Retailers want Ottawa to regulate debit and credit card fees
Canadian retailers are heading to Ottawa this week to lobby the government to regulate the service charges levied on them by debit and credit card companies.
And they are going armed with a warning — that if fees remain unchecked, the cost will be significant for the average Canadian.
"Those fees have undergone continual and frequent increases in the last year, and our organization, along with other associations linked to the retail industry, are pressing [the government] to manage, either legislatively or through regulations, the commercial practices of credit card companies," said Gaston Lafleur, head of the Quebec Retail Council.
Credit card companies collected $4.5 billion in fees in 2008, while debit card fees, calculated differently, accounted for about $415 million in 2007.
Associations representing the retailers and credit and debit card companies will be in Ottawa on Wednesday and Thursday to attend the Senate banking, trade and commerce committee investigating Canada's debit and credit card industry.
The Retail Council of Quebec has long battled against the constant fee hikes, in particular for credit cards, and Lafleur said his members are worried the fees will skyrocket if credit card companies are allowed to enter the debit card market.
Lafleur said the fee hikes would almost certainly be passed on entirely or almost entirely to the consumer in the form of higher prices.
Credit card fees account on average for about two per cent of the transaction value, a percentage that increases when the card offers some type of bonus such as Air Miles.
As a result, Visa and MasterCard have multiplied the number of cards they have issued. They have also increased their fees at least four or five times since October 2007.
The Competition Bureau of Canada announced on March 31 it will investigate whether the two credit card companies are violating the law by charging higher fees.
Retailers are also concerned that Visa and MasterCard might enter the Canadian debit card market by entering into agreements with financial institutions.
Credit card companies argue Canada is one of the few countries where they are excluded from the Interac system, and they have said their participation is good for competition and will offer consumers greater choice.
Debit transaction fees could soar
Currently, debit transactions are fixed at about 12 cents per transaction, regardless of the amount of the purchase.
But the fee for a debit transaction with a credit card would be determined as a percentage, meaning that a $100 item that now costs the retailer 12 cents would cost $2.
With the average debit card transaction hovering around $45, the fee would be about 90 cents, which would represent a 650 per cent increase that would end up being passed to the consumer.
Debit cards in Canada are now run only by the not-for-profit Interac co-operative system dominated by the major banks.
Interac is calling on the Competition Bureau to modify its governance structure so it can operate independently of its stakeholders — which include representatives from banks, businesses and independent ATM operators.
"Not only are there too many hands on the wheel, but they are all competitors with each other," said Mark O'Connell, Interac's president and chief executive officer.
A change in organizational structure would allow Interac to introduce technological changes O'Connell said are necessary to compete against credit card companies.
Retailers, however, fear Interac will up its rates to generate more profits by switching to a percentage system rather than simply maintaining the current system.
"We're very concerned that Interac will eventually become a for-profit company," Lafleur said.
But O'Connell, who is scheduled to testify on Thursday, assures that's not Interac's plan.
"We understand that the fixed-fee structure per transaction is the reason for our success in the past and we will respect those roots in the future," O'Connell said.