Businesses say credit card companies sneaking in fee hikes
Published Friday September 26th, 2008
Chances are if you use your credit card regularly - and it's a card that offers you a reward program - your bank has recently offered to upgrade you to a new card.
On the surface, the card doesn't come to you at any higher cost and has more rewards for spending.
But there's a hidden hitch and Canadian consumers are going to pay for the privilege of letting banks and credit-card companies give you that card.
Just ask Debbie Black, a co-owner of The Blue Door restaurant on Regent Street.
If you buy dinner at her establishment with one of the new cards, she's going to be hit with a surcharge, higher merchant interchange fees and even some fees she won't know about until she opens her business statement from her credit-card processing company.
"The average consumer needs to be made aware of what Visa and MasterCard are intending to do and how it's going to affect them as citizens. If you have one of the newer cards, the merchant gets dinged," Black said.
"This is ludicrous."
And it's not just the restaurant and retail sector getting hit either.
If you pay for government services such as your water bill or buy liquor at a government outlet, those government departments will be hit
with higher transaction fees, Black said.
And if everyone has to pay more, those charges are going to be passed onto consumers, she warned.
In October, credit-card firms such as Visa and MasterCard are hiking interchange fees for the second time this year.
The fee is paid by a retailer or government department every time a consumer uses a credit card.
"Most consumers don't even know that merchants pay a fee," Black said.
If you spend $10,000 on new furniture for your home, the retailer hands over $200 to the credit card company.
"What happens with these fancy cards, the merchant fee for it is already a percentage of the transaction, but this percentage has increased,'' said Andreea Bourgeois of Moncton, the director of provincial affairs for New Brunswick for the Canadian Federation of Independent Business.
"One increase occurred in June ... Starting next week, the merchant is going to pay higher fees.''
Not only will the basic interchange fee rise - somewhere between 0.46 cents to 0.71 cents per $1 spent, using a reward charge card will bring an additional processing fee of 0.3 per cent to the merchant.
Depending on a customer's credit level, the exact same credit card can attract a higher merchant fee once it has been deemed "high spend," or where the bank issuing the card detects a certain dollar amount has been reached.
"That credit card fee jumps up significantly, but you have no idea what the amount is and you have no control over that amount," Bourgeois said.
Credit card companies have refused to meet with the Canadian Federation of Independent Business to discuss how the interchange fees will change and by how much, Bourgeois said.
The national business group is complaining to the country's Competition Bureau and lobbying federal election candidates.
"At some point, merchants will have to put prices up because they can only deal with so much in price increases. Basically, all consumers will start paying for all these (credit card) advantages, but most of it will still go to the banks and credit card companies in profits," she said.
The Federation of Independent Business wants credit card companies to withdraw the cards from the market place and it wants federal law to require the companies to have to justify fee hikes before an independent reviewer.
There's more worry on the horizon for retailers as well.
Groups such as the Retail Council of Canada are warning that the Interac debit card system could be poised to move from a co-operative venture owned by financial institutions to a profit venture.
Modest, flat-rate transaction fees charged to merchants could suddenly become a percentage fee based on the value of the transaction.
The Retail Council of Canada says interchange fees on major credit cards generate $4.5 billion for credit card companies and that Canadian fees are already among the highest in the industrialized world.
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True, but can someone explain this to me.
Why is it that here we can pay Mcdonalds employees $8 an hour, when in Ontario they would make $15. The price of food there is the same as what we pay here.