Canadian small businesses are hailing a drop in credit card transaction fees flowing from a deal last year between Ottawa and the major credit card brands, but advocates warn that they have seen a rise in aggressive sales practices from companies selling credit card processing services that could threaten the gains.
Fees paid by merchants to the credit card issuing bank will fall in April to an average of 1.4 per cent of each transaction value from the current 1.5 per cent.
The Canadian Federation of Independent Business (CFIB) estimates that credit card transaction processing fees total as much as $ 5 billion per year, so any reduction could find its way into the prices Canadians pay for goods and services — as well as making it easier for some small businesses to offer credit card services.
“The (CFIB) has been battling for fairness for over a decade and we are pleased to see that the federal government and the big credit card companies are listening,” said Dan Kelly, president of the Toronto-based organization that represents 110,000 small businesses.
The commitment from Visa, MasterCard and American Express aims to make credit card acceptance fairer for small and medium-sized enterprises, which have less bargaining power than larger merchants to negotiate lower rates, and will also help to maintain card benefits such as reward programs.
The federal finance ministry says the reduction in interchange or transaction fees is expected to save small and medium-sized businesses $ 250 million per year, based on credit card sales of roughly $ 250 billion per year.
In addition, merchants are expected to save nearly $ 500 million per year from the Liberal government’s promised elimination of the so-called “swipe fee” businesses must pay to credit card companies to cover the cost of transactions and provide fraud protection. That fee requires them to absorb the costs of collecting and remitting taxes for government.
The CFIB in its statement welcomed the developments but cautioned that merchants should take steps to avoid unfair contracts from independent companies to ensure the savings are passed along to them.
Independent sales organizations offer services on behalf of credit card issuers such as authorization and transmission so merchants can accept various credit, debit and gift cards.
Kelly said a voluntary code of conduct for sales practices of processing service sellers has been universally accepted and credit card issuers have responsibility for the conduct of their downstream partners.
There has been growth in the number of independent sale organizations and while “there are several good processors who work hard to serve small businesses,” Kelly said “many small businesses have fallen victim to terrible sales practices, including abusive use of exit penalties in contracts offered by some processors.”
CFIB polling found that almost a third of small merchants reported harassing phone calls over the past three years from independent credit card processing services sellers. The CFIB surveyed 11,599 member firms from April to July and found 18 per cent have experienced misrepresentation, 16 per cent said they’ve faced deceptive sales practices and another 10 per cent complained of excessive penalties to exit payment services contracts.
Lynne Santerre, a spokesperson for the Financial Consumer Agency of Canada (FCAC), said the regulator has issued a guideline that calls for improved disclosure, and for credit card companies and their partners to provide cancellation of contracts without penalty as part of their compliance with the FCAC’s Code of Conduct for the Credit and Debit Card Industry
“Merchants who have concerns about payment card network operators’ sales practices can make a complaint to FCAC,” she added.
Kelly said it can take a lot to do so, suggesting that greater enforcement along with a simplified dispute settlement mechanism could be warranted.
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Visa in a statement said its Visa Rules policy requires that all Canadian Visa clients abide by the FCAC’s Code of Conduct. The policy also requires that clients ensure “all participants for which the client is responsible under the Visa Rules also abide by the code (including all VisaNet processors, third party agents and independent sales organizations).”
MasterCard did not immediately respond to a request for comment.