Inflation is already driving up prices on everything from food to the overall cost of living — and now pulling out your credit card could be more expensive, too.
As of Thursday, businesses across Canada can pass on processing fees to Visa and MasterCard customers if they choose. The move comes after a class-action lawsuit involving the two credit card companies.
The news is frustrating for 31-year-old Yuka Sai, a staff lawyer at the non-profit Public Interest Advocacy Centre.
“I, for one, will definitely be looking for ways to cut down costs to offset these surcharges,” she said.
Before the lawsuit, the merchant agreement forbid businesses from passing on credit card processing fees to their customers. But starting Oct. 6, they now have the choice to impose a new surcharge on purchases using Visa or MasterCard. Sai calls this the most important issue in the lawsuit.
“This class action will likely hurt the overall affordability of living, especially for students, low-income (people) and those on a fixed income,” Sai said.
“For youth and young people, where every dollar counts, I think an extra surcharge may make it harder to save for the future,” she added, pointing to rising costs in housing, food and communications.
Jasmin Guénette, vice-president of national affairs at the Canadian Federation of Independent Business (CFIB), says it’s expensive to accept credit cards. Small and medium-sized businesses face the same high inflation issues, he said, with rising operating costs for things like rent, commercial insurance, wages and materials.
“Some small businesses will surcharge to offset the increased cost of doing business,” Guénette said.
One of the intentions of the class-action settlement was to ensure small and medium-sized businesses are not incurring excessive costs from credit card processing fees, Sai said.
CFIB reports credit card processing can cost businesses 1.5 to 2.5 per cent of every sale.
“Giving the option to small businesses to pass that cost onto consumers is something many merchants have been wanting to have for many years,” Guénette said.
If merchants do plan to add a surcharge, they will have to inform the credit card company and be transparent with their customers, he added.
After surveying its more than 95,000 members, CFIB found:
- 19 per cent of merchants intend to use the new power to surcharge
- 26 per cent said they will do it if their competitors or suppliers do
- 40 per cent said they are not sure yet if they will surcharge
- 15 per cent said they don’t intend to do it
Guénette said while it’s unclear how many businesses will partake in the surcharge, one in five currently does. “Businesses are worried about the reaction of clients; some don't want to surcharge, not wanting to lose both sales and clients,” he said.
Adding a surcharge might drive consumers to spend less on non-essential products and services or even things like food, which is not good for anyone or the Canadian economy, Sai said.
Even a small addition to a bill is a significant extra expense, she added.
Although different for all consumers, some will take on the surcharge and others will opt to pay debit or cash, Sai said. “The reality is that some services only take credit payments. Debit and cash payments may not be feasible to consumers living paycheque to paycheque.”
If businesses decide to add the surcharge, Guénette is unsure if they will get to choose whether to add it in-store or online only.
Sai says there’s nothing stopping businesses from offering discounts for not using credit cards, which she has not seen very much in the market, if at all.
“My advice to consumers is to take a look at how you are handling payments right now and see how you can avoid the surcharge by switching to paying with debit for pre-set payments,” Sai said.
The Public Interest Advocacy Centre has always pushed for a solution to the issue of high processing fees that doesn't include odd fees for consumers, Sai said.
“There are ways to solve the issue without having to pass on these fees excessively to consumers. The government could have stepped in and capped the high interchange fees on MasterCard and businesses, which happens internationally,” she said.
Guénette suggests the federal government meet with the small business community and other stakeholders to talk about policy options to lower the cost of credit card fees, part of the Liberal government’s platform promise to lower credit card fees for small businesses.
“We’re really looking to the government to fulfil those promises,” Sai said.
Nairah Ahmed / Local Journalism Initiative / Canada's National Observer
- Nairah Ahmed
- Reporter
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On the large scale, the net
On the large scale, the net impact of this is less money going from the real-people economy to huge financial corporations, as people use credit cards less. So that's fundamentally good. at the (literally) retail level, it involves some consumers paying more, while small businesses make more and perhaps their employees will be able to push for a share of that. But the net amount of money at the level of ordinary people will be slightly greater, the net amount flowing to huge multinationals and their uber-wealthy shareholders and CEOS slightly less, so I find it hard to object strongly to this.
I'd phrase it a bit
I'd phrase it a bit differently. On the large scale, the net impact of this is more money going from real people to the business sector. The banks are not going to suffer. They're getting their pound of flesh every time the interest rates go up, every time they cut services, every time they close branches to force more people to bank online.
It's a really sh*tty deal for lower income people, because it involves lower income people paying for the rewards received by people with more money.
