The Ultimate Guide to Credit Card Surcharge Fees in Canada

Credit card surcharge fees in Canada feel ominous – like the final blow that could take down your financial house of cards. If you don’t know what these are, buckle up – because the cost of living could ratchet even higher. In 2021, the tension around these charges reached a fever pitch after a class action lawsuit emerged.

It focused the spotlight on the contentious relationship between major credit card companies and the backbone of our economy – small businesses. And it all started with an insidious fee that merchants were burdened with every time we paid with plastic. Here’s the scoop on credit card surcharge fees in Canada, how they came to pass, and how to deal with them.

Interchange vs Credit Card Surcharge Fees in Canada

In today’s economic dystopia, every cent counts. For many of us, the rising cost of living feels like an uphill climb with a brick-filled backpack. And we all have receipt fatigue watching those totals dig deeper into our pockets day after damn day. 

But if you’re a small business owner, that weight is even more crushing as the struggle to survive intensifies. A significant part of this financial hardship? Credit card surcharge fees in Canada. These fees might be foreign to us, but they’re old hat and a bone of contention for Canadian businesses. 

Credit card surcharge fees are a function of interchange fees, both playing a big role in our daily lives. Let’s unpack the two terms and see how they mingle in Canada’s bustling marketplace: 

Interchange Fees

An interchange fee is charged to a merchant by a credit card company and bank every time a customer pays with a credit card. Think of your favourite local bakery around the corner and the joy it brings to your life (because a party without a cake is just a meeting!). Every time you swipe or tap your credit card to buy a fresh loaf or a flaky croissant, the bakery has to pay a fee to the credit card network of anywhere from 2%-3% of the value of your transaction.

Now, you might think, “Hey, 2% isn’t that much!” But oh boy, when they’re selling hundreds of items a day, those ‘little’ fees add up fast. And the fee isn’t so little when you pay with a premium credit card offering killer rewards. In that case, the bakery is on the hook for up to 3% or more of the value of your transaction.

But, of course, there’s a catch. Canada isn’t the Wild West, unless you’re a giant corporation – then you get to write the rules for everyone else. Credit card companies prohibited merchants from passing on the cost of interchange fees directly to their customers. That is, until recently.

Credit Card Surcharge Fees

A credit card surcharge fee is charged to a consumer by a merchant when the consumer pays with a credit card. That means merchants can pass on the direct cost of interchange fees to customers. They can do this by adding a line item on your receipt called a Credit Card Surcharge Fee.

Sure, it sucks for us, especially during a time of high inflation. But it serves as a kind of safety net so that our beloved bakery doesn’t lose too much dough (pun intended!). After all, small businesses have razor-thin margins and struggle to compete against the big guys with deep pockets.

But here’s where things get interesting: not all credit card providers dance to the same tune. Visa might have its own rhythm, and Mastercard might boogie a little differently. Credit card surcharge fees in Canada vary from one network provider to the next, and from one type of credit card to the next as well. That plays a big part in the overall cost of processing your transactions. 

The Controversy Leading to Credit Card Surcharge Fees in Canada

Okay, so merchants can pass on the cost of interchange fees to us in the form of a credit card surcharge fee. Fair enough. But that wasn’t always the case, so how did it come to pass? Well, things really got spicy in 2021. 

A class-action lawsuit was brought against Visa, Mastercard, and several Canadian banks by Canadian small businesses. Why? Well, the claim was that these credit card companies and banks were conspiring to set exorbitant fees to process credit card transactions, creating undue financial hardship by making it overly expensive for merchants to accept credit card payments.

This wasn’t a small tiff. We’re talking about a groundbreaking lawsuit where the claimants—Canadian small businesses—argued that Visa, Mastercard, and the involved banks were essentially stifling competition and inflating fees on purpose. The merchants felt cornered. Either they could eat the cost of the high fees themselves, which isn’t sustainable for small businesses, or pass them onto customers, which obviously isn’t going to go over very well.

Here are some interesting points about the lawsuit:

It was Massive: The lawsuit represented any Canadian business that paid interchange fees between 2001 and 2021. That’s a lot of unhappy folks.

Big Payouts: The involved credit card companies and banks agreed to pay out $188 million to those businesses. Talk about a costly settlement.

Changing Practices: Part of the settlement also involved a change in practices. The involved companies had to adjust some of their fee-related policies and enhance competition. Competition is essential for an efficient free market, but it’s nightmare fuel for oligopolies like banks and credit card companies who already dominate the space.  

