Business group says hidden increases in merchant fees will likely be passed on to consumers

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By Alan Cochrane Times & Transcript

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Business owners are paying higher fees to accept so-called "premium" credit cards and it is only a matter of time before they start passing the extra costs on to their customers, the Canadian Federation of Independent Businesses said yesterday.

"There's no competition in the credit card business and no transparency, so the merchant is at the mercy of the big banks. Of course these extra costs will be passed onto the consumers," Andrea Bourgeois, director of New Brunswick affairs for the CFIB, said last month.

The CFIB – which represents small business owners across the country – contends major credit card companies and the big banks are embarking on a "cash grab" by increasing the fees charged to businesses for each transaction using credit cards. Every time a customer uses a credit card to purchase goods or services, the business is charged a fee. And the CFIB says those fees are increasing with the so-called "premium" cards offered by major card companies like Visa and MasterCard.

CFIB has launched a national campaign to inform its members and the independent business community at large about this issue, and to engage their support in a political action campaign opposing this initiative by the credit card firms and banks.

A spokeswoman at the headquarters of the Bank of Montreal said banks do not set user fees and referred questions on the topic to individual credit card companies. The Times & Transcript made telephone and e-mail requests to the headquarters of both Visa and MasterCard, but received no response. A spokesman for a public relations firm representing MasterCard said the company was aware of the CFIB statement and was preparing a response.

Bourgeois said CFIB members are starting to see the increases in the bills they receive for their merchant fees.

"There is a car rental company in Calgary who does about $180,000 in business per month. His merchant fees went from $4,160 in May to $5,313 in June, a 28 per cent increase, on the same amount of sales."

Bourgeois said the increases are starting with the "premium" cards which give cardholders a higher limit of spending, but the fees are dripping back into regular cards as well.

She said customers who spend more and carry a higher balance on their credit card will actually result in a higher merchant fee for the business per transaction. But the merchant has no way of knowing if a customer is a bigger spender and cannot refuse to take the card as payment.

The merchant fees affect all businesses who accept credit cards – from convenience stores and department stores to car rentals, hotels, airlines and everything else.

Catherine Swift, national president of the CFIB, said credit card companies in Canada are also looking to enter the debit card business, now managed at relatively low cost by Interac, a co-operative venture owned by financial institutions and others. She pointed out that Interac now charges a flat fee – the transaction size doesn't influence how much the business pays.

According to Interac, Canada is one of the biggest users of its debit card services and the numbers continue to grow. The number of merchants using Interac service in Canada has gone from 280,482 in 1996 to 410,234 in 2007. Over the same period, the number merchants in New Brunswick using Interac debit service has gone from 6,663 in 1996 to 9,274 in 2007. In 2007, New Brunswickers used their debit cards for more than 83 million transactions through the Interac network.

Swift fears that credit card companies could move to a fee based on a percentage of the purchase, which would hike the fees that merchants pay.

"For example, a purchase of $1,000 would now cost a business around 6.5 cents. But if the charge became 0.65 per cent – the U.S. average – the business would pay $6.50. That's an increase of almost 10,000 per cent," Swift said.

She said consumers are not only completely unaware of what the changes mean for merchants, they haven't even asked for these new cards.

En français: Les sociétés de cartes de crédit font payer un supplément aux petites entreprises qui acceptent les cartes de prime et cherchent à obtenir le marché des cartes de débit. Un groupe d'affaires déclare qu'il s'agit d'une autre façon d'obtenir de l'argent sur le dos des entreprises.