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Is It Time To Cap Credit Card Fees?

In Canada, merchants pay much more than businesses in other parts of the world for accepting credit card payments.
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There is a $5 billion issue that has been simmering for years right under Canadians' noses, and it seems the federal government may finally be ready to do something about it. The issue is the sky-high fees that banks and credit card companies charge businesses every single time you pay for something with a credit card – hitting small businesses the hardest.

Federal Finance Minister Bill Morneau is in the middle of a comprehensive review of credit card fees, the effect they have on business, and on consumers. The simple fact is that even with voluntary fee reductions announced by Visa and Mastercard in 2014, Canadian businesses still pay some of the highest credit card fees in the world. As a consumer, you pay them too, as merchants are compelled to build them into the price of goods and services you buy.

In Canada, merchants pay much more than businesses in other parts of the world for accepting credit card payments. Whereas the credit card giants committed to reduce average fees in Canada to 1.5 per cent, the EU has already capped fees at 0.3 per cent, and Australia at 0.5 per cent. Although fees are protected from going up for the next few years, the voluntary reduction was almost certainly a move aimed at heading off strong government action to get Canadian rates in line with the rest of the world, which sadly continues to be a pipe dream for small businesses.

The entire system is driven by rewards programs, which Canadian consumers, understandably, have been only too happy to buy into. Credit card transactions have become lucrative for shoppers looking for cash back, trips and other perks. But the cost of the rewards is made back tenfold with exorbitant fees charged to merchants, who in turn are forced to bake them into the price of their goods and services. The only real winners are the banks and credit card companies, which pad their profits to the tune of about $5 billion a year.

The biggest losers, perhaps, are the smallest businesses. Whereas Walmart or other mega-retailers can use their financial might to negotiate lower fees for themselves, independent retailers, like neighbourhood convenience stores, don't have that luxury. To add insult to injury, lower fees offered to big businesses are most certainly included in the 1.5 per cent average, which means that small businesses are even less likely to see any savings at all.

The latest announcements from Visa and Mastercard that they will start allowing businesses to surcharge their customers when they use high-fee cards (think of those Avion commercials) is not particularly helpful. While the credit card companies see these 'check-out' fees as a solution to the problem, I can't see many, if any, small businesses taking advantage. Frankly, this thinly-veiled attempt to further pit consumers against small businesses should be seen for what it truly is... a way for the multi-national credit card companies to skirt responsibility for a problem they created.

Small business groups like the Small Business Matters Coalition, which includes the voices of over 100,000 small businesses across Canada, have been asking for relief for years. After years of voluntary half-measures from the big banks and big credit, neighbourhood retailers are hopeful that Minister Morneau is prepared to go further and do more than just ask nicely. Capping fees is not the only solution, but after so little progress, it may be time to consider it. Saving even a portion of the annual $5 billion credit card bill would sure help these businesses, and in turn their customers.

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