Visa Inc. and MasterCard Worldwide impose restrictive and anticompetitive rules on merchants who accept their credit cards, the Competition Bureau is alleging in Canada in a Dec. 15 application with the country’s Competition Tribunal.
In a statement, the bureau, which says it is an independent law-enforcement agency designed to ensure “that Canadian businesses and consumers prosper in a competitive and innovative marketplace,” is challenging certain rules of the card brands under the price-maintenance provisions of the Competition Act. Lawmakers designed the antitrust law to maintain and encourage fair competition in Canada.
The card brands’ rules result in increased costs to merchants who, in turn, pass their costs to consumers, Melanie Aitken, the bureau’s commissioner, noted in the statement. Canadian merchants pay an estimated $5 billion annually in hidden credit card fees, the bureau claims.
“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 statement.
No hearing date has yet been set. Bureau representatives did not respond to a PaymentsSource request for comment, nor did Visa Canada.
The bureau is challenging rules similar to those recently changed in the United States thanks to the Dodd-Frank Act, which included the Durbin amendment that affected debit cards, says Celent senior analyst Zilvinas Bareisis.
The bureau wants merchants to have the ability to encourage consumers to consider using less expensive payment options such as cash or debit. Canadian merchants pay between 1.5% and 3% of the purchase price in credit card interchange, the bureau claims. The Interac debit card network’s fee is approximately 12 cents.
Visa and MasterCard prohibit merchants from applying a surcharge to a purchase made with a high-cost card, and the bureau is asking that the ban be lifted. That particular challenge is one MasterCard Canada says 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 statement.
MasterCard’s surcharge ban is intended to protect consumers, the company contends.
MasterCard claims surcharging has hurt consumers in other countries, particularly in Australia. “Since the Reserve Bank of Australia allowed surcharging in 2003, there has been increasing and unjustified surcharging of consumers by certain merchants,” the card brand said in its statement.
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 says. “While their business model is lower tickets, they view the surcharge as way to slap on a fee because they know they can,” he says.
Under its rules, MasterCard says 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 rules gives merchants “the pricing flexibility they require, while protecting consumers from the negative consequences of surcharging,” the card brand contends.
The bureau also charges that merchants are forced to accept high-fee cards 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,” the company said in a statement.
The networks naturally will challenge any potential changes to their rules, Bareisis says. But accusations on government entities put pressure on the networks to agree on certain concessions, he adds.
Such was the case 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 (
What do you think about this? Send us your feedback.
