A pending regulatory decision expected this fall could change how credit card processing fees work in Canada.

Telus Communications Inc. submitted a filing on Aug. 8 to the Canadian Radio-television Telecommunications Commission (CRTC), seeking approval to add a 1.5 per cent processing fee when customers pay their bills with credit cards. The proposed change stems from a class-action lawsuit settled in 2018, which resulted in Visa and Mastercard agreeing to change no-surcharge rules for merchants.

The settlement allows merchants, like Telus, to surcharge consumers paying for goods and services with credit cards up to a cap, according to the CRTC filing. Changes to the no surcharge rules could take effect as early as Oct. 6. The ability to surcharge consumers would allow merchants like Telus to cover processing costs associated with credit card payments. 

If approved, Telus will set its credit card processing fee at 1.5 per cent, plus applicable taxes, according to the CRTC filing. Mastercard currently has a maximum surcharge cap of 2.4 per cent, according to a release. 

“As of Oct. 6, 2022, Canadian merchants will be allowed to surcharge Mastercard credit card transactions, providing them with the flexibility to operate their businesses based on what best suits their needs,” Will O’Connor, a senior vice president of communications at Mastercard, said in an email Sept. 9. 

Merchants who apply a surcharge must comply with disclosure requirements, “designed to protect consumers,” O’Connor said. Meaning merchants are required to make it clear to consumers that they are being surcharged. 

Following a series of opposing public interventions filed with the CRTC against the proposed change, the regulator released a letter on Aug. 15, saying it would make a decision “within 45 business days of receipt of the filing.” It also stated it would not approve the request on an interim basis.  

 

CONSUMER IMPACT

The potential for increased processing fees could cause Canadians to re-evaluate their reliance on credit card payments, Barry Choi, a personal finance and travel expert, said in a phone interview on Aug. 24.

“It comes down to simple math. If you have the money in your account and you're going to be charged an extra 1.5 per cent fee to use the credit card, then obviously it makes sense to use cash and debit to save on those ones. But again, if you're getting more rewards than what you're paying, then it might be worth it,” Choi said, adding that it is an individual decision.

Choi said the change may also impact individuals who rely on credit payments.

“I would say it hurts people the most who are actually relying on credit, who might not have the funds available right now, and maybe they're just using credit to help them get by now [and] all of a sudden using credit is even more costly. So it actually puts these consumers in further debt,” he said. 

Credit cards have high-interest rates, Choi said, but at times, can be a temporary solution when used responsibly and the extra fee could make it more challenging to repay debts. 

Ambarish Chandra, a professor of economic analysis and policy at the University of Toronto, said in a phone interview Aug. 29, that he believes a 1.5 per cent fee sought by Telus is too high. The cap should be closer to the 0.3 per cent cap currently in place in the European Union, he said. 

“There's no reason that these credit card fees should be one and a half percent. It's outrageous. The marginal cost of credit card processing is tiny. And so this is just essentially a subsidy from one set of consumers to another with the credit card companies taking a dig along the way,” Chandra said. 

However it is unlikely that most businesses will surcharge customers, Chandra said, as having two different prices might confuse customers. 

“I think in the end most businesses are not going to want to have two separate sets of prices, it's confusing, it's costly for them [and] for the employees. There are going to be arguments. Some consumers are going to be unhappy. In the end, they’re not going to pick it up so we’re not going to see much change,” said Chandra. 

 

LEGAL IMPACT

Litigation has resulted in significant changes to surcharge rules in Canada, according to John Lawford, the executive director and general counsel of PIAC. 

Notably, regulators determined that the no-surcharge policy was subject to change and a delay of several years was put in place to provide all parties with time to adjust, Lawford said in a phone interview Aug. 31. 

“Now we have blown away the rule that has kept consumers safe from surcharging for the last 30 years, and it's going to be a sea change,” Lawford said. 

A Competition Tribunal hearing from 2013 states that Visa’s no surcharge rule has existed for over 30 years. 

Amid the changing surcharge environment, Lawford said it could be costly and inconvenient for consumers. 

“My concern would be that the outcome of this litigation is [that] it's been unfair to retailers and they should be able to affect the market by refusing abusive interchange rates. But in doing that, they may have room to not even pay regard to cost recovery and use it as a profit centre,” said Lawford. 

Airlines, in particular, may be more likely to use the changes as a profit centre, where they could abuse cost recovery to get more than their average interchange fee back, said Lawford. 

Lawford said that there could be a significant degree of confusion with “nobody really in charge.” 

“I think it's going to be a bit of a wild west, we are going to see some experimentation,” he said.