Small businesses are all too familiar with credit card fees, which take a small portion of their profits from every sale. Although minuscule per transaction, these fees can add up. For some smaller businesses, even small increases in required payments can make a big difference. For the better part of the last few decades, these fees have just been part of the cost of doing business. 

With more and more consumers opting to use payment cards in-person, online or through e-commerce tools, businesses are forced to take on these fees. Over 90 percent of businesses in Canada accept debit and credit cards as forms of payment. Fees are even higher for online and phone-based transactions as a result of the heightened security risk. Skipping out on paying these fees, then, has not exactly been optional. And given that the fees are charged in percentages, they’re often relatively higher for smaller businesses.

Visa and Master Card Class Action Will Give Qualifying Businesses Up to $600 in Rebates

A recent class action concerning Visa and Mastercard credit cards will now give small businesses using these credit cards a portion of the settlement. The class action was started in 2010 on the claim that Visa and Mastercard had a conspiracy to set high interchange fees and to impose rules that stop businesses’ ability to surcharge or refuse certain credit cards. Interchange fees are the fees collected by banks for transactions using various credit cards in Canada. For Visa and Mastercard, merchants were required to pay these fees.

The settlement of the class action means that small businesses with annual revenue of less than $5 million can claim a maximum of $600 for each “year they incurred merchant discount fees between 2001 and 2021.” The total available is $131 million in net compensation to distribute from Visa, Mastercard, Bank of America, Citigroup, Capital One, Desjardins, National Bank, CIBC, Royal Bank, BMO, TD and Bank of Nova Scotia. Eligible businesses have until September 30, 2022, to submit a claim under the class action.

The settlement comes with a new development of interest to consumers, however. Under the settlement, starting October 2022 small businesses may opt to pass their credit card fees onto customers. 

The Law in Canada on Passing Fees onto Customers

It is not against the law for businesses to pass transaction fees onto consumers in Canada. Previous to this settlement, however, Visa and Mastercard had their own rules against surcharging that merchants were required to follow. Surcharging occurs when a business passes the processing fees for various payment methods onto customers who opt to use that card. Generally, Visa and Master did not allow merchants to require cardholders to pay an additional fee on a transaction that would not be incurred if another form of payment was used. Now, the rules will have changed.

Other than a surcharge, businesses may opt to charge a convenience fee. A convenience fee is charged when a new payment method not usually available is offered to customers. The fee is applied to all transactions that use this new payment method, so customers are covering the cost of the added convenience. Convenience fees are allowed by all major credit cards. The only requirement is that the fee is clearly disclosed to cardholders before the completion of the transaction. This way, consumers are able to get out of the transaction without having to take on a penalty.

The Obligations of Credit Card Companies

The Financial Consumer Agency of Canada protects the rights and interests of consumers of financial products and services. It has published the Code of Conduct for the Credit and Debit Card Industry in Canada, which has the purpose of:

  1. Ensuring that merchants are fully aware of the costs associated with accepting credit and debit card payments, thereby allowing merchants to reasonably forecast their monthly costs related to accepting such payments.
  2. Providing merchants with increased pricing flexibility to encourage consumers to choose the lowest-cost payment option.
  3. Allowing merchants to freely choose which payment options they will accept.

The Code of Conduct applies to all credit and debit card networks, as well as to card issuers and acquirers. “Acquirers” are the financial systems that enable merchants to accept the payment by providing the tools to do so. The Code of Conduct is not binding on any payment card network, but those who choose to adopt it must follow its policies. If adopted, it becomes part of the payment card’s contract, governing rules, and regulations.

Elements of the policy include requirements to work with merchants to make sure that merchant-acquirer agreement and monthly statements are detailed and easy to understand. Terms and conditions must be laid out clearly and must not be misleading. Payment card networks are also required to give notification of fee increases, and merchants must be able to cancel their contracts in that event without penalty.

Assess Your Options with the Business Lawyers at Tierney Stauffer LLP in Ottawa

Running a business can be challenging and understanding the changing legal landscape can be even more difficult without help. At Tierney Stauffer LLP, we pride ourselves on providing exceptional legal representation to the greater Ottawa area in a variety of practice areas. We have dedicated practice groups for specific areas of law, including business law, civil litigation, employment, and personal injury.
Our lawyers work closely with our clients to understand their legal issues’ scope and determine the most effective options for resolution. Whether the matter is simple or complex, our litigation group strives to find practical solutions and provide professional, courteous, and responsive services. Contact us at 1-888-799-8057 or visit us online to set up a consultation and discuss your matter in confidence with an experienced lawyer.

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