Finance Minister Jim Flaherty has proposed a voluntary code of conduct for credit and debit card providers that he says will "level the playing field" for consumers and small businesses.
"This proposed code would promote fair business practices and ensure merchants and consumers clearly understand the costs," Flaherty said Thursday at Mrs. Tiggy Winkles, an Ottawa-area toy store. "Today is the start of a conversation to be had in the weeks ahead."
The proposals would govern so-called interchange fees, which merchants are charged by payment processors for making a sale over debit or credit networks. Depending on the transaction, the fees can sometimes be in excess of one per cent.
"Over time, [interchange fees] affect prices to consumers of course, because everything has a price," Flaherty said.
"There is a cost to using these cards and that cost is generally borne by merchants."
The Retail Council of Canada estimates credit-card fees cost merchants about $4.5 billion a year. Critics argue that such charges wind up in the cost of goods and services sold to consumers.
Flaherty is putting the proposal out for comment over the next 60 days, and expects the code will be made final early in the new year.
The code of conduct would be voluntary, but "if we are unsuccessful with the voluntary code, we can create an involuntary code," Flaherty said. "We have the power to do that."
"We would like to avoid the heavy hand of regulation [but] we will make sure that there is compliance with the code," Flaherty said.
Any changes would be welcomed by Nick Nicholson, who runs a small taxidermy business called AAA Supply House in Calgary.
He estimated he pays almost three per cent in interchange fees but doesn't find that out until he gets a statement from the credit card company as much as a month after the transaction.
"You feel rather helpless," he said, "and you can't adjust your prices to your consumer simply because they look for a fairly standard price. And so, we're caught in the middle, and the small businessmen are the ones who pay the price and just absorb it."
Nicholson said it's an issue for all Canadians.
'Sooner or later it has to hit the consumer.'—Nick Nicholson, small business owner
"I think we should all care because sooner or later it has to hit the consumer," he said. "The retailer can only absorb so much, and when he can't absorb any more, one of two things happen: the retailer has a going-out-of-business sale, or he has to pass it along to the consumer, so the cost to the consumer goes up."
Voluntary code toothless: critics
Critics have said a voluntary code would be toothless and incapable of having a real impact.
“Without enforcement, a new code of conduct for debit and credit card companies is not a sufficient response,” Liberal consumer affairs critic Dan McTeague said last month. “We need some concrete, enforceable measures that will deal with the issues of double-cycle billing, little transparency and high fees for merchants."
Liberal Finance critic John McCallum was similarly nonplussed with the move on Thursday.
"There is a clear imbalance between the negotiating position of the card networks and merchants," he said.
"I remain very skeptical that two months from now these consultations are going to lead to a levelling of that playing field. Simply asking everyone to play nice where there are billions of dollars at stake is not a solution."
Catherine Swift, head of the Canadian Federation of Independent Business, was on hand for Flaherty's announcement and applauded the move.
"It's very similar to a code we proposed a few months ago," she told reporters in French. "There's a lot of complexity [on this issue] but this is a very good first draft."
Diane Brisebois, president of the Retail Council of Canada was also supportive.
"The minister today did a great service to both merchants and consumers in Canada," she said. "We think it's a fabulous idea. The minister showed this morning that he understands how difficult it's been for merchants in this country to deal with ever-increasing costs"
"We all know that at the end of the day, if the costs go up that much, then the consumer has to pay, and we said that's absolutely nonsense."
Early indications are that two of the leading card providers are on board with the process.
MasterCard plans on "actively participating" in the consultation process, company president Kevin Stanton said. "A code issued by the minister of finance must be taken seriously and establishes a de facto standard of conduct."
Visa Canada said it's encouraged that Ottawa supports transparency and choice in payments, "as Visa believes that these are fundamental to a well functioning economy."
The company said it's also encouraged that the code applies to all payment networks equally.
Leaders in the credit card industry, both companies are rumoured to be considering entering the Canadian debit-card market very soon. The market is now dominated by the Interac Association, a network owned by the big banks and other financial companies. ( cbc.ca )
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