Flaherty unveils credit and debit card code of conduct
Finance Minister Jim Flaherty unveiled today his long-awaited proposed voluntary code of conduct for Canada’s multibillion-dollar credit- and debit-card industries that includes a number of measures to tackle merchants’ complaints they are being gouged.
The voluntary code follows a series of articles in the Star chronicling escalating grievances by retailers and small-business owners about skyrocketing credit card fees and "aggressive" debit marketing tactics by Visa and MasterCard.
"This proposed code is intended to promote fair business practices and ensure merchants and consumers clearly understand the costs and benefits of credit and debit cards," Flaherty said in conjunction with the document’s release at an Ottawa shopping centre.
"The government supports efforts that encourage a competitive environment which provides for fair pricing practices, innovation, a safe and secure payment system, and high-quality services for consumers and merchants."
In that vein, the code’s provisions not only apply to Visa, MasterCard and the Interac Association, but also to financial institutions that issue debit- and credit cards as well as payment processors.
Among the proposals, merchants would be allowed to cancel their contracts without penalty following notification of a fee change. They are also required to have a "minimum of 90 days notice" of any fee changes related to either credit or debit.
The code would also ensure that merchants who accept credit card payments are under no obligation to accept debit card payments from the same payment network and vice-versa. That means merchants can opt to accept only credit or debit payments from a particular network if they do not want to accept both.
Moreover, banks can only issue premium credit cards to consumers who apply for or consent to them. New premium cards, such as the Infinite Visa card, have been issued to consumers on an unsolicited basis.
Merchants have complained these new cards – which make up about 9 per cent of the banks’ credit card accounts – cost them more to process at a time when many are already hard-hit by the recession.
The code also requires "increased transparency and disclosure" by debit and credit card networks and payment processors with respect to the fees that merchants pay to accept plastic.
Also in the code, business owners would be allowed to provide discounts for different methods of payments. Many merchants already offer consumers discounts for using cash but the code would also allow merchants to provide "differential discounts" among different payment methods and brands.
"The advertised price must be available for all payment methods. Any discounts must be clearly marked at the point-of-sale," the code says.
Also in the case of co-badged cards – debit cards that offer competing domestic debit offerings like Interac and Visa Debit or MasterCard Maestro – the merchant can decide which debit payment network is used low fee cash advance.
Flaherty is also requiring that co-badged cards be "fairly branded," meaning one network’s logo cannot be given preferential treatment over another. The code is also banning the concept of a dual-purpose debit-and-credit card, an idea supported by consumer groups.
The Retail Council of Canada has said credit card processing fees now cost merchants $4.5 billion a year. The council also estimates merchants will pay an extra $300 million to process debit cards if Visa takes 20 per cent of that market away from Interac next year.
While Flaherty has already heard from merchants, financial institutions, consumers groups, debit and credit card networks, he is putting the code out for a 60-day public consultation period. Those discussions are expected to help firm up details, including timelines for implementation.
Overall, however, the code is meant to serve as a complement to Flaherty’s new credit card regulations that take effect next year. While some critics have already suggested that a voluntary code is likely to lack sufficient enforcement, it is an idea that is widely supported by small business owners.
The Canadian Federation of Independent Business, which first proposed the idea of a voluntary code, called it "an early Christmas present" for small business.
"Today’s announcement of the draft code constitutes an important step and is timely as we enter the holiday season that is so vital to so many retailers, especially coming out of a recession," said CFIB president Catherine Swift.
"We are particularly pleased that government is being proactive in helping to lay the groundwork in advance of major expected campaigns on the part of Visa and MasterCard in the debit industry. These developments will create a better future for merchants and help ensure a fair and transparent credit and debit market instead of just letting large industry players call all the shots."
Payment card networks like Visa, MasterCard and Interac are expected to incorporate the new policies in their contracts, governing rules and regulations, while also ensuring "compliance" from banks and others who participate in their systems.
Visa and MasterCard were not immediately available for comment. Their executives have previously said they have no objections to the premise of a voluntary code but have warned in the past that heavy-handed government regulation would stifle innovation and choice for consumers.
Filed under: money by TheDoor