Conservative Finance Minister Joe Oliver announced new updates to the Credit Card Code of Conduct today, emphasizing three main changes intended to better serve both consumers and small businesses.
Here’s our breakdown of the main highlights:
1: Credit Card Interchange Fee Caps To Take Effect
A main addition to the Code is the implementation of interchange fee caps this month, following MasterCard and Visa’s voluntary agreement to reduce fees to an average of 10 per cent last November. The Code now mandates that the fee reductions be passed down to merchants, with the hope that it will result in savings for consumers.
“This will save money for job creators and will save money for consumers,” Oliver stated, adding the measures will “promote fairness in the credit card market and provide choice for consumers.”
Interchange fees are part of the processing fees merchants must pay each time a credit card transaction is made. Previously, merchants had to pay between 1.60 – 2.60 per cent of the purchase price to the credit card issuer – enough to be a sore spot with business owners, who claimed they were anti-competitive and ate into their bottom lines. The new rules will cap these fees at around 1.50 per cent, depending on the card type.
In addition to the fee caps, merchants will also benefit from:
An improved complaint process for code-related conflicts;
Clearer terms and conditions for merchant fees, written in plain language;
The ability to cancel their contracts with card issuers without penalty
Will Consumers Benefit?
However, despite intentions to benefit both merchants and consumers, worries persist that a cut to lenders’ profit margins may prompt them to reduce existing credit card variety, decrease current point offerings, and hike interest rates. Similar changes made in the UK, Australia and, most recently, in Europe have resulted in reduced product options for consumers. In many cases, savings have been pocketed by merchants and not passed along to shoppers. It remains to be seen how lenders and merchants will react to the newly-implemented fee caps.
2: Greater Clarity For Pricey Card Perks
Credit card issuers must also undergo new “branding requirements” for their higher-end credit cards, ensuring consumers are aware of the fees associated with carrying a premium card. Cards with rich rewards offerings, typical among travel rewards suites, tend to be among the most expensive to carry, as lenders beef up annual fees and interest to counter plush VIP, insurance and entertainment perks. Consumers will also gain insight to how much certain cards cost merchants to process.
3: Consumers to Gain Control Over Mobile Payments
Oliver also addressed the evolving mobile payment landscape in Canada, acknowledging the technology adoption is still in its early stages, but is set to become more widespread. He called for public consultation on how the largely unregulated payment sector could better protect consumers, and announced a provision stating mobile users must have full control over the default settings in their mobile wallets, with the ability to prioritize their payment methods of choice.
About the Credit Card Code of Conduct
The Credit Card Code of Conduct was first implemented in 2010, in efforts to promote transparency about rates and fees within the credit and debit industries.