Merchants Facing Credit Card Fee Hike

MasterCard Canada is planning a significant hike in card processing costs for small business effective this July.

The move – which will see assessment fees jump to 7.7 basis points from 6.4, a 20 per cent increase – comes on the heels of a similar announcement by Visa, which will boost its fees by one-third this April.

Visa also plans to increase the cost of foreign card transactions by 40 basis points and introduce an “uber-premium” card for its top spenders, which will carry a higher processing fee for merchants.

The Canadian Federation of Independent Business (CFIB) – which has over 100,000 members across the country – is up in arms at the news, concerned about the impact on already-struggling merchants. The fees assessed to Canadian merchants ring in at $5 billion per year, making them the second most expensive in the world eclipsed only by what is being charged in the United States.

“CFIB is very disappointed that MasterCard is choosing to increase its fees at a time when small firms are struggling with an uncertain economy,” said CFIB president and CEO Dan Kelly, in a media release. “While MasterCard is raising fees by a smaller amount than Visa, it is particularly surprising that both major card brands are increasing their fees just before Canada’s Competition Tribunal is expected to rule on its case against the two card giants.”

In 2011, the Competition Bureau filed a case against the credit card giants, alleging they were participating in anti-competitive practices by forcing merchants to accept all cards and prohibiting them from applying a surcharge to help them recoup costs. A ruling is expected to be made in the coming days or weeks.

“Unfortunately, the only competition between Visa and MasterCard is to see who can raise prices the most for merchants and consumers and deliver the highest fees for Canada’s banks,” Kelly said.

Visa, MasterCard and card-issuing banks are embroiled in a similar $7.25 billion anti-trust case south of the border, where US merchants and trade associations allege the credit card companies conspired with banks to fix fees. The settlement was given preliminary approval in November and has since been appealed. Similar suits have also been filed in Europe, where the fees cost retailers about $33 billion annually.

Back in Canada, the CFIB has also raised the issue of credit card sales practices, suggesting small merchants are being trapped in “terrible” credit card processing deals, even signing equipment lease agreements that, unbeknownst to them, sharply increase fees. The Financial Consumer Agency of Canada is investigating and has already issued a few draft guidelines to stop some of the unfair practices.

Last winter, a CBC News investigation revealed small business owners were being duped by surprise fees and payments by contractors who supplied them with debit and credit card machines. In one case, a tax preparer had seemingly random amounts of money automatically withdrawn from her bank account by the payment provider. In another, a cab company was being charged more than double per debit transaction than what was agreed to its contract, a claim that was denied by the payment provider.