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Visa, Mastercard Reach Surcharging Settlement in Canada
June 15, 2017

By Kevin Woodward

Canadian merchants that accept Visa Inc. and Mastercard Inc. credit cards soon will be able to add a surcharge to some transactions following a settlement reached this week.

Image Credit: CFIB

Kelly: “We’re seeing some progress in Canada.”

The settlement, which stems from a 2011 class-action lawsuit against Visa, Mastercard, and a number of card-issuing banks alleging excessive fees, calls on each card network to modify its no-surcharge rules and each pay C$19.5 million (US$14.7 million). The settlement is subject to court approval in the five provinces in which claims were brought. The rules would go into effect 18 months following that approval. “Final court approval is expected to take several months,” Visa Canada says in a statement to Digital Transactions News.

Visa says the modified no-surcharge rule for Canada would be similar to its U.S. rule, which places a cap on the surcharge amount and requires point-of-sale notification. In the United States, surcharges on credit card transactions are limited to actual acceptance costs or 4%, whichever is lower. Neither Visa nor Mastercard disclosed details about what the cap might be in Canada.

Dan Kelly, president of the Toronto-based Canadian Federation of Independent Business, doubts many retailers will adopt surcharging because of typical competitive pressures to keep prices low, though there may be some exceptions. But he still believes the settlement could be a boon for Canadian merchants.

“The only reason we’ve been advocates of surcharging is to change the power balance between the payments players and the merchant community,” Kelly tells Digital Transactions News. “It has been our view for the past decade the merchant community has had little power in the payments space.”

Surcharging, when enabled, should alleviate that imbalance, he says. If the card brands push an interchange increase, merchants could institute surcharges, which likely could drive some consumers to choose a payment method other than a credit card, Kelly says. “It gives the merchant individually, and collectively, a little bit of power.”

Enabling surcharging is but one measure Canadian merchants have sought in order to gain a stronger position relative to the networks. One measure, initiated in 2010, is a Code of Conduct issued by the Canadian government to foster better business practices. In 2015, Visa Canada and Mastercard Canada reduced their consumer credit card interchange to hit a target average of 1.5%. Earlier this year, Kelly’s organization struck a deal that enables its more than 109,000 members to get interchange rate reductions of 12.5% or more from Mastercard.

“We’re seeing some progress in Canada,” Kelly says.

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