Canada's credit cards exposed as 'perverse' system

By Julian Beltrame, The Canadian Press

OTTAWA - Canada's credit card system is a 'perverse' place where shoppers who pay with cash or debit subsidize purchases made with credit cards, the Competition Bureau argued Tuesday in its opening salvo against Visa and MasterCard.

That's because merchants pay high fees for accepting credit cards and those costs are passed on to all consumers, the bureau's lead counsel Kent Thomson said in his opening statement to a tribunal hearing whether credit card companies are engaging in anti-competitive behaviour.

Presenting the case for the Competition Bureau, Thomson argued that the restrictive contracts put in place by Visa and MasterCard allow the two credit card companies — which represent 92 per cent of the market — to essentially dictate terms to merchants.

The much-awaited case before a tribunal heading by Justice Michael Phelan of the Federal Court of Canada involves high stakes.

As Thomson pointed out, Visa and MasterCard charged merchants about $5 billion in fees for the privilege of accepting payments by customers using the cards, charges that merchants recoup through higher consumer prices.

Those fees, which range from 1.5 to 3.0 per cent on purchases, are among the highest in the world, he said, about twice the rate credit card firms charge merchants in Australia, New Zealand and many parts of Europe.

"Most Canadians are unaware of the high cost of fees" that are part and parcel of credit card usage, he said. "And these are not borne by merchants alone, they are reflected in higher prices paid by customers."

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