Credit Card Fees and How to Avoid Them

October 24, 2022 11:28 pm Published by Leave your thoughts

Credit Card Fees and How to Avoid them

Why are there new charges possible on credit card transactions?

There was a recent court settlement in Canada from a a long-running class-action legal battle.  The suite was launched by retail merchants against certain banks and Visa and MasterCard.

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The action alleged that the “Defendants” (Visa, MasterCard and named banks) had conspired to set higher interchange fees.  Also, they imposed rules restricting merchants’ ability to surcharge or refuse to accept higher cost Visa or MasterCard.  The Defendants had a policy where they did would allow merchants to charge transaction fees directly to the consumer.  These fees range between 1% to 5% per transaction.  The fees vary depending on what is purchased and the type of the card used.

Part of the court settlement means that merchants are now allowed to charge transaction fees directly to the consumer.  Now the consumer will pay the merchant fee.   Whether in-person, online, or over the phone .

So, with the new changes, how does the average consumer avoid credit card fees?

How High are transaction fees on credit cards?

 The major credit card companies say the average fee they charge is 1.4 %, but it can go up to a cap of 2.4% for small merchants and for expensive cards such as American Express their reported fees go as high as 5% . The fee that may now be charged directly to the consumer by the merchant is currently set at 2.4% and they must make it clear to customers at the time of payment that the surcharge will be applied to the purchase.

Historically merchant fees were paid solely by merchants and are a large part of the income earned by the Defendants. Credit card companies were fearful that if these fees were passed along it would change consumer behaviour.  The fear was that consumers would switch to other forms of payments resulting in lower profits for credit card companies and banks.  Probably a reasonable concern for the Defendants, but the court found that limiting the behaviour of individual merchants was contrary to the federal Competition Act

When do the new direct charges come into effect?

Effective October 6, 2022 businesses are allowed to charge an additional fee on your credit card transactions, however, they have to register their intention with their credit card processor 30 days before they can start.

Some large retailers have already indicated that they will not be passing along the fee, but others like TELUS, https://www.cbc.ca/news/business/telus-credit-card-bill-1.6548325, will introduce  1.5% fee starting October 17, 2022.

How do you know which businesses are charging the new fees?

To avoid credit card fees it will help to aware of your surrounding when making purchases in person.  Businesses will have to post a notification at the entrance to their business, on every receipt, at every point of sale, both online or other payment method; including the percentage to be charged.

What can I do to avoid the extra charges and credit card fees?

For small purchases and local retailers, you may not worry too much about avoiding the credit card fee.  Paying a small fee directly to them, may actually help the small retailer survive.  Alternatively, you may use cash, debit, or shop at places that won’t actually charge this fee per transaction.  If it is a recurring charge, you can set up preauthorized automated debit from your bank account rather than through your credit card for ongoing transactions and bills.

Or, simply opt to switch to the old fashioned “the cheque is in the mail” method for large retailers TELUS.  Hopefully they will decide that processing thousands of paper cheques is way more costlier for them that eating the 1.5% fee they plan on passing along to the consumer.

Consumer Protection – should you be using your credit card?

For larger purchases, especially deposits on future goods or services, using your credit card does offer some level of consumer protection.  When you are placing a deposit on a future purchase (like a wedding dress or a new vehicle) then using a credit card can help to protect your deposit.  So, if the company who accepted the deposit does not ultimately provide your good or service, you can dispute the charge.  If your dispute is successful, your deposit will be refunded directly from the credit card company.   Alternatively, if you placed a cash deposit or entered into a cash purchase, your only option if a future dispute arose would to use the court system (i.e. sue them in court).

Additionally, credit card purchases often come with purchase protection, warranties or insurance.  (i.e. think of flight cancellation insurance, rental car insurance etc).  And purchasing on credit does offer the ability to pay at a future date – either paid or full or with ongoing interest. And then there is the allure of reward points which may be enough incentive for most consumers to continue to use their credit cards, even if there is an additional fee.  Either way, the consumer will now be carrying an additional burden.

Avoid Credit Card Fees in Each Province

Interestingly, avoiding the credit card fees will be easier in Quebec. Passing along the credit card fees will not be allowed in Quebec as that province’s Consumer Protection Act does not allow passing along these fees to consumers. https://montreal.ctvnews.ca/new-rule-allowing-businesses-to-charge-credit-card-fees-won-t-apply-in-quebec-1.6096912

British Columbia and the other provinces all have their own similar Consumer Protection Acts.  However, they are silent on protecting consumers from credit card fees.  Changing provincial legislation may be something that we as consumers should be encouraging the provincial governments to review.  Changes to BC Consumer Protection Act will help all avoid credit card fees.

For additional consumer topics see our other Blogs

Understanding Credit Card Fees

BC Statute of Limitations on Credit Cards

Consumer Proposal vs Personal Bankruptcy

 

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