A recent court decision has led to rule changes now allowing merchants to charge transactions fees for customers who pay by credit card. The decision in the class action lawsuit pursued by merchants came on October 7. Merchants initiated the lawsuit after years spent paying transaction fees as high as 2.4% per transaction to credit card companies, a fee which can make a hurtful impact on the bottom line of any business.
What the new rules mean for consumers is that some transactions made at stores, service providers, and even online will be subject to additional transaction fees intended to reimburse merchants for the fees that credit card companies charge them. As an example, an average fee of 1.4% would result in an additional charge of 70 cents on a $50 transaction.
The reason credit card companies charge fees is often to cover the cost of the reward programs they offer. Customers receive a certain amount of “points” or “credits” for every dollar they spend using their credit card, and can then use these incentives for free rewards such as dining, fuel discounts, movie theatre tickets, and airline tickets. Nothing is truly free, and for years, merchants have been covering the mandatory fees which pay for these rewards, leaving credit card companies on the hook for none of it. For example, a credit card company may offer a 1% cash back option for use of their card, while charging merchants 1.4% per transaction. Some larger chain retailers negotiate for lower fees due to the high number of transactions which they process.
The new rules apply across Canada, with the exception of Quebec which has its own Consumer Protection regulations that prohibit fees from being passed to customers. Locally, it will be up to individual businesses to decide whether or not to pass along the transaction fees to customers. Many small businesses are charged fees in the higher range – up to the maximum of 2.4% – because they do not bring in a high enough volume of transactions for credit card companies. Recouping this revenue could significantly help struggling small businesses, but comes with the potential risk of angering customers. This is a cost-benefit analysis which the owners of every local business will have to make for themselves.
Customers who continue to shop with credit to earn rewards will have their own cost-benefit analysis to make as well. Some credit cards with annual fees boast rewards beyond the 2.4% per transaction mark, but when shopping at merchants that pass the fees onto customers, deciding whether the reward is worth the fee will depend on many factors such as the frequency with which the card is used.
Merchants who choose to pass credit card fees onto customers must first give 30 days notice to the credit company handling their transactions. The fees charged to customers cannot exceed the fees incurred by the business. Cash and debit card transactions will remain free from fees.