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Credit card surcharges are coming for your wallet

By Nairah Ahmed, Local Journalism Initiative Reporter

Inflation is already driving up prices on everything from food to the overall cost of living — and now pulling out your credit card could be more expensive, too.

As of Thursday, businesses across Canada can pass on processing fees to Visa and MasterCard customers if they choose. The move comes after a class-action lawsuit involving the two credit card companies.

The news is frustrating for 31-year-old Yuka Sai, a staff lawyer at the non-profit Public Interest Advocacy Centre.

“I, for one, will definitely be looking for ways to cut down costs to offset these surcharges,” she said.

Before the lawsuit, the merchant agreement forbid businesses from passing on credit card processing fees to their customers. But starting Oct. 6, they now have the choice to impose a new surcharge on purchases using Visa or MasterCard. Sai calls this the most important issue in the lawsuit.

“This class action will likely hurt the overall affordability of living, especially for students, low-income (people) and those on a fixed income,” Sai said.

“For youth and young people, where every dollar counts, I think an extra surcharge may make it harder to save for the future,” she added, pointing to rising costs in housing, food and communications.

Jasmin Guénette, vice-president of national affairs at the Canadian Federation of Independent Business (CFIB), says it’s expensive to accept credit cards. Small and medium-sized businesses face the same high inflation issues, he said, with rising operating costs for things like rent, commercial insurance, wages and materials.

“Some small businesses will surcharge to offset the increased cost of doing business,” Guénette said.

One of the intentions of the class-action settlement was to ensure small and medium-sized businesses are not incurring excessive costs from credit card processing fees, Sai said.

CFIB reports credit card processing can cost businesses 1.5 to 2.5 per cent of every sale. 

“Giving the option to small businesses to pass that cost onto consumers is something many merchants have been wanting to have for many years,” Guénette said.

If merchants do plan to add a surcharge, they will have to inform the credit card company and be transparent with their customers, he added. 

After surveying its more than 95,000 members, CFIB found:

  • 19 per cent of merchants intend to use the new power to surcharge
  • 26 per cent said they will do it if their competitors or suppliers do
  • 40 per cent said they are not sure yet if they will surcharge
  • 15 per cent said they don’t intend to do it

Guénette said while it’s unclear how many businesses will partake in the surcharge, one in five currently does. “Businesses are worried about the reaction of clients; some don’t want to surcharge, not wanting to lose both sales and clients,” he said.

Adding a surcharge might drive consumers to spend less on non-essential products and services or even things like food, which is not good for anyone or the Canadian economy, Sai said.

Even a small addition to a bill is a significant extra expense, she added.

Although different for all consumers, some will take on the surcharge and others will opt to pay debit or cash, Sai said. “The reality is that some services only take credit payments. Debit and cash payments may not be feasible to consumers living paycheque to paycheque.”

If businesses decide to add the surcharge, Guénette is unsure if they will get to choose whether to add it in-store or online only.

Sai says there’s nothing stopping businesses from offering discounts for not using credit cards, which she has not seen very much in the market, if at all.

“My advice to consumers is to take a look at how you are handling payments right now and see how you can avoid the surcharge by switching to paying with debit for pre-set payments,” Sai said.

The Public Interest Advocacy Centre has always pushed for a solution to the issue of high processing fees that doesn’t include odd fees for consumers, Sai said. 

“There are ways to solve the issue without having to pass on these fees excessively to consumers. The government could have stepped in and capped the high interchange fees on MasterCard and businesses, which happens internationally,” she said.

Guénette suggests the federal government meet with the small business community and other stakeholders to talk about policy options to lower the cost of credit card fees, part of the Liberal government’s platform promise to lower credit card fees for small businesses.

“We’re really looking to the government to fulfil those promises,” Sai said.

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