The Commissioner of Competition delivered an early holiday present to Visa and MasterCard in the form of an application to the Competition Tribunal challenging the companies’ rules regarding card acceptance and the fees charged to merchants. Specifically, the application alleges that the rules in question (that it refers to as Merchant Restrictions) prevent merchants from (i) effectively encouraging customers to use lower-cost forms of payment and discouraging the use of credit cards with higher merchant fees, (ii) declining acceptance of certain credit cards, such as those with higher merchant fees (currently, the credit card companies require merchants who accept their brand of credit card to accept all credit cards issued under that brand), and (iii) adding a surcharge to a transaction where a customer selects a payment method with a higher merchant fee.
The Bureau’s investigation initially focussed on interchange fees under the abuse of dominance provisions of the Competition Act. At some point, the inquiry morphed and the application was ultimately brought under the civil price maintenance provisions. This is the first price maintenance application brought since the civil price maintenance provisions were introduced in 2009 (previously, price maintenance was a criminal offence).
Competition Law Implications
The application provides further evidence that the Commissioner is willing to aggressively enforce the civil provisions of the Competition Act (this is the third significant contested proceeding that she has brought this year). Moreover, this application once again demonstrates that she is not afraid to bring cases that extend the application of the law beyond the existing jurisprudence.
Typically, price maintenance cases have been brought in the context of traditional supplier-reseller relationships dealing with consumer goods. This application is noteworthy in that, for the first time, it seeks to apply price maintenance to a non-conventional, complex delivery model for credit card services. We expect that the structure and complexity of services will create interesting challenges for the Commissioner in carrying the burden of proof in this case.
The Commissioner’s application was brought a mere eight months following the Department of Finance’s introduction of the Code of Conduct for the Canadian Credit and Debit Card Industry (to see our overview and discussion of the implications of the Code of Conduct, please click here).
The Code of Conduct was the product of a substantial review of the credit and debit card market by the Senate Banking Committee, the House of Commons and the Department of Finance. It represents the Government’s response to issues faced by Canadian merchants and consumers respecting credit and debit card acceptance and the business concerns raised by payment card networks. Since the introduction of the Code of Conduct, market participants have spent considerable time and money working towards implementation. Indeed, some of its provisions have not even come into force yet.
The Commissioner evidently believes that the Code of Conduct does not in fact address all of the problems facing the market. The application states that the Code of Conduct is inadequate in that: (i) it does not require credit card companies to permit merchants to distinguish between types of credit cards with a single brand (such as that brand’s ‘classic’ cards and ‘premium’ cards); and (ii) it does not require credit card companies to allow surcharges, although it permits discounts for different payment methods – the Bureau’s view is that allowing surcharging is a more effective approach. Interestingly, the Code of Conduct did not require payment card networks to allow merchants to impose surcharges or to differentiate credit cards bearing the same brand in spite of the fact that these measures were specifically addressed by the Senate Banking Committee in its report. Despite the Commissioner’s view regarding the adequacy of the Code of Conduct, the Minister of Finance has publicly supported this application, calling it a “parallel” effort.
Surcharging has been a controversial practice in payments. At a minimum, we would expect that a surcharge regime would require disclosure to a consumer prior to the completion of a transaction (as is the case for INTERAC’s service). We wonder how practical it would be for a merchant to maintain and disclose a surcharge list that attempted to address multiple cards and issuers.
We believe that this case will likely be hotly contested. As it unfolds, the issues and implications should become clearer.