Retailers Want More Credit Card Regulation

April 21, 2011 Updated: September 29, 2015

The retail industry is calling for more regulation of the major credit and debit card companies, saying new measures introduced last year have been ineffective.

A year ago this month, Finance Minister Jim Flaherty introduced a voluntary code of conduct for the payments industry. However, guidelines set out in the code to rein in unfair practices have largely gone unobserved, according to the Retail Council of Canada (RCC).

“We are hearing loud and clear that the payments industry has continued to engage in practices that result in high fees and have no connection to the service provided, and some players have blatantly violated the code,” RCC president and CEO Diane J. Brisebois said in a statement.

When the code was introduced last April, hopes were high for systematic reform. But in a recently released report, the council grades the industry’s performance and compliance to the code from C- to F for different areas the voluntary measures were supposed to address.

Brisebois said the main thing the code accomplished is that it put a spotlight on the practices of the payments system “and made it clear to retailers that there is no real competition in the marketplace. The only competition that exists is among the banks to provide customers with greater incentives on the backs of merchants.”

The council says the time has come to introduce flat merchant fees for debit card transactions and to eliminate higher merchant fees for premium credit card transactions, which are more expensive to process.

“Our position has remained the same since we started this campaign almost three years ago—that regulation is the ultimate solution to bring fairness, accountability, and true competition,” Brisebois said.

Flaherty has already served notice to the card companies that if the voluntary code is not sufficient, he would be prepared to look at other options.

Credit card companies are against more regulation, saying the benefits they are able to offer consumers may be in jeopardy if excessive regulations are put in place in favour of merchants.

After the code was introduced, Visa Canada said it was “concerned [the code] did not go far enough in creating an environment that promotes meaningful competition in the payments arena, and favours merchants at the expense of consumers.”

While the code gave retailers some clout, such as the legal ability to terminate payment contracts with processors who raise or introduce new fees, and not being required to accept a company’s debit card, it did not live up to the expectations of retailers.

Credit card company practices have come under fire in Canada from other sources as well. A class action lawsuit was recently launched against Visa and Mastercard, along with some of the largest banks in the country, for allegedly conspiring to fix prices on the fees paid by merchants on credit card transactions. The suit seeks to recoup merchant losses dating back to 2001.

In the suit, many of the largest financial institutions are also labelled as culprits, including BMO Financial Group, Bank of Nova Scotia, Royal Bank of Canada, Toronto Dominion Bank, Bank of America, Capital One, and Citigroup.

The suit alleges that current rules force merchants to accept every Visa or MasterCard credit card, even if those cards carry higher fees. The claim also alleges that these rules prevent merchants from charging more for payments with premium cards.

Ward Branch, a partner at Vancouver firm Branch MacMaster, one of the companies that filed the suit, said the fees cost retailers $5 billion in 2009 alone, impacting consumers and the economy as a whole.

“The system is bad for Canadian merchants, Canadian consumers, and for the Canadian economy as a whole,” he said in a statement.