Credit Card Fee Fight - Financial Post
Dan Kelly column
Financial Post Small Business
Publication date: January 3, 2011
Credit Card Fee Fight
Just as many consumers will be looking at their credit card bills with horror in January, many small businesses will be doing the same. The important difference is that the bill Canada's merchants receive is not for all the things they've bought over Christmas, but for accepting the plastic payments from their customers. Many Canadians don't know that every time their Visa, MasterCard or American Express is swiped at a merchant, the business pays about 2-3% of the sale in fees to the banks, card processors and credit card brand.
Over the course of the last two years, already high merchant fees have risen rapidly, particularly with the introduction of new "premium" credit cards from Visa or MasterCard. These cards give consumers a few extra rewards, but come at a great cost to small business. The business receives no additional benefits, but must pay the full cost of the rewards program for the end user. However, as we all know, everything a business pays ultimately ends up in the cost of the goods or services they sell, so it is all of us as consumers who pay for these points anyway.
In the summer of 2009, the Canadian Federation of Independent Business (CFIB) proposed a Code of Conduct for the Credit and Debit Card Industry in Canada. This voluntary Code was designed to protect Canada's low-cost debit system and to put in place some fair ground rules governing both the credit and the debit card environments. To our delight, Finance Minister Flaherty got involved and, after proposing an amended Code based on many of CFIB's recommendations, all industry players chose to sign on. Since the adoption of the Code in the summer of 2010, it has served merchants extremely well. In fact, the Code has helped ensure that problems with the launch of a new Visa Debit product were quickly addressed.
While the Code has done an excellent job in ensuring some fair ground rules and maintaining Canada's low-cost debit system, credit card merchant fees remain very high. The Competition Bureau of Canada recently said that Canada has among the highest credit card fees in the world. This is why we at CFIB were so pleased when the Competition Bureau came out in December with a challenge to several very unfair rules maintained by Visa and MasterCard.
Specifically, the Bureaus is calling for the Competition Tribunal to strike down the "honour all cards" rule that maintains if a merchant accepts one of Visa or MasterCard's credit cards, it must accept all cards, including those with very high fees. In addition, it is seeking to end a rule that prevents merchants from adding a small surcharge to a purchase to cover the higher cost of a premium card. These are excellent suggestions and, in fact, were both put forward by CFIB in its original version of the Code of Conduct.
If this case is successful, consumers may be concerned their specific type of Visa or MasterCard may be turned down or face a surcharge when presented to a merchant. To that we say their best protection is a huge degree of competition among the retailers, restaurants and other merchants who are vying for their business. A business would be loathed to add a surcharge or turn down any method of payment, fearing they would simply lose the sale to the firm down the block. We feel, however, that the mere fact that merchants have such power would cause rapid changes in behaviour and fees on the part of the credit card giants. In fact, we believe just the threat that merchants could turn down a card or add a small fee would cause Visa and MasterCard to rethink their entire premium card strategies and fees.
The Competition Bureau has proposed one other change and that is to ensure merchants have the power to encourage consumers to pay with a lower cost payment option, such as cash or debit. In fact, CFIB has been working on a campaign for release early next year to do just that.
We know Canadian consumers have very high regard for their local small businesses and want them to succeed. We also know that most consumers are unaware of how significant these fees are for average merchants - many paying hundreds or even thousands in fees per month. Our plan is to arm independent businesses with small counter displays that highlight these costs and ask consumers to consider paying with cash or Interac instead of their credit card.
Canadians know that the business owner behind the dry-cleaning counter or the restaurant till may be averaging 75 hours a week just to make a living for his or her family. Many consumers would be only too happy to switch the card they pull from their wallet to help small businesses deal with these rising costs. In fact, members of CFIB who have piloted this campaign have told us they've noticed a significant shift of consumers move from credit to debit - saving them a lot of money in fees in the process. An Ontario restaurant owner told us that 60% of his customers made the switch once they were aware of the impact credit card fees were having on his restaurant and, in turn, their prices.
We're hoping 2011 will be another big year for small businesses in their battle against unfair credit card charges. While we will be watching the Competition Bureau's case closely and pursuing our own campaign to educate and involve consumers in the fight, we are also calling on Minister Flaherty to make further changes to make the very good Code of Conduct even better. If the Minister were to amend the Code to challenge the industry to accept these additional changes, that would be, for lack of a better word, priceless.
Dan Kelly is senior vice president of legislative affairs for the Canadian Federation of Independent Business, which represents the interests of small- and medium-sized business and lobbies on behalf of its 107,000 members at the federal, provincial and municipal levels.
