Finance minister proposes code of conduct for credit- and debit-card companies

Finance Minister Jim Flaherty is proposing a code of conduct for credit- and debit-card companies that he says will “level the playing field” for consumers and small businesses alike — but not before the Christmas shopping season.

Finance Minister Jim Flaherty

OTTAWA — Finance Minister Jim Flaherty is proposing a code of conduct for credit- and debit-card companies that he says will “level the playing field” for consumers and small businesses alike — but not before the Christmas shopping season.

The code, intended to promote fair business practices and ensure merchants and consumers clearly understand the costs and benefits of credit and debit cards, won’t be finalized before early next year.

It aims to provide merchants with more pricing flexibility so consumers can choose the best payment option, Flaherty said, and it would allow merchants to choose which payment options they accept.

“The proposed code is based on ongoing discussions with merchant and consumer associations, debit- and credit-card networks, payment processors and credit-card issuers across Canada,” Flaherty said Thursday.

“The proposed code would encourage choice and competition in the credit and debit market for the benefit of consumers and merchants. It would help ensure accountability and prevent unfair practices.”

The new code doesn’t deal with one of the major complaints by consumers over the years — that general credit-card interest rates are far above the level of normal borrowing costs and do not drop very much even in a period of low interest rates. The card companies say these rates are needed to recoup losses on many credit-card accounts.

However, Flaherty’s proposed changes could help retailers and merchants, who have long complained about the high cost of card-processing fees. The Retail Council of Canada estimates credit-card fees cost merchants about $4.5 billion a year. Critics argue that such charges wind up in the cost of goods and services sold to consumers.

The Liberal Opposition said the voluntary code of conduct misses the mark after the government relegated the issue to the backburner for 11 months. Now Flaherty has told consumers and the industry they would have wait another 60 days, it said.

“There is a clear imbalance between the negotiating position of the card networks and merchants,” said Liberal finance critic John McCallum.

“I remain very skeptical that two months from now these consultations are going to lead to a levelling of that playing field. Simply asking everyone to place nice where there are billions of dollars at stake is not a solution.”

The changes come as competition is heating up in the payment processing industry as reports say Visa and Mastercard are poised to enter the Canadian debit-card market. That a market is currently dominated by the Interac Association, a network owned by the big banks and other financial companies that connects Canada’s automated bank machines and point-of-sale debit-card terminals.

Critics say the entry of such giant players could raise debit-card processing fees for consumers and businesses, but the card companies say it would bring more technological innovation and choice.

Flaherty is putting the draft proposal out for input from stakeholders over the next 60 days and he said he expects the code will be made final early in the New Year.

Among other elements of the code:

— It would require credit- and debit-card companies to give merchants at least 90-days’ notice of changes to transaction fees.

— It would allow merchants to cancel contracts with card issuers without penalty after notification of fee changes.

“We have been consulting on this for some months and these are not simple issues relating to debit and credit cards,” Flaherty said.

“They’re very important issues for consumers in Canada; they’re very important issues for business in Canada — particularly small merchants as we go into the Christmas shopping season.”

He said the government will make final revisions and additions to the code based on the feedback it receives, “then quickly move to bring the code into force as soon as possible early in the new year.”

MasterCard said it plans on “actively participating” in the consultation process.

“Today’s announcement and the code should resolve a commercial dispute for which the global retail lobby operating in Canada has sought government intervention over private negotiation,” Mastercard president Kevin Stanton said in a statement.

“A code issued by the minister of finance must be taken seriously and establishes a de facto standard of conduct.”

Stanton said MasterCard will pay particular attention to how the proposed code “could alter the competitive landscape” and pledged it would “take measures to safeguard its continued ability to deliver value and innovation to all stakeholders.”

Visa Canada said it’s encouraged that Ottawa supports transparency and choice in payments, “as Visa believes that these are fundamental to a well functioning economy.”

It said it’s also encouraged that the code applies to all payment networks equally.

“However, we believe choice of payments should be balanced between merchants and consumers and are disappointed that the code would allow merchants to supersede consumer choice at the point of sale,” the company said.

“Merchants can and should decide whether they want to accept Visa Debit cards and merchants are free today to steer customers to the merchant’s preferred choice of payment. But Visa believes that merchants should ultimately honour the consumer’s choice.”

The Canadian Federation of Independent Grocers called the new guidelines “a very positive step” that will help small businesses in Canada.

“Over the last two years, retailers across the country have been hammered by unrelenting fee increases, a lack of transparency and agreements forced on retailers that abused the dominant position of the credit-card companies in Canada,” said John F.T. Scott, federation president and CEO.

“In particular, many small- and medium-size retailers simply do not have the clout to deal with credit card giants and payment processors.”

Added Scott: “Just this week, our members had brought forward examples of new terms being imposed on retailers by payment processors that are frighteningly similar to the ’negative option’ issue that landed the cable companies in hot water a few years ago.”

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