The federal Competition Tribunal is expected to deliver its widely anticipated ruling on credit-card fees this week, a decision that will have major implications for consumers, credit-card providers and Canadian banks.
In 2010, the federal Competition Bureau argued that Visa Canada Corp. and MasterCard Inc., which together control 90 per cent of Canada's credit-card market, impose restrictive rules on merchants, which drive up costs for small businesses and consumers.
Every time a customer pays for something with a credit card, the merchant must pay a transaction fee, typically $1.50 to $3 for every $100 of the price. Under agreements with the credit-card providers, merchants are prohibited from passing those fees along to customers in the form of surcharges. Instead, merchants often raise the prices of all their products to compensate for the fees.
The Competition Bureau argued that these rules put cash consumers at a disadvantage because they end up paying an embedded surcharge even though they aren't using a credit card. The bureau argues that customers who use basic credit cards are also paying too much, because the embedded surcharges are often priced off fees for premium travel-rewards cards.
The debate has mainly pitted credit-card providers against small businesses. But the banks, too, play a major role. It is difficult to track just how much money banks earn from credit-cards fees, in large part because their agreements with credit-card providers are kept private. But it is a substantial sum and the banks have aggressively lobbied against the bureau's stance.
Because the issue is complex, the ruling could come in many forms. The tribunal, for example, could ban surcharges on individual transactions, but allow merchants to break what is known as the "honour all cards" rule, which prevents them from telling customers that they can't pay with premium cards that charge the highest fees.
The Canadian ruling will come less than a year after Visa and MasterCard reached a settlement in a major U.S. court case that challenged their rules against surcharging. Late in 2012, the two companies settled the case for a collective $7.2-billion (U.S.) and agreed to allow surcharging on select cards.