Visa Inc. and MasterCard Inc. are alleged by the Competition Bureau in Canada to have imposed restrictive and anticompetitive rules on merchants who accept their cards.
In an announcement Wednesday, the bureau, which says it is an independent law enforcement agency intended to ensure "that Canadian businesses and consumers prosper in a competitive and innovative marketplace," challenged certain rules of the card companies under the price-maintenance provisions of the Competition Act. Lawmakers designed this antitrust law to maintain and encourage fair competition in Canada.
The bureau said in an application to the country's Competition Tribunal that it wants merchants to have the ability to encourage consumers to consider using less expensive payment options such as cash or debit.
It is challenging rules similar to those recently changed in the United States under the Dodd-Frank Act, which included the Durbin amendment affecting debit cards, said Celent senior analyst Zilvinas Bareisis.
Canadian merchants pay 1.5% to 3% of the purchase amount in credit card interchange, the bureau asserted. The Interac debit card network's fee is about 12 cents.
Melanie Aitken, the bureau's commissioner, said in a press release that the two leading card brands' rules impose higher costs on merchants that, in turn, pass on their costs to consumers. Canadian merchants pay an estimated $5 billion annually in hidden credit card fees, the bureau said.
"Without changes to the rules, merchants will continue to face high costs for credit card acceptance, while consumers, even those who use lower-cost methods of payment like debit or cash, will continue to pay higher prices," Aitken said in the release.
No hearing has been scheduled. Bureau representatives did not respond to a request for comment, nor did Visa Canada.
Visa and MasterCard prohibit merchants from surcharging purchases made with a card that costs them more in fees, and the bureau is asking that the ban be lifted. This particular challenge is one whose success, MasterCard Canada said, would hurt consumers.
"If these changes were implemented by the Competition Tribunal, the result would be to enrich merchants at the expense of consumers," Betty DeVita, MasterCard Canada president, said in a press release issued Wednesday in response to the Competition Bureau's allegations.
MasterCard's surcharge ban is intended to protect consumers, it contended.
MasterCard asserts that surcharging has hurt consumers in other countries, notably Australia. "Since the Reserve Bank of Australia allowed surcharging in 2003, there has been increasing and unjustified surcharging of consumers by certain merchants," MasterCard said in its release.
In the U.S., credit card surcharging is banned in 10 states. The practice also is outlawed in 17 European Union countries, according to MasterCard.
Surcharging has been a problem in the United Kingdom, particularly with low-cost airlines, Bareisis said. Though "their business model is lower tickets, they view the surcharge as way to slap on a fee because they know they can," he said.
Under its rules, MasterCard said, merchants "are free to offer discounts or other inducements to customers who pay by cash, debit or any other means as a way to reduce their costs of credit card acceptance." This rule gives merchants "the pricing flexibility they require, while protecting consumers from the negative consequences of surcharging," it said.
The bureau also alleges that merchants are forced to accept cards with higher fees because their agreements with Visa and MasterCard require them to do so.
"If the bureau were successful in challenging this rule, it would mean that consumers would not know if their MasterCard credit cards would be accepted until they attempted to make a purchase, even though the merchant displayed the MasterCard acceptance logo," MasterCard said.
The networks naturally will challenge any potential changes to their rules, Bareisis said. But accusations to government entities put pressure on the networks to make certain concessions, he said.
This happened recently in Europe, where Visa Europe announced a settlement with the European Commission and agreed to cap its weighted yearly average intraregional multilateral interchange rate for immediate debit transactions at 0.2% of the sale for four years.
