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Credit Card Surcharge in Canada


credit card surcharge

Credit cards have their rewards and perks but also come with some downsides like the surcharge fee. But will the benefits and perks be the same with the additional surcharge on top of some of your credit card transactions? Well, let's find out.


What is credit card surcharge in Canada?


When merchants give the option to customers to pay through credit card then they have to bear a transaction fee, something in the 1-3% range. The credit card surcharge in Canada is an additional fee to the transaction imposed by a merchant when a consumer pays by a credit card. The credit card surcharge came as a bit of a shock to the users in Canada, although it has been charged in America for more than a decade now.


Should you be concerned about the credit card surcharge in Canada?


The merchants in Canada claimed that the processing fee charged by the credit card networks is quite expensive and restricts their business growth. As more and more people in Canada are inclined to use credit cards and by facilitating those customers, the merchants are compromising their profits as a huge chunk of the profit goes to the credit card networks in the name of processing fees. To register their claim legally, they filed a class action lawsuit in 2021 against credit card networks like MasterCard, Visa, and some banks.


To respond to this multi-million dollar lawsuit, MasterCard and Visa allowed the merchants in Canada to pass on some of the processing fees to the customers or credit card users. As per this agreement, the merchants in Canada are legally allowed to add a surcharge on each credit card transaction from 22 October 2022 onwards. This is why the credit card surcharge in Canada is getting more attention because users are concerned as to how it will affect their purchasing power.


This agreement has given some relief to Canadian merchants on one hand but has put a strain on credit card users at the same time.


Is credit card surcharge applied all over Canada?


The law allowing the merchants to apply surcharge is applied to all provinces of Canada except Quebec. The consumer protection law in Quebec saves customers from any such burden of additional fees. This is why the merchants in Quebec are refrained from acting on this law.


Which credit card companies can pass this surcharge?


It is important to note that only Visa and MasterCard are allowed to pass the surcharge to customers whereas other credit card issuers such as American Express have not agreed to any such statement. This is why only the users of Visa or MasterCard in states other than Quebec need to be worried about the current surge of credit card surcharges.


Where can the credit card surcharge be applied?


The Credit card surcharge applicability is effective from October, 22, 2022 onwards. However, there are some restrictions or formalities that the merchants have to follow in pursuit of adding the surcharge to the final cost.


Disclosure requirement to the card network


It is required that the merchant informs the credit card network (such as Visa or Mastercard) and the merchant’s acquirer with a prior notice of 30 days disclosing the intention of charging the surcharge. After 30 days of the delivery of this notice to the above-mentioned parties, the merchant can add the surcharge to the final receipt of the customer. So, in actuality, the surcharge applicability is possible from 22 November 2022 onwards to respect this notice period of 30 days.


Disclosure requirements to the customer


The merchant also needs to ensure that he clearly states the applicability of the surcharge to the customers. To do this, they need to display the surcharge information at the entrance of stores in traditional physical stores. Whereas they need to display a sticker or message on their web or online store. Similarly, they need to mention the surcharge at the point of sale. To do this, they can show the percentage of the surcharge as an addition to the bill when the customer adds stuff to his/her cart on online store, For physical stores, there should be a readable print of surcharge information at the point of sale counter. Also, in addition to the charged percentage of surcharge on the total bill, it should be mentioned in the dollar amount on the receipt so that the credit card user knows what he/she is paying in the name of the surcharge to the merchant.


Types of surcharges


The merchant can charge a surcharge in either of two ways namely brand level surcharge and product level surcharge.

1. Brand level surcharge refers to the surcharge that is charged on the credit card brand. This implies that the same percentage of surcharge will be charged on all credit cards of a specific credit card network. For instance, if the merchant has decided to charge a surcharge of 2% on Visa cards, then it will be applied to all types of credit cards that come under the umbrella of Visa.

2. Product level surcharge refers to the surcharged that is applied on the basis of products. This implies that the percentage of surcharges can vary from one category of credit card to another. For instance, the merchant might add a surcharge of 2.4% for a Premium credit card (Visa) whereas he adds a surcharge of 2% on a Standard credit card (Visa).


Surcharge Cap


It is the maximum percentage or amount of surcharge that the merchant can add or pass on to the credit card user (customer). It is required that the surcharge is charged at the lesser of the maximum surcharge cap or the actual processing fee bearded by the merchant.

Here, the maximum surcharge cap is 2.4% as prescribed by the Visa and MasterCard. Whereas the processing fee is the actual expense that the merchant pays to the acquirer for using the facility of credit card payment acceptance.


Did the merchant bear the processing fee in the first place?


Many people argue that the merchants in Canada have already elevated the prices of their products to reflect the processing fee in the final price. This implies that the merchants were not the primary bearers of processing fees since they had already added it to the cost of products they were offering to the customers in the first place. It means that with the applicability of the surcharge, the customers will have to pay double the cost of the processing fee for swiping the credit card at outlets of such merchants.


Many people foresee that the merchants will surely lower the already inflated product cost since now they are legally allowed to charge the processing fee in the name of a surcharge. But it is a long shot as customers do not have any way to verify it. They are in a state of confusion as to which merchants have already inflated the original product price to charge a surcharge as a hidden expense and which of them will drop down the prices to ensure that the customer only has to pay their cut in processing fee one time.


Can Credit Card Surcharge affect the purchasing power of customers?


Without a doubt, the applicability of surcharges will affect the purchasing power of credit card users in Canada. They will have to pay more to account for the surcharge in comparison to what they have been paying in the past. The surcharge applicability depends upon the merchant's choice but it is expected that the majority of the merchants will want to add a surcharge in the product price. This will increase the price of most purchased items such as groceries to one-time big purchases such as home electronics.

For instance for groceries of CAD 1200 monthly, you will have to pay an additional CAD 28.8. Similarly, for a Fridge of CAD 2500, you will have to pay the surcharge of CAD 60. This way, the surcharge will surely inflate the monthly expenses and affect the budget of credit card users.


Should you still use a credit card?


The most important question in this whole debate on surcharges is that is it still a viable option to use credit cards in Canada. There is no straightforward answer to this question as it depends upon your usage, monetary assets, and the merchants you are doing business with.


The best way is to do a cost-benefit analysis to see whether the cost of the surcharge is more than the benefits the credit card offers you or if the opposite is true in your case. Surely, if the benefits are higher than the cost then credit card usage is the right thing to do and if the cost you are bearing is more than the benefits then it is time to revisit your decision to use a credit card. You can rely on other monetary assets and forms of loans instead of using the credit card but still, you will need to see the cost of using these alternative sources and that of credit card surcharge and rely on the less costly source.


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