Canadian retailers’ groups are applauding a new code of conduct for credit- and debit-card companies, a move that’s intended to reduce the cost of card transactions for businesses and bring more clarity to consumers.
Finance Minister Jim Flaherty said Friday that the voluntary code of conduct will be in effect within a month, and that government officials were prepared to put legislation in place if the businesses don’t regulate themselves.
The code is primarily aimed at reducing the cost of transactions for businesses, which pay a fee to credit and debit companies each time a consumer swipes a card.
However, also included are rules that require credit-card companies to get consent from consumers before premium cards are issued and to provide proper notice of changes to their contracts.
The Canadian Federation of Independent Business welcomed the announcement, calling it an “important step” as the summer business season nears.
“These developments will create a better future for merchants and help ensure a fair and transparent credit- and debit-card market instead of just letting large industry players call all the shots,” federation president Catherine Swift said in a release.
The Payments Accountability Council, which is led by the Retail Council of Canada and the Canadian Council of Grocery Distributors and backed by more than 250,000 Canadian merchants, called the announcement “a solid victory for merchants across the country.”
Flaherty made the announcement during an event at Toronto’s Eaton Centre on Friday, and said the industry has until May 17 to review and adopt the measures.
The new rules give merchants the freedom to choose which card networks they use — which could affect plans by major credit-card companies to roll out debit services in Canada that would compete with Interac Association for services at cash registers.
Critics had suggested that credit-card companies would charge merchants a fee to use their debit networks based on a percentage of the sales price of each transaction.
Interac, a non-profit government-regulated organization, operates on flat fees which are determined each year using a break-even scale. Typically, the Interac charge amounts to less than a cent per transaction for both merchants and the customer’s bank.
Retail Council of Canada president and CEO Diane Brisebois said it would be unfair for credit-card companies to take such a large cut.
“You can understand why it’s a percentage fee on a credit card — there’s risk, it’s a loan,” she said.
“On a debit transaction they open your account, they close your account, the money is out (and) everyone gets paid immediately. So why should it be a percentage fee on a debit card?”
Flaherty proposed the code last fall after taking heat from retailers over the processing fees charged by credit-card companies.
The code, among other things, implements rules to ensure merchants receive a minimum of 90 days notice of any fee increases. Store owners will be allowed to cancel their contracts without penalty following notification of a fee increase.
It also states that merchants must agree in writing to new products or services.
The code will also help merchants control costs and pass those savings onto customers, Flaherty said.
The Retail Council of Canada has estimated credit-card fees cost Canadian merchants about $4.5 billion a year. Critics say such charges wind up in the costs of goods and services sold to consumers.
Laurie Campbell, executive director of Credit Canada, said she’s skeptical over whether shoppers will actually notice lower prices.
“I think it is mostly for the merchants and I don’t think it’s a bad thing. This is a type of regulation that needs to happen. Even though it’s voluntary at this time, I think it’s a good code of conduct,” she said.
The NDP critic for consumer protection said there’s no teeth to Flaherty’s proposal because it’s voluntary.
“The intention is there, but it’s disappointing that it’s not mandatory,” said New Democrat MP Glenn Thibeault.
Thibeault said he would like to see legislation to protect small businesses and consumers. He would like to also see more on the consumer side.
“There’s nothing here to talk about the exorbitant interest fees, charges and hidden fees that consumers have to pay to these credit-card companies,” Thibeault said.