With the recent news about inflation and interest rate hikes, there are lots of things stretching budgets. Turns out it doesn’t stop there. Canadians are now seeing prices increase on their credit cards.
What credit card fees are being added?
Credit cards are both convenient and provide rewards to their users. Retailers, on the other hand, don’t look at credit cards as positively. Original card agreements required stores to pay a percentage of each sale to card providers for each transaction. This fee is called an interchange fee and it ranges from fractions of a percent to more than two percent for some premium cards. The agreement also states that retailers could not pass this fee on to customers. That has all changed.
In October 2022 laws change so that retailers can include a new fee each time someone uses their credit card to cover the cost of the interchange fee.
Why is this new fee being added?
In 2011, Canadian businesses launched a class-action lawsuit against Visa and MasterCard. The lawsuit was due to merchants being forced to pay credit card interchange fees for the past decade.
The lawsuit reached a settlement earlier this year. Part of the settlement saw businesses refunded $188 million dollars worth of interchange fees. The settlement also allows businesses to now pass those charges on to customers directly.
These new rules apply to all provinces aside from Quebec. This is because Quebec has a Consumer Protection Act, which forbids this type of fee.
How can we know if the surcharge is being applied?
Any retailer applying the surcharge must follow a strict protocol:
- The surcharge cannot exceed the amount of the interchange fee. Usually around 2.4% in Canada.
- Merchants must notify their credit card issuers and acquirer. The acquirer is the bank or financial institution that processes credit card payments. Both must be notified at least 30 days in advance.
- Surcharges cannot be applied to Visa Debit or Debit MasterCard cards.
- Brick-and-mortar businesses are required to post signs that notify customers of the surcharge. One at the entrance and the other at the point of sale.
- The dollar amount of the surcharge must appear on the transaction receipt.
- Online merchants must also notify customers of this new transaction fee before finalizing payments and include the amount of the fee on receipts.
- Merchants are to add these credit card fees before taxes.
- Cardholders must be able to cancel the transaction without penalty.
How to decide whether to use your credit card for a transaction
With these new surcharges, many may second guess using their credit card. Making repeated purchases with credit cards is now more costly. While the charges may seem insignificant, that isn’t the case.
Credit cards charge a lot of fees that seem small initially. Still, these small credit card fees will start to add up in the long term. It is essential to make an informed decision.
To decide whether to use your card when making a purchase, familiarize yourself with all the credit card fees associated with your card. Annual fees, interest rates, and more are all things to consider. Once you have a complete picture of how much each transaction will cost you’ll know which transactions to use your credit card for.
Another consideration to take into account is your credit card rewards. Many people use their credit cards to earn as many rewards as possible. With this new credit card fee, those rewards may not make as much sense now. Take some time to go over the specifics of how your rewards are calculated to make sure your card still makes the sense for you. It may even be worthwhile looking at other cards to see if there’s a better option out there for you.
These are just a couple of things you can do to help keep these small fees manageable. As always, the best way to manage credit card costs is to pay your bill on time.
If your credit card costs are already out of hand, Consolidated Credit can help. Our team of Credit Counsellors can answer any questions and come up with a plan to get you back on track.