Senator Pierrette Ringuette

Why retailers are fed up over hidden credit card fees

Got your post-Christmas credit card bill yet? No matter how big (or how little) it is, some of it -- an estimated $2 out of every $100 according to the Retail Council of Canada -- goes to the credit card companies and the issuing banks in fees.

The Retail Council thinks that's too much, and is spearheading a fight against credit card fees.

"Canadian consumers paid over $4.5 billion in hidden credit card fees last year alone," says stopstickingittous.com, a website to fight credit card fees, led by the Retail Council.

"Our retailers are growing increasingly frustrated," said Derek Nighbor, senior vice-president for national affairs with the council. "It's reaching the point now where it's getting out of control. These guys are increasing fees and introducing new fees at will. We're now seeking for the government to hold hearings on credit card fees in Canada."

Consumers and businesses pay for the privilege of using a credit card in several ways.

The most obvious, to consumers, is interest charged on the amount owing. Those rates are very high -- as anyone who doesn't pay off the whole amount every month knows.

But there are other fees, including the merchant discount rate and the interchange rate. These are fees involving the merchant, the banks and the credit card companies; the consumer doesn't see them directly, but the cost of covering them is incorporated into the price of a purchase.

The merchant discount rate is what merchants pay the bank for processing credit card payments. The interchange rate is a fee on the transaction between the retailer's bank and the cardholder's bank.

"It's not a rate for processing the transaction, it's a mechanism for balancing the incentives within the system," said Brian Weiner, head of strategy and research at Visa Canada in Toronto. He said the interchange rate has to be low enough to encourage retailers to accept a credit card, and high enough to encourage financial institutions to issue it.

Visa Canada announced just over a month ago that it would begin posting its interchange rates on its website.

And those posted rates show that the interchange fees are higher for some of the new premium cards -- the Visa Infinite, for example -- than they are for standard cards.

Liberal Senator Pierrette Ringuette has taken up the fight against credit card fees.

Ms. Ringuette says the higher rate for premium cards is one example of the hidden fees facing retailers.

"The issue with premium cards is that businesses pay a higher interchange rate for customers who use these cards," said Ms. Ringuette. "And they have no control over that."

She said card issuers also know that certain customers are a bigger risk for others, and charge the merchants higher fees when those people use their credit cards. However, she said, the merchants have no way of knowing they are getting charged a higher fee.

Ms. Ringuette says that the fees charged for credit card use vary by type of institution: It's a maximum of three per cent for businesses, 1.8 per cent for governments and 1.5 per cent for charities.

She said that in Australia, where the fees are regulated by government, they are considerably lower: 0.45 per cent for businesses, 0.33 per cent for government agencies and zero for charities.

"In Australia, Visa and MasterCard have voluntarily given a rate of zero per cent to charities," she said. "Why can't they do so in Canada?"

Ms. Ringuette is also worried we may see big increases in debit card fees: She says Interac has entered into talks with the Competition Bureau to remove its not-for-profit status.

Just before Parliament was prorogued last month, Ms. Ringuette introduced a motion to authorize the Standing Senate Committee on Banking, Trade and Commerce to examine the credit and debit card systems in Canada, and in particular the impact of their rates and fees on businesses and consumers.

The motion died on the Order Paper, so she plans to reintroduce it when a new session of parliament opens this month.

"Credit card companies and electronic payments in general bring a lot of value to the Canadian economy, Canadian consumers and Canadian retailers," said Mr. Weiner of Visa Canada.

That's true.

Unfortunately, the whole issue of credit card fees appears to be -- well, if not murky, at least very complex.

While we can expect to pay something for the convenience of credit and debit cards, no one takes kindly to fees, particularly if you are in a situation where you have no choice.

And as Ms. Ringuette pointed out in a speech in the Senate last month, Visa Inc. and MasterCard Worldwide are making good money: "MasterCard Worldwide net income has more than doubled between 2006 and 2007," she said.