This story idea came from audience members like you who contacted us. Send us all your questions about the new credit card surcharge. We’re listening: [email protected]
As of last week, you may pay an additional fee if you choose to pay by credit card. That’s because Canadian retailers can now charge customers who use credit cards to pay after a long-running lawsuit with Visa and MasterCard was settled earlier this year.
Canadian businesses launched a class-action lawsuit against the two companies in 2011, and a settlement earlier this year returned them hundreds of millions of dollars in fees — known as interchange fees — that apply whenever a customer pays by credit. The settlement also gave them permission to pass those fees directly to customers, something they weren’t allowed to do before.
Previously, businesses absorbed the cost of these so-called interchange fees, but now many are trying to make up for lost revenue by charging fees to their customers.
But what does that mean for you? We have received many questions from our audience and we have answered some of them below.
Why are credit card fees so high at 2.4 percent? Couldn’t they be limited to 1 percent?
In fact, credit card interchange fees are sometimes higher than 2.4 percent, but the markup for customers was capped at that number because of the settlement.
However, the amount of surcharge that you may be charged at checkout depends on which credit card you use.
“The higher the card premium, the higher the interchange fee,” said Luciana Brasil, a partner at Vancouver-based law firm Branch MacMaster LLP, who worked on the class action that led to the settlement.
This means that the more points and rewards you earn for using your credit card, the higher the surcharge you can expect.
Merchants can also choose to add the markup by company brand, i.e. Visa or MasterCard, or add it to product types, i.e. Visas or MasterCard types, Brazil added.
The average surcharge in Canada is 1.4 percent, but depending on the card, it can be as high as two percent or more. Regardless of the cap, however, merchants cannot charge more than the actual price of what is being bought or paid for.
“It’s not a fee to make money. It’s a fee to cover costs,” Brasil said.
Why we pay more [interchange fees] than Europeans and others?
In many parts of the world, including the European Union, Israel, the United Kingdom, China and Australia, interchange fees have been capped at less than one percent.
On the other hand, Canada has some of the highest interchange fees in the world, with an average of 1.4 percent.
Why this is so is not yet clear. However, these rates are determined by credit card companies.
“It’s a question for the networks,” Brasil said.
She says she and her team were previously told that these fees needed to be higher in Canada to maintain all the different levels of service that are provided around lending to people.
However, Australia, one of the countries where interchange fees are legally limited, is able to provide a comparable level of service for much less.
Understanding why there is such a significant difference is a question they asked in the lawsuit, Brazil says, but never got an answer to because the case was settled.
It was talked about implementing legislation to review fees, especially for small and medium-sized businesses, but there has been no news from Ottawa yet.
Can I be charged extra if I use a Visa debit card?
No, there is no surcharge when using a Visa Debit Card or MasterCard Debit Card. Valid for credit cards only, Brazil says.
Debit cards usually use Interac, even if they are labeled Visa Debit or Debit MasterCard.
This also applies to pre-authorized debit transactions, such as bill payments – they cannot have a surcharge because these accounts use debit. In fact, some of your bills can’t even be paid with credit cards, like your property tax bill, because it’s too expensive, said Rubina Ahmed-Haq, a Toronto-based personal finance expert.
How will added credit card fees affect my shopping habits?
Whether it’s the rise of self-service checkouts at the grocery store or your local coffee shop going cashless, many businesses have recently opted to use card transactions – both debit and credit – more frequently.
With the rise of cashless options and the introduction of credit card surcharges, more Canadians are likely to be more inclined to make Interac payments through top-up options.
“I think the only thing it’s going to do is get people more used to using debit, but in all these cashless environments you can use a debit tap,” Brasil said. “I don’t think it will affect the ability to pay in a cashless environment.”
Debit is also much cheaper for the merchant, she added.
But adding a credit card fee surcharge can change customer behavior, whether it’s a change in your shopping habits or the way you pay, experts say.
It is also not certain that all, or even many, businesses will implement the surcharge.
“My impression is that most businesses won’t apply this surcharge because they don’t want to scare customers,” Ahmed-Haq said.
When it comes to bringing customers to your door and not your competitors, choosing not to add a surcharge may be the answer.
“If you have a local coffee shop that you go to or eat in a restaurant, you can imagine if they say we’re adding a surcharge now, how that would affect people’s behaviour,” she said. “It’s really easy to go wrong.
Instead, he expects grocery stores to be the first to introduce the charge because they are essential for people to feed their families.
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