Competition Bureau takes aim at credit card companies

The Competition Bureau is targeting credit card companies Visa (V-N) and MasterCard (MA-N), saying they have established an anti-competitive system that costs consumers billions in hidden fees.

The bureau's case against the credit card companies kicked off on Tuesday in Ottawa. The bureau says it's challenging rules that prohibit retailers from encouraging consumers to use lower-cost options, such as cash or debit cards, or passing on surcharges to consumers who use credit cards with high fees.

"Those rules that Visa and MasterCard are imposing on merchants that don't allow them to encourage customers to use other forms of payment, to refuse to accept other cards and that don't allow them to try recover some of that extraordinary costs being imposed on them -- we're saying those are anti-competitive," Melanie Aitken, Competition Commissioner, tells BNN.

The bureau argues that since retailers are not able to charge a higher price to customers using credit cards -- particularly premium cards that come with higher fees -- merchants are forced to raise prices on goods for all consumers, regardless of what payment option they use.

The bureau estimates that higher prices are offsetting the $5 billion in hidden credit card fees paid by merchants annually.

The case against Visa and MasterCard first began in 2010 when the bureau filed an application with the Competition Tribunal to eliminate what it deemed anti-competitive behavior.

Visa and MasterCard dominate the credit card landscape in Canada, processing more than 92 percent of all credit card transactions in 2011 and representing more than $322 billion in purchases, the bureau says.

Card acceptance fees are paid by merchants every time a customer uses a credit card, with the fee typically being a percentage of the purchase price. Fees range from 1.5 percent to more than 3 percent for every purchase and can be higher on premium cards that offer users rewards for using them.

The fees are then distributed to the banks that issue the cards, the credit card companies and processing companies.

Visa defends its practices, saying measures are already in place to allow merchants to shoulder the costs of using credit cards.

"Merchants already have numerous options available to help manage their payment acceptance costs, while receiving all the benefits of electronic payments including faster checkout times, guaranteed payment, and enhanced record keeping," Visa says in a statement. "Further Visa's policies do not preclude retailers from offering incentives or discounts to consumers who pay with their preferred payment method."