Hon. Alice Wong, P.C.

We have received inquiries with respect to merchants and credit and debit card processing. The constituency of Richmond has a large number of small businesses, especially restaurants, that are reliant on economical processing of credit and debit card transactions.

Residents of Richmond will be receiving an information brief regarding the government’s credit card code of conduct. These policy proposals include the following:

1. Increased Transparency and Disclosure by Debit and Credit Card Networks and Acquirers to Merchants
2. Merchants will receive a minimum of 90 days notice of any fee changes related to any credit or debit card transactions.
3. Following notification of a fee change, merchants will be allowed to cancel their contracts without penalty.
4. Merchants who accept credit card payments will not be obligated to accept debit card payments from the same payment network, and vice versa.
5. Merchants will be allowed to provide discounts for different methods of payment (e.g. cash, debit card, credit card). Merchants will also be allowed to provide differential discounts among different brands.
6. Merchants can decide whether they will accept multiple forms of debit card payment. In such a case, merchants can choose the lowest-cost option on transactions involving co-badged debit cards.
7. Co-badged debit cards shall be fairly branded.
8. Debit and credit card functions shall not co-reside on the same payment card.
9. Premium credit cards may only be given to consumers who apply for or consent to such cards. In addition, premium cards shall only be given to a well-defined group of cardholders.

These policy proposals will enable merchants to choose the credit/debit card processing packages that are most appropriate for them. More importantly, they can choose to engage in differential discounting depending on method of payment (#5) – such as offering a cash discount for that method of payment.

Depending on the type of transaction performed, a credit card transaction can cost a business roughly 2-3% of the transaction amount, and a debit card transaction is typically around 20-50 cents. Merchants can pass cost savings associated with a cash transaction onto the customers if the code of conduct policy is adopted. Currently most merchant agreements prohibit such a policy.

On the consumer side, most regulations the government has enacted are effective on January 1, 2010. They require credit card providers to provide better disclosure to consumers.

Specifically, credit card providers will have to:
* Provide a summary box on credit contracts and application forms that sets out key features, such as interest rates and fees.
* Inform consumers how long it would take to fully repay their balance if they only make a minimum payment every month.
* Mandate an effective minimum 21-day, interest-free grace period on all new credit card purchases when a customer pays the outstanding balance in full.
* Lower interest costs by mandating allocations of payments in favour of the consumer.
* Require express consent for credit limit increases.
* Limit debt collection practices used by financial institutions.
* Prohibit over-the-limit fees solely arising from holds placed by merchants.
* Mandate advance disclosure of interest rate increases prior to their taking effect, even if this information had been included in the credit contract.

The exact wording of the change in regulations can be found on the September 30, 2009 edition of the Canada Gazette.

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