The Verdict & What It Means For Us

If you’re thinking, “Cool story, but why are you telling me all this?” – here’s the lowdown. This lawsuit led to some positive changes:

Lower Fees: With enhanced competition and scrutiny on the involved companies, it’s possible that the fees they charge merchants could decrease, leading to potentially lower credit card surcharge fees for customers. Fun fact, the settlement has already required them to lower their interchange fees, but the increased pressure means we could see a further reduction in the future.

More Transparency: The lawsuit highlighted the need for transparency. Merchants and customers alike are now more aware of the importance of understanding the intricacies of these fees and who is handling our money. 

Power to the Merchants: Merchants now have a legal precedent to stand up against what they perceive as unfair practices. This could mean better bargaining power for them in the future, which could lead to better competition in the future too – something Canada desperately needs!

But at the end of the day, the win isn’t exactly a victory. Now the real struggle begins. Will businesses actually start imposing credit card surcharge fees in Canada? Every action has an equal and opposite reaction. Canadian small businesses have a lot to consider before making any sudden moves. 

Merchants, Consumers & Credit Card Surcharge Fees in Canada: The Struggle For Balance

Ever picked up a gorgeous sweater, checked the tag, and thought, “Why’s it priced that way?” Well, those inconspicuous interchange fees have been sneaking their way onto price tags long before credit card surcharge fees in Canada were a thing. Merchants have bills to pay too, and interchange fees are a significant chunk of that. To cover some of those costs, the only option they had was to make that sweater (or any other item) a tad pricier for you.

To surcharge or not to surcharge?

Now, here comes the million-dollar question: do our beloved merchants – from the hipster coffee shop owner to the friendly neighbourhood grocer – absorb these costs or pass them onto us, the consumers? Well, it’s a bit of a mixed bag (and all the options suck). 

Some businesses, especially the bigger ones, might swallow these fees as part of the cost of doing business. They play the long game, betting on volume. But for smaller businesses, every penny counts, and many of them have little choice but to let their customers share the burden.

Is honesty the best policy?

And this brings us to a fiery debate: transparency. Should we, the consumer, be in the know about these fees? There’s a growing chorus of voices shouting, “Yes!” Knowing the breakdown, the nitty-gritty of where our hard-earned money goes empowers us to make better financial decisions. Maybe we’d rally behind our local businesses more, understanding the challenges they face. Or perhaps we’d get more vocal about seeking transparency from those big credit card companies.

Will it cause more harm than good?

But the reality of the situation is actually quite bleak, at least for now. Small businesses are the backbone of this country, employing over 10 million Canadians and contributing to almost 40% of our GDP, but they’re dropping like flies. It’s always been hard to compete against major corporations, but today’s economic hellscape is making it almost impossible to survive. 

The pandemic accelerated the Shop Small movement, but if you’ve ever tried to support locally-owned businesses then you know how expensive it is. And as the cost of living soars, more of us are forced to shop where we get the most bang for our buck – even if shopping there violates our core values. If you’re already struggling, then your favourite local businesses start charging credit card surcharge fees, are you going to keep shopping there? 

Exactly.

Know Your Rights: Rules For Credit Card Surcharge Fees in Canada

Luckily, it’s not open season on surcharges. There are strict rules that merchants have to follow if they want to impose credit card surcharge fees. Here’s what to know:

1. The Ground Rules for Merchants:

Now, merchants can’t just slap on credit card surcharge fees in Canada all willy-nilly. There are rules, my friend! Here they are, in a nutshell:

Notification: Merchants have to tell their card network and acquirer (that’s the company processing the payment) if they plan on adding a surcharge. And they have to give 30 days’ notice in writing. It’s kind of like announcing, “Hey, I’m charging a bit extra for credit card payments now!”

Cap on Surcharges: The surcharge can not be more than what the merchant actually pays to accept your credit card. Plus, it can never be higher than 2.4%. Think of this as the ceiling—it can’t go above it!

Display, Display, Display!: Merchants need to be crystal clear about these surcharges. They must have signs at the store entrance, by the cash register, on the website, and even on your receipt. No sneaky surcharging allowed!

Level Choices: Merchants have a choice—they can charge the same surcharge across all credit cards from a particular network, like all Visas or all Mastercards (that’s called a brand-level surcharge) or vary the fee based on the type of card, regardless of the network (like standard cards versus fancy premium cards).

