Why is a 2011 class action against Visa and Mastercard affecting us in October 2022?
When a customer pays with a credit card, Visa and MasterCard take a percentage fee, along with the card-issuing bank and the company that processes the payment. That percentage varies depending on what kind of card is used. Basic cards charge a smaller percentage, while premium credit cards that offer points and other rewards cost merchants a much higher fee.
The class action was a national class action but filed in BC Supreme Court and alleged that Visa, Mastercard, and the major banks were price fixing to the tune of billions of dollars. The claim alleges that Visa and MasterCard rules force merchants to accept every Visa or MasterCard credit card, even if those cards carry high fees for the merchant. The claim also alleges that these rules prevent merchants from charging more for payments with premium cards.
This class action settled for $188 million in 2017.
- Canadian Imperial Bank of Commerce, Royal Bank of Canada, Bank of Montreal, Bank of Nova Scotia, and Toronto-Dominion Bank will pay $120 million.
- Mastercard International Inc. will pay $19.5 million.
- Visa Canada Corp. will pay $19.5 million.
- Féderation des caisses Desjardins du Québec will pay $9.9 million.
- Bank of America Corp. will pay $7.75 million.
- National Bank of Canada Inc. will pay $6 million.
- Capital One Bank (Canada Branch) will pay $4.25 million.
- Citigroup Inc. will pay $1.63 million.
Merchant class members will be eligible to claim a share of the $131 million net settlement fund, the money remaining after costs such as attorneys’ fees and other expenses are paid. The agreement also included revising Visa and Mastercard’s no-surcharge rule and allowing merchants to impose checkout fees on credit card transactions including consumer protections, such as a maximum surcharge limit and requirements for merchants to disclose their surcharging practices. Mastercard has set a maximum cap of 2.4 percent for surcharges that merchants can charge.
These revised rules will come into effect 18 months after court approval of the settlement – in BC that is October 1, 2022.
What is it that Telus is trying to accomplish?
Telus, a Vancouver-based Company, was one of the merchants affected by the Visa and Mastercard rules preventing them from charging the fee back to the customer. Now that we are at 18 months, Telus wants to pass the fee percentage they have to pay to Mastercard and Visa to the consumer – all of us.
They need approval by the CRTC (Canadian Radio-Television and Telecommunication Commission) to charge consumers 1.5% which they say will cover the processing cost. They need permission to add the fee for people who pay by credit card to their terms of service for customers.
What will this mean for businesses in Kamloops and the area?
The focus on credit card fees has climbed during the pandemic, as more people use credit cards for purchases online, and even for small, in-store buys like a drink and a snack that would previously have been made with cash. Few smaller retailers, however, are expected to add the charge.
It’s too much of a risk for merchants to lose business in competitive markets, but that’s likely less of a concern for some bigger companies. There is likely to be some take-up and interest in surcharging for companies that don’t have competition, and obviously, the telecom industry would certainly be in that category. In Kamloops, we are already hearing from several businesses that are implementing the surcharge – many people will just opt to transfer or pay by cheque or cash.
If a business wants to implement this surcharge, is there anything they need to do from a legal standpoint?
Businesses that want to add a fee for credit cards have to display signage that they have a surcharge, as well as have the fee explicitly shown on the receipt. If it is a contract-based business transaction where credit card payments are contemplated, the surcharge has to be set out in the contract, and so existing contracts will not be able to be changed without both parties agreeing to revise that.
Every business is waiting for the government to come through on its promise to impose restrictions on the surcharges, such as not allowing fees on the sales tax portion of invoices or capping the fees that credit card companies can charge as they do in the EU where it is capped at .3%.
