobody else had," Mr. Green says.

In an interview, Mastercard spokesperson Leslie Jackson says her company is doing what is required to ensure the trust of clients. "We have integrated these new requirements into our rules and will be enforcing compliance with the issuers and acquirers who connect into our system," she says.

Interac also pledged support to the new rules. "We fully support the Code of Conduct and the recent FCAC Commissioner's Guidance," says Interac spokesperson Caroline Hubberstey in an interview.

Dan Kelly, president and chief executive officer of CFIB, hopes the credit and debit card industry does what is required to weed out bad companies. There are too many companies taking advantage of entrepreneurs. "Some of these guys will say and do anything to get you sign a contract," Mr. Kelly says.

It's up to business owners to do their homework and know what arrangement they are getting into.

"You really want to be reference checking."

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