Fair Play: Some card networks have a golden rule—merchants can’t charge more for one credit card company than another (like Visa vs Mastercard, for example). It’s like making sure everyone’s playing fair in the sandbox.

3. Debit Card & Prepaid Card Surcharges?

Sometimes, merchants might also want to add surcharges for debit cards and prepaid cards. But not all card networks are cool with that. At the time of writing, we know that merchants absolutely cannot surcharge: 

• Interac Debit Cards
• Visa-Debit Cards
• Debit-Mastercards
• Prepaid Visa Cards
• Prepaid Mastercards

4. Special Service Fees:

There are special situations where merchants can add service or convenience fees. But the catch? If they charge these, they can’t also slap on a credit card surcharge fee in Canada. It’s an either-or situation.

5. The Power of Choice for Consumers:

Here’s the golden part for you. Merchants need to let you know about any surcharges before you finalize your payment. You get the power to say, “Hold up, I want to pay a different way,” or even cancel the transaction without any penalty. Plus, some generous merchants might offer discounts for using certain payment methods or cards. Keep an eye out for those deals!

Tips for Consumers: How to Navigate Credit Card Surcharge Fees in Canada

Like any other aspect of the financial world, credit card surcharge fees in Canada can be complex. But the key takeaway is that these fees exist to help merchants cover their costs – essentially supporting small businesses. Here’s how you, the consumer, can navigate this tricky new financial curveball:

1. Ask Ahead 

Before making a purchase, especially a big one, ask if there’s a credit card surcharge fee and how much it is. Being aware means no nasty surprises. If you can afford it, look for local businesses that charge the lowest fees or don’t charge any at all. But you have to switch to a big box store, don’t lose sleep over it. Your financial wellness comes first, always. 

2. Use Alternative Payments

If you’re not keen on paying the surcharge, consider using other payment methods like debit cards or cash, if the merchant accepts them. Just make sure you confirm whether or not your debit card is subject to surcharges. 

3. Consider an American Express Card

American Express was excluded from the lawsuit. That means merchants who accept these cards are still prohibited from imposing credit card surcharge fees as per their contract with Amex. Consider switching to one of the best American Express Cards with lucrative rewards and benefits. In fact, the American Express Cobalt card consistently ranks as the best credit card in Canada. 

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4. Use a Prepaid Credit Card

Ever considered a prepaid credit card? Now’s the time. Mastercard and Visa Prepaid Credit Cards come with a shiny perk—they’re exempt from those dreaded credit card surcharge fees in Canada. And guess what?

Some of these prepaid cards are not just about avoiding fees but also about earning rewards. Check out options like KOHO, Neo Money Card, Wealthsimple Cash Card, and the EQ Bank Card. Not only do you escape surcharges, but you also get rewarded with cash back on purchases. 

• Neo Money Card: Up to 15% cash back
• KOHO: Up to 6% cash back
• Wealthsimple Cash Card: 1% cash back
• EQ Bank Card: 0.5% cash back 

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5. Dive into Loyalty Programs & Cash Back Apps

Canadians love loyalty programs, and you should use this to your advantage. Multiple memberships mean multiple rewards, and who knows, you might be able to avoid surcharges by redeeming points for purchases. And don’t forget about the best cash back apps in Canada that help you recover even more of your expenses. 

6. Explore BNPL Options

Step into the future of shopping with Buy Now Pay Later programs. With zero interest and no hidden fees, you can finance your purchases over time with equal monthly payments. Look for businesses that have partnered with BNPL providers like Klarna, PayBright, Sezzle, etc. 

7. Consider Crypto

Hear me out! More and more businesses are beginning to accept crypto as a form of payment. By adding a little digital gold to your wallet, you have more opportunities to escape credit card surcharge fees in Canada. You can get around the notorious volatility by holding onto a reputable stablecoin. Call ahead to ask if the business accepts crypto payments, and if so, what coins are supported.

8. Support Small

Understand that small businesses might be more likely to add credit card surcharge fees to your bill. They’re often hit hardest by those nasty interchange fees levied by credit card companies and banks. Whenever you can, support them, even if it means an occasional small surcharge. By continuing to shop local, you are helping small businesses survive. That leads to job creation, better service, and more taxes for essential services – enriching your community by keeping more of your money where it matters most.

Tips for Small Business Owners: How to Navigate Credit Card Surcharge Fees Without Alienating Customers

It’s a bit like walking a