Ottawa to regulate credit card fees if the financial industry refuses to lower costs for small businesses

The federal government says it will regulate credit card fees if the financial industry doesn’t lower costs for small businesses.

Finance Minister Chrystia Freeland’s autumn economic statement, tabled on Thursday, said the government would begin talks with banks, payment processors, credit card companies and businesses to lower fees for small businesses every time a customer pays by credit card.

Along with the autumn financial report, the government published a bill that would give it the authority to impose fees on all companies, not just small ones.

“If the industry cannot reach an agreement in the coming months, the government will implement this law as soon as possible in the new year and move forward in regulating credit card payments,” the autumn financial report states.

The issue is politically sensitive because banks use fees to fund loyalty programs, so the government also promised to protect Canadians’ rewards points during negotiations.

Lowering credit card fees has been a long-standing demand of industry groups. Successive negotiations between Conservative and Liberal governments have led credit card companies to lower their fees so that the average processing fee is now 1.4 per cent on each transaction. Small businesses tend to pay a higher than average price, while large merchants pay less.

The commission, which goes to the financial institution that issued the card, is the largest part of the merchant’s cost of accepting a credit card payment. Some of the money also goes to credit card networks and payment processors.

Visa and MasterCard have voluntarily reduced credit card fees in response to pressure from the government or large retailers such as Walmart.

The financial industry has always been concerned that the government could force its hand by regulating transaction fees, as other countries do. But the government has never taken that step publicly until Thursday.

Dan Kelly, president of the Canadian Federation of Independent Business, which represents 95,000 small businesses, said it was good news that the government was “finally getting serious” about handling credit card payments, and he was pleased that business groups would have a seat at the negotiating table.

Gary Sands, vice-president of the Canadian Federation of Independent Grocers, said that’s a good thing, but he’s still disappointed with how long it took for the Liberals to deliver on their promise of action in the 2021 budget.

He said one of the problems his members have is that credit card use has exploded in recent years, especially during the pandemic.

According to Payments Canada, in 2016 there were 4.5 billion personal credit card transactions with a combined value of $408 billion. By 2021, the number had risen to six billion transactions, with a total value of $509 billion.

Transaction fees have received more public attention recently due to a legal settlement that allows companies to add additional fees to customers paying by credit card.

However, business groups across a range of industries have said their members would prefer not to transfer payments because they believe customers will react negatively to them.

So far, the largest company to announce plans to add these surcharges is Telus Corp. Due to telecommunications regulations, Telus applied to the Canadian Radio-television and Telecommunications Commission for a 1.5 percent surcharge for customers paying by credit card. Telus’ app triggered thousands of public complaints, and the CRTC is still weighing its decision.