MasterCard Inc. and Visa Canada Corp. have won a long-standing dispute that will see the two credit-card companies continue to collect what a federal watchdog says are “excessively high” fees from merchant store owners.
But the companies’ win could be a temporary one — merchants are hopeful the decision will spur a quick response from the federal government to rein in charges that have climbed to top several billion dollars annually.
“We’re very optimistic” about a change in the fee regime, David Wilkes, senior vice-president of government relations at the Retail Council of Canada which represents merchants big and small across the country, said in an interview.
A government appointed tribunal panel handed MasterCard and Visa the victory Tuesday, rejecting a complaint from the Competition Bureau that alleged the card giants charged store owners exorbitant interchange fees and stifled competition.
The fees, which apply to every credit-card purchase, put pressure on merchants to either raise their prices or eat the costs to remain competitive, the bureau’s complaint alleges. Both measures hurt consumers and businesses.
The tribunal – an arm’s length adjudicative body that operates independently of the government – said Wednesday however the bureau failed to sufficiently establish its case.
But the decision did acknowledge the current regime, which forces merchants to accept cards issued by MasterCard and Visa in partnership with banks like RBC, TD Bank and Bank of Montreal, did deter competition.
That leaves open the strong possibility that regulators could return with a second attempt to have restrictions loosened which could create leverage for store-owners to negotiate with the credit-card companies, experts said.
“We will be reviewing the decision closely to determine our next steps,” Alison Tait, a deputy commissioner, said.
The watchdog has alleged that the fees collected by the credit-card companies, estimated by the bureau to be around $5 billion a year, are “among the highest in the world.”
“Without changes to Visa and MasterCard’s rules, merchants will continue to pay excessively high card acceptance fees, and these fees will continue to be passed along to consumers in the form of higher prices,” Tait said in a statement.
The Retail Council of Canada puts the total cost to consumers and merchants at more than $6 billion. “The fact remains: Canadians are paying more than they should be at the register because of these high fees,” Wilkes said.
Visa hailed the decision as “positive for consumers” who no longer face the threat of having surcharges tacked on to purchases depending on the method of payment they choose.
“This decision reinforces that Visa’s rules are compliant with the Canadian Competition Act and helps ensure that consumer choice is protected at checkout,” Visa Canada said in an email statement.
Merchants have complained for years about the fees they must pay to credit-card companies in order to be able to accept the wide range of credit cards Visa and MasterCard issue in partnership with the banks.
Typically, store owners pay a small percentage on the transactional value. For example, a $100 purchase will cost the merchant $2 to $3, but the percentage varies.
Those fees have crept steadily higher, however, making merchants more vocal and drawing the attention of regulators. On Dec. 15, 2010, the Competition Bureau filed an application with the Tribunal challenging the regime.
“We’ve been calling for regulations to address this inequity for a while,” the Retail Council’s Wilkes said. “We’ve seen other jurisdictions, Australia, the U.K. and most recently the EU, already implement regulations.
“The good news is that the Tribunal recognized that this does have adverse effects on competition. They’re acknowledging there’s a problem.”
In addition to another potential run by regulators to bring the fees in line, Wilkes said a response may well come from the Department of Finance via new laws or amendments to existing ones.
“It would introduce competition in a market that’s been immune from it,” Wilkes said. “You could have some creativity and innovation in a market where it’s not required right now.”
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