The Competition Tribunal has issued a decision dismissing the Commissioner of Competition's application against Visa and MasterCard. The Commissioner had challenged Visa and MasterCard's rules under the price maintenance provisions of the Competition Act (Canada). The Commissioner alleged that these rules have effectively eliminated competition between Visa and MasterCard for merchants' acceptance of their credit cards, resulting in increased costs to businesses and, ultimately, consumers.
BACKGROUND
The Competition Bureau launched an investigation in response to complaints by merchants regarding the rules that Visa and MasterCard impose on merchants who accept their credit cards. In April 2009, the Bureau initiated a formal inquiry, and in December 2010, the Commissioner filed an application with the Competition Tribunal challenging the rules as anti-competitive. The application was brought under the price maintenance provisions of the Competition Act, which prohibit certain practices that upwardly influence or discourage reductions of the prices of goods or services and have an adverse effect on competition. The Commissioner alleged that the rules contain numerous anti-competitive restraints including:
- the no discrimination rule prevents merchants from treating a customer who presents a certain credit card less favourably than a customer who presents a different credit card;
- the honour-all-cards rule requires merchants to accept all credit cards from a specific network, including premium reward cards with higher card acceptance fees; and
- the no-surcharge rule prevents merchants from charging a fee on transactions made with Visa or MasterCard credit cards.
THE DECISION
The Competition Tribunal dismissed the application filed by the Commissioner. The Tribunal found that section 76 of the Competition Act (price maintenance) requires a resale, and that the Commissioner had not established that the customers of Visa and MasterCard resell the products of these enterprises. The Tribunal further held that the Commissioner's proposed interpretation of section 76 was not supported by the legislative history of the provision or other decisions.
Of note, in the event that the Tribunal was wrong with respect to its legal interpretation of section 76, it continued with its analysis. Under this alternative analysis, it assumed that Visa and MasterCard engaged in price maintenance by implementing the no-surcharge rule. The Tribunal found in that situation that there had been an adverse effect on competition.
However, the Tribunal found that even under this alternative analysis, it would have declined to issue an order, and noted that the proper solution to the concerns raised by the Commissioner is a regulatory framework.
In that regard, it noted that experience in other jurisdictions showed that concerns would be raised by consumers regarding surcharging and that rather sooner than later, intervention would have to take place by way of regulation.
FUTURE DIRECTION
The Tribunal has indicated that it's reasons are confidential at this time and that a public version of the decision will issue as soon as possible after a determination as to what information must remain confidential has been made. The Commissioner indicates that it is reviewing the decision and considering next steps.
Given the suggestion that the proper solution to the concerns raised by the Commissioner is a regulatory framework, the views of Jim Flaherty, Minister of Finance (Canada), will be very important. In recent years, the Government of Canada has introduced a number or measures focused on consumer rights in respect of financial services, including a Code of Conduct for the Credit and Debit Card Industry in Canada. Following the publication of the decision, the Minister indicated that he will be carefully reviewing the Competition Tribunal's decision and also monitoring any potential appeal. In addition, he added: "Recognizing the importance of this issue to all involved, I have also asked that a special meeting be convened of the Government's FinPay Committee – a consultative committee on payments issues that includes representatives from the credit card industry, small business, retailers, consumers, and many more – to discuss this matter and next steps."
We will be monitoring developments and reporting on relevant events as they occur.
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