Annoyed you have to pay to use your credit card? You should be

This column is an opinion by Katie Verigin of Vancouver, who has studied the politics of consumer debt. For more information about CBC's Opinion section, please see the FAQ.

Paying with a credit card has never been free. To date it's been a cost businesses took on in order to accept diverse payment methods. 

Businesses pay what's known as an interchange fee, a percentage of each transaction paid for by credit card. Recently, in Canada, this has changed. The new rules in Canada stipulate that retailers can pass on these interchange fees to consumers. This change isn't just something to be annoyed about. It demonstrates massive negligence in consumer protection by the Canadian government.

There's a lot of context to unpack, but let's start here. 

Canadians struggling

You can't turn on the radio or open a newspaper without seeing stories about rising costs and inflation front and centre. It's no secret Canadians are struggling to afford the cost of living. Given these circumstances, we would assume the government would act in the best interests of Canadian consumers and businesses, to improve affordability and reduce the cost of living. 

However, this recent change in credit card fees does the opposite. Rather than increase margins for businesses or reduce costs for consumers, it allows payment companies to continue to force Canadians to pay some of the highest interchange fees in the world. 

This policy is changing in Canada because, to date, these interchange fees have landed on merchants. With no rate cap set by the government, businesses have been forced to negotiate their rates with payment companies like Visa and MasterCard independently. Meaning big businesses with the resources to negotiate end up with lower rates than small businesses. This has led to a squeezing of the already slim profit margins small businesses operate with. 

Over the last few years, these businesses came together and launched a successful class action suit against global payment companies. Payment giants like Visa and MasterCard are now being forced to rebate merchants $188 million worth of fees. 

In concession, Visa and MasterCard have stipulated that merchants can now pass on these interchange fees to consumers. For context, Canadians pay some of the highest interchange fees in the world (1.78 per cent on average), even higher than the United States (1.73 per cent on average) and six times more than EU countries (0.3 per cent). Canada isn't the only country to run into issues with high interchange fees. The EU, the U.K., Australia, China, and Malaysia have all opted to regulate the industry, putting a cap on interchange fees. 

Take the EU example, in 2015, the EU capped interchange fees at 0.3 per cent. This change saved EU merchants around 2.7 billion euros between 2015 and 2017 alone. In the study where they monitored the effects of this policy change, they noted that there were no systemic effects for consumers, in other words, no new fees were added to make up for the rate cap. 

And certainly Visa Europe is not struggling. It's still reporting growth and profits year over year. 

Policy a success

This policy was such an obvious success. It saved both consumers and merchants money and did not impede the ability of payment companies to operate profitably. It set a strong precedent for effective interchange fee policy. However, in response to the massive class action lawsuit launched by businesses in this country, the Canadian government still has not stepped in to cap fees.

This lack of action is deeply problematic. It is not feasible or realistic for Canadian consumers to stop using their credit cards. Credit cards are how most people build their credit score. The system we've built to buy homes, rent apartments, get business loans and so much more, relies on us each having a credit score. 

The idea that consumers could just easily switch to debit or cash also ignores the reality that many Canadians live paycheque to paycheque and simply don't have the cash flow to do this. We've built a system where credit is a necessity, not a luxury, and now by allowing interchange fees to be passed to consumers, Canadians are being forced to pay one to three per cent in fees on everything we buy in order to build a credit score. 

The Canadian government needs to step in and cap interchange fees. With the cost of living already so high, it's unreasonable to add an extra one to three per cent to our bills. This lack of consumer protection is massive negligence on the part of the Canadian government.

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