In 2011, a class action lawsuit was filed against Visa and MasterCard, and issuing banks in British Columbia, Alberta, Saskatchewan, Ontario and Quebec by a number of retail merchants. The allegations were that the two card networks had rules and regulations that forced merchants to accept all Visa or MasterCard cards, including ones that charged higher fees. The merchants alleged that both Visa and MasterCard did not allow them to add a surcharge to offset card costs.
In June 2017, Visa and MasterCard agreed to drop their contractual restrictions on surcharging in Canada as part of a settlement of a class action lawsuit. This means the card networks will allow merchants, as well as suppliers, to surcharge. The revised rules will allow Canadian merchants to begin applying credit card surcharges no later than 18 months after court approval of the settlement.
The revised surcharge rules will be comparable to the US network surcharge rules:
- Suppliers must elect to surcharge at the brand or product level;
- The surcharge must be no greater than an American Express surcharge;
- Brand and product level surcharges shall not exceed the merchant’s average effective merchant discount rate for that brand during the last 1 month or 12 months;
- A merchant cannot impose a surcharge greater than the maximum surcharge cap, which is the lesser of 2.5% or 1% plus the card companies’ average annual effective rate of interchange for credit card transactions in Canada. Card networks will publish this number on the portions of their websites and rules that set forth merchants’ surcharging rights and obligations;
- A supplier who elects to surcharge shall provide the following by way of notification
- At least 30 days advance written notice to the card networks and issuing banks;
- Explicitly showing the surcharge amount on the merchant receipt;
- A clear indication that the surcharge was imposed by the merchant and not by the card company;
- Provide the cardholder with the opportunity to cancel or opt-out of the transaction; and
Such further and other disclosures as may be required.
For retail transactions, signage requirements on the merchant’s entrance door and at the checkout/payment area;
Contact us today to discuss the current state of surcharging in Canada.