Credit for credit card ruling
Consumers dodged plastic bullet, but for how long?
We should all give credit to the federal Competition Tribunal for Tuesday’s ruling that spared Canadians who use credit cards from paying a surcharge every time they make a purchase.
Canada’s Commissioner of Competition filed a formal complaint with the tribunal in May 2012, backed by a group of organizations that represent retailers and small businesses — including the Canadian Federation of Independent Business and the Retail Council of Canada — arguing that Visa and MasterCard were engaging in anti-competitive behaviour that was costing consumers $5 billion in hidden fees.
Their biggest complaint surrounded the interchange fees businesses must pay to the banks and credit card companies every time a purchase is made, particularly with a premium card.
Those platinum and gold cards that give customers points or extra benefits are eating into the profit margins of businesses, particularly small businesses.
Interchange fees range from a low of 1.54 per cent to a high of 2.65 per cent.
For retailers, premium credit cards are not so golden. Retailers either wanted the right to decline accepting premium cards or to charge a fee to customers who use them.
The tribunal rejected both proposals. That was the correct decision, since the first scenario would cause chaos, not to mention indigestion and embarrassment, for card holders who might have just finished eating a meal, for instance, only to learn that the restaurant doesn’t accept their premium credit card. Charging an extra fee, after the fact, is simply unappetizing.
But many analysts believe that changes are coming and that one day Canadians will face what Australians have been putting up with for a decade — visible surcharges on every purchase made with a credit card.
So, while the status quo remains for now, perhaps what has changed as a result of the Competition Bureau’s challenge, is that consumers will be more aware of the hardship their premium credit cards are causing small businesses. That might make us all a little more careful or eager to use cash or debit when we are patronizing our smaller local merchants who have slimmer profit margins than larger retailers.
What the tribunal could have suggested or ruled is that credit card companies should charge a set interchange fee — say 1.8 per cent across the board to merchants — and make up the difference by charging premium card holders higher sign-up fees, instead of passing it on to merchants, who in turn pass it on to all consumers.
As for the big banks and credit card companies, they might want to unilaterally lower their fees to prevent the changes the retailers wanted to bring in, from being adopted some time in the future.