Canada's competition watchdog is challenging the major credit card companies over rules they impose on retailers it says are "restrictive and anti-competitive" and add up to higher prices for consumers - even those who pay with cash or debit.
In an application filed Wednesday with the Competition Tribunal, the Competition Bureau alleges that a "no-surcharge" rule and other policies of both Visa and MasterCard effectively eliminate competition between the two.
Store owners are charged between 1.5 per cent and three per cent per credit card transaction, but the "no-surcharge" rule prevents them from tacking on a surcharge to offset the extra amount.
Competition Commissioner Melanie Aitken maintains that encourages businesses to bury the surcharges in the prices of all their products - no matter which payment method is used.
"Visa and MasterCard's anti-competitive behaviour hurts businesses and consumers alike," Ms. Aitken said in a statement.
"Without changes to the rules, merchants will continue to face high costs for credit card acceptance, while consumers, even those who use lower-cost methods of payment like debit or cash, will continue to pay higher prices."
The Bureau also takes issue with credit card policies that prevent retailers from encouraging consumers to use other payment options, like cash or debit, which cost retailers less, and a requirement that merchants must accept all credit cards offered by a company, including premium cards that carry higher fees for acceptance.
However, MasterCard said that if businesses were forced to charge a fee for use, it would result in a form of discrimination against credit card holders, who would have to pay more for using the cards.
"What the Competition Bureau is suggesting is taking a well-functioning payment system and turning it into, quite frankly, some form of chaos," said Don Lebeuf, vice-president of customer delivery at MasterCard.
"This could really negatively affect consumers and that's why these rules are here. Having consumers faced with any number of different scenarios for every different merchant, it's problematic and it's discriminatory against consumers," he said.
He said the benefits to businesses who accept credit cards offset any fees they have to pay, adding that those who have an issue with fees can opt not to accept the cards.
If the Competition Bureau has its way, he said, it is questionable whether businesses will reduce prices across the board or keep pricing levels intact while also charging credit card users a fee.
The Competition Bureau estimates that Canadian merchants pay about $5-billion per year in hidden credit card fees - which it says is one of the highest levels in the world.
Visa and MasterCard process about 90 per cent of all credit card transactions in the country.
The Bureau is challenging Visa and MasterCard's rules under the price maintenance provisions of the Competition Act, which allows the Competition Tribunal to prohibit certain agreements or contracts that influence prices upwards or discourages the reduction of prices.
The Bureau launched its investigation in response to complaints by merchants and their associations and initiated a formal inquiry in April 2009.