What you need to know about the new credit card surcharge


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As of last week, you may have to pay additional fees if you choose to pay with your credit card. Indeed, Canadian retailers can now charge customers using credit cards to pay, following a longstanding lawsuit with Visa and MasterCard that was settled earlier this year.

The Canadian companies launched a class action lawsuit against the two companies in 2011, and the settlement earlier this year reimbursed them hundreds of millions of dollars in fees – called interchange fees – that they pay each time a customer pay with credit. The settlement also gave them permission to pass these fees directly on to customers, which they were not allowed to do before.

It used to be that companies absorbed the cost of these so-called interchange fees, but today many are looking to make up for lost revenue by charging their customers.

But what does this mean for you? We’ve received many questions from our audience and have answered some of them below.

Why are credit card fees so high at 2.4%? Couldn’t they be capped at 1%?

In fact, credit card interchange fees are sometimes higher than 2.4%, but the surcharge for customers has been capped at this figure due to the settlement.

However, the amount of the surcharge you may be charged at checkout depends on the credit card you are using.

“The higher the card premium, the higher the interchange fee,” said Luciana Brasil, a partner at Vancouver Branch law firm MacMaster LLP, which worked on the class action lawsuit that led to the settlement.

This means that the more points and rewards you receive using your credit card, the higher the surcharge you can expect.

Merchants can also choose to add the surcharge by company brand, i.e. Visa or MasterCard, or they can add it to product types, i.e. Visa or MasterCard types. to types of MasterCards, added Brazil.

The average surcharge in Canada is 1.4%, but depending on the card, it can reach 2% or more. Regardless of the cap, however, merchants cannot charge more than the actual cost of what is purchased or paid for.

“It’s not a profit-making charge. It’s a cost-recovery charge,” Brasil said.

Why do we pay more [interchange fees] than the Europeans and the others?

In many parts of the world, including the European Union, Israel, the United Kingdom, China and Australia, interchange fees have been capped at less than 1%.

On the other hand, Canada has some of the highest interchange fees in the world, averaging 1.4%.

Why this is the case is still unclear. However, credit card companies determine these rates.

“It’s a question for the networks,” Brasil said.

Merchants can choose to levy a surcharge on the company brand, such as Visa or MasterCard, or they can add it to product types, i.e. specific types of Visas or MasterCards. (Daniel Acker/Bloomberg)

She says she and her team have been told before that these fees need to be higher in Canada in order to maintain all the different levels of services that are provided in extending credit to people.

However, Australia, one of the countries where interchange fees are legally capped, is able to provide a comparable level of service for much less.

Understanding why there is such a big difference is a question they asked in litigation, Brasil says, but never received an answer because the case was settled.

It was a question of introduction of legislation to control fees, especially for small and medium-sized businesses, but so far there has been no news from Ottawa.

Can a surcharge be applied if I use my Visa Debit card?

No, no surcharge can be applied if you use your Visa Debit card or Debit MasterCard. This only applies to credit cards, says Brasil.

Debit cards generally use Interac, even if they are labeled Visa Debit or Debit MasterCard.

This also applies to pre-authorized debit transactions, such as bill payments – they cannot have a surcharge as these bills use debit. In fact, some of your bills can’t even be paid with credit cards, like your property tax bill, because it’s too expensive, said Rubina Ahmed-Haq, a Toronto-based personal finance expert.

How will additional credit card charges affect my shopping habits?

Whether it’s the increase in self-checkouts at the grocery store or your local cafe going cashless, many businesses have recently shifted to more frequent use of card transactions, both debit and by credit.

With the rise of cashless options and the introduction of credit card surcharges, more Canadians are likely to be more inclined to pay with Interac via tap options.

“I think the only thing it’s going to do is make people more used to using debit, but you can use the debit tap in all of these cashless environments,” Brasil said. “I don’t think it will affect the ability to pay in a cashless environment.”

Debit is also much cheaper for the merchant, she added.

However, adding a surcharge on credit card fees can change customer behavior, whether it’s changing your shopping habits or how you pay, experts say.

It is also not certain that all, or even many companies, will apply the surcharge.

“I have a feeling most businesses won’t apply this surcharge because they don’t want to scare off customers,” Ahmed-Haq said.

When it comes to bringing customers to your doorstep, and not your competitors, choosing not to add an extra could be the answer.

“If you have a local cafe where you go or eat in a restaurant, can you imagine if they say we’re now adding an extra, how that would impact people’s behavior,” she said. declared. “It’s really easy to go next.”

Instead, she expects grocery stores to be the first to apply the charge because they are unavoidable for people to feed their families.

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