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Visa Inc., MasterCard Inc., and their Canadian credit card issuers dodged a legal bullet Tuesday when Canada’s Competition Tribunal refused to quash network rules designed to protect cards from being undercut by merchants seeking lower-cost payment forms. Instead, the tribunal suggested that changing the law was the way for merchants to get relief, and retailers already are calling for political action.
The case, which bears many similarities to the merchant-network fights in the U.S. over card-acceptance costs, began in late 2010 when, at the behest of retailers, Canada’s Commissioner of Competition asked the tribunal to overturn Visa and MasterCard rules that prevent merchants from surcharging card transactions, require them to honor all cards with the same network brand, and ban them from encouraging customers to use other cards or payment forms. The commissioner argued that these so-called merchant restraints limit competition in violation of Section 76 of Canada’s Competition Act.
The tribunal, an independent government body, dismissed the commissioner’s request on a technicality, saying that Section 76 requires a resale while the tribunal didn’t find that the networks’ customers resell their products. The tribunal went on to say that it agreed that the no-surcharge rules had an adverse effect on competition, but it still couldn’t have found for the commissioner.
“The proper solution to the concerns raised by the commissioner is a regulatory framework,” the tribunal said in a brief statement. “In that regard, it [the tribunal] noted that the experience in other jurisdictions showed that concerns would be raised by consumers regarding surcharging and that rather sooner than later, intervention would have to take place by way of regulation.”
Merchant trade groups quickly issued statements expressing dismay with the tribunal’s decision, but agreeing with its opinion about a solution to their grievances. “Although disappointed the tribunal failed to strike down the restrictive and anti-competitive rules, RCC agrees the problem is best addressed by regulation,” the Retail Council of Canada said.
“This quasi-judicial panel has essentially said, ‘look, we don’t have authority [to overturn the network rules] so we think the better route is a regulatory framework,’” a spokesperson for the Canadian Federation of Independent Business tells Digital Transactions News. “Which, essentially, is they’ve handed it over to the politicians.”
The 109,000-member small-business trade group said it is calling for officials to strengthen the Voluntary Code of Conduct for payment networks, merchant acquirers, and card issuers that Canada’s Department of Finance issued in 2010. Among other things, the code calls for transparency in pricing and rules affecting merchants, notices of rate increases, and, according to the commissioner, lets merchants refuse to accept some network-branded cards even if they accept other cards with the same brand.
The CFIB also noted that the networks agreed to permit surcharging in the U.S. under their controversial settlement with merchants in the credit card litigation in federal court in Brooklyn, N.Y.
“We certainly haven’t heard a huge stampede of merchants imposing surcharges … but it does serve as a deterrent to Visa and MasterCard,” the CFIB spokesperson says.
Merchant complaints about card-acceptance costs have increased greatly in Canada in recent years with the introduction of premium credit cards that carry higher interchange rates than standard credit cards, and the debut of major-brand debit cards that cost merchants more to accept than Canada’s established, low-cost Interac debit card. The RCC says some credit cards charge 3% of the sale versus about 12 cents for Interac. In response to the debit dust-up, the code said no single card could have differing network brands that compete for the same transaction.
MasterCard hailed the tribunal’s decision as good for both consumers and merchants. “We want our cardholders to know that wherever they see the MasterCard emblem they can use any MasterCard confidently without extra charges tacked on and without discrimination,” Betty K. DeVita, president of MasterCard Canada, said in a statement. DeVita added that, “The data proves that retailers that accept MasterCard see an increase in sales and reduce their costs of handling cash and record keeping.”
Visa Canada issued a short statement saying, “The decision by the tribunal to dismiss the Competition Bureau’s case and uphold the no-surcharge and honor-all-cards rules is a positive for consumers. This decision reinforces that Visa’s rules are compliant with the Canadian Competition Act and helps ensure that consumer choice is protected at checkout.”