That's because the way to break even is to get a credit card with "better rewards." As it stands now, people who take the basic cards to save a bit of interest when they can't pay in full at month's end, are paying 50% more than they did when I switched from the so-called "better" card to the basic, low-interest option. The low interest now is higher than high interest 20-25 years ago, with a much wider interest margin over the bank prime rate than it had then.
Long ago, one "qualified" for better rates by paying bills on time. Now it's strictly a matter of the volume of business one's capable of giving to the banks. Think about it: it's all transfers from the poor to the better off.
The "better rewards" cards come with minimum income numbers. I have a friend whose income is well into 6 digits. She gets all kinds of freebies, cash back, points, etc. etc. etc., AND her interest rate is only marginally above mine.
Those without the big incomes are the ones paying for the "rewards" of those with big incomes, who pay less, and get more. They come out way ahead of the game, with or without surcharges.
It's obscene when it costs less to charge than to pay cash.
The poorest people have no option.
Those hit disproportionately are seniors, women and people with disabilities: sounds like a charter challenge if anyone were willing to take it on.
But the most obscene thing about it is that those "rewards cards" encourage air travel, which we ought to be rationing in the name of the environment, not making easier for those with money.
There is no calculus that reduces the net amounts flowing to huge multinationals, or their uber-wealthy shareholdes and CEOs.
The banks get your money straight out (debit) or later (credit) ... and on credit cards they carry purchases for a few days. Not as many as they claim, either.
Businesses that take payment only by credit card should not be allowed to pass on their fees. For darned sure, they're not going to reduce their prices. That's just not good for "consumers."
This is good to hear. I would
This is good to hear. I would have preferred that retailers would be allowed to give a 3% discount for cash.
I wish someone would take credit card companies to court over the usury they practice, to wit charging interest on money you do NOT owe. It is there on the cardholder “agreement”; you pay interest on the total amount of the purchase until it is ALL paid off.
If you do not believe me try the following experiment. Buy something for $20.01 using a clean credit card, one with no debt. Promptly go to the bank and pay off $20.00. Then do not use the card. You will find yourself billed with the interest on $20.01, month after month, even though you only owe 1 cent. This happened to me unwittingly.
Now consider someone who uses a credit card a lot and pays a bit each month. They will be paying lots of interest on money they do not owe, and they probably will not know it.
Not only that, but if you don
Not only that, but if you don't pay the balance when due, you get charged interest (that wasn't charged before the statement was rendered), BACK TO THE DATE OF PURCHASE.
And both the case David outlined, and the one above, were weasel-worded in the "notice of change" in unreadably small and low-contrast on the back of the bill.
Whatever you do, don't get a "Capital One" card ... they're the guys who billed *other* companies as "hands in your pocket." Right down to (without telling you) "closing" payments at noon or 1 p.m. So if you stand in a long lineup on a Friday before a long weekend, to be sure the payment is made as of that day, and most of the tellers go off on lunch break? Well, that payment's not going to be processed till 3 days after Tuesday. You'll get a wing-dinger of a "late payment" fee added, which might well drive you over limit, then they add an "over limit" charge and increase the interest rate.
Whatever you do, if you can't pay the whole thing, do *not* let it go to a collection agency. Credit card companies will often settle for substantially less than the last balance, if you can by hook or crook offer a lump sum to retire the debt. That's because if they can't collect within a short time, the credit card company will sell your debt for less than half its full amount. And the agencies have forever to collect, even if it has to come eventually out of your estate.
Excellent comments made above
Excellent comments made above.
I would like to chime in, but am being cautious because I do not know the facts. So, if I am making an erroneous statement or have an incorrect concept of the rules of the game, please feel free to correct me.
Years ago I was "outraged" to find out the merchants were being charged by credit card companies for 'allowing' me to use my cards, yet that was nowhere to be posted in the stores or in information on my statements. Then I found some merchants who would give me a discount if I paid case -- only if I asked. Most however, would not.
Now, I'm confused. My "aha" moment of course was when I realized that merchants for years have been 'hiding' (or building in) the credit card costs in their prices, which is why some would not give credit for cash, because they would lose that hidden fee. So, if true, then the wording in the CNO article is not complete -- merchants are now being allowed to DIRECTLY charge for the use of a credit card, i.e., in full view. I am loathe to believe that merchants have been taking a loss on their merchandise all these years. Customers have long been paying the fees as hidden costs.
So, if merchants now want to charge the fee openly, but not reduce their prices on the shelf, then they are "double billing" customers. Governments have been AWOL for years regarding credit card "operations" (e.g., see above points by others). They should never have allowed the credit card companies to hide the rules of merchant agreements. Now it seems, the customers are going to get extra screwed. Why is this not being pointed out?
Am I wrong about my perception of how things have been and will be run?
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