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Canadian Credit Card Rules Have Changed & You Could Get Hit With New Charges

Some businesses will be able to pass surcharge fees onto customers.

MTL Blog, Associate Editor
People shopping downtown at the Complexe Desjardins mall.

People shopping downtown at the Complexe Desjardins mall.

Canadian retailers outside of Quebec will be allowed to pass 'swipe' fees onto customers as of October 6. That means many consumers could start seeing a 1-3% added charge, plus tax, on some bills if they decide to pay them with a credit card.

Why will some credit card users in Canada be charged an extra fee?

Canadian credit card users have been shielded from surcharges, or interchange fees, for decades, but a class-action lawsuit in 2018 opened the door for businesses to have customers cover the fees they were charged by credit card companies. Not only did companies like Visa and Mastercard have to pay back $188 million in charges to merchants over the previous decade, but they had to remove the parts of their terms and services that had prevented retailers from charging the fees to customers.

Few businesses entertained the idea until the onset of the COVID-19 pandemic and increased online spending saw credit card fees pile up in unprecedented quantities.

How much will credit card fees cost consumers?

Consumer surcharges will be capped at 2.4%. The average credit card surcharge in Canada is 1.4% for Visa and ranges between 0.94% and 2.54% for Mastercard. Interchange rates vary, depending on the type of card and its reward program (travel points, cashback, etc.) and the type of transaction (online, refund, donation, etc.). Businesses are not allowed to charge customers a higher surcharge than a credit card company is charging them to process a transaction.

How will you know if you need to pay a credit card surcharge?

Retailers in Canada must give a 30-day warning if they plan to start charging credit card fees. They must also show the charge clearly on any bill and at the time of payment.

Which businesses have already implemented a credit card surcharge?

In August, Telus submitted a Canadian Radio-television and Telecommunications Commission (CRTC) filing to add a 1.5% credit card processing fee plus applicable taxes to customers’ bills. Despite public backlash, the approved rule change comes into effect on Thursday (except for Telus and Koodo clients in Quebec).

Businesses that choose to adopt a similar practice will have to disclose the additional charges well ahead of time.

"A merchant’s ability to apply a surcharge is conditioned on the merchant’s satisfaction of certain disclosure requirements. These disclosure requirements include advance notice to both Mastercard and the merchant’s acquirer of the merchant’s intention to impose a surcharge no less than thirty (30) days before the merchant implements a surcharge," Mastercard specified in a release.

Why are Quebec businesses exempt from the rule change?

In Quebec, provincial consumer protection laws have prevented the rule from coming into effect. But the Canadian Federation of Independent Business (CFIB) is calling on the federal government to extend the measure across the country. "Small businesses in Quebec should also have the right to surcharge to offset their credit card fees," said the CFIB in a release.

Are interchange fees regulated in Canada?

Interchange fees are currently not regulated in Canada, although there is a 2.4% cap set for surcharges passed on to consumers. Interchange rates are reviewed regularly by service providers to continue incentivizing use of credit cards by consumers and acceptance of that payment form by retailers. Rates are set by financial institutions, based on their market assessment.

What impact could this have on how Canadians pay?

The rule change could see Canadian consumers rely on credit cards less, depending on whether rewards and cash back programs make it worth their while.

The format of this article was updated and details added about how the ruling will impact Quebec-based businesses and consumers.

This article's cover image was used for illustrative purposes only.

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