Earlier today, in a much anticipated decision, the Competition Tribunal ("the Tribunal") dismissed the Commissioner of Competition's application challenging Visa's and MasterCard's rules for credit card acceptance by merchants, with particular focus on the card acceptance fees charged to merchants. "Interchange" fees make up a large portion of the fees charged to merchants for accepting card payments, and merchants must pay higher interchange fees when consumers use a premium credit card. While a public version of the decision has not yet been released, the Tribunal issued a public summary of its decision.

The application alleged that the card acceptance rules negatively affect competition by requiring merchants to honour all cards bearing the card network's brand and by prohibiting merchants from imposing surcharges when certain cards are used. The Commissioner had objected that the rules prevent merchants from (i) encouraging customers to use lower-cost forms of payment (for example debit card or cash payment); (ii) declining to accept "higher-fee" premium cards that cost more for the merchant to accept; and (iii) applying surcharges to transactions where customers use "higher-fee" cards – with the result being an adverse effect on competition.

In a statement today following the Tribunal's decision, the Minister of Finance ("the Minister") emphasized the importance of clear rules and information about payment methods for the benefit of merchants and consumers. He said he would be "carefully reviewing the Competition Tribunal's decision and also monitoring any potential appeal". The Minister also said he would call a meeting 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".

Key Points from the Decision

The Price Maintenance Provisions Require a "Resale"

The Tribunal held that:

  • For the price maintenance provisions of the Competition Act to apply, there must be a "resale" and that the Commissioner had not established that the conduct at issue involved a resale.
  • The Commissioner's attempt to apply the price maintenance language to the rules and fees at issue is "not supported by the legislative history of the provision".

The "Proper Solution" is a Regulatory Framework

Notwithstanding its view that the price maintenance provisions did not apply, the Tribunal undertook an alternative analysis (in which it assumed that the card companies had engaged in price maintenance) and ultimately concluded that the "no-surcharge rule" (which prevents merchants from charging more to consumers who use cards with higher interchange fees) did have the requisite adverse effect on competition.

Despite reaching this conclusion, the Tribunal indicated that it would have declined to issue an order in this case.  On this point, the Tribunal  stated that, in its view, the "proper solution to the concerns raised by the Commissioner is a regulatory framework".

Implications Going Forward

While the public version of the full decision has not been released, the implications of the case include:

  • The Tribunal's position is that, consistent with how they have been applied historically, the price maintenance provisions are aimed at addressing vertical relationships between suppliers and resellers.
  • The Tribunal has indicated that it believes that the Commissioner's concerns regarding the payment card industry are better addressed through a regulatory framework than litigation.
  • While the credit cards networks and card issuers (The Toronto-Dominion Bank and the Canadian Bankers Association intervened in support of the credit card companies) won this round, this decision may encourage the government to consider implementing a broader regulatory framework to address the Commissioner's concerns.

As an aside, it is likely worth noting that in places where card rules and interchange fees have been regulated the anticipated direct benefit to consumers has not been observed. For example, in Australia, where interchange fees have been capped for several years, many claim that the primary effect has been a transfer of wealth from credit card companies and banks to retailers – as opposed to lower prices for consumers.

The Commissioner has 30 days to decide whether to appeal the decision to the Federal Court of Appeal.

The Tribunal's public summary of its decision can be found here.

Our earlier discussion of this case can be found here.

Our summary of the implications of the credit card code of conduct can be found here and here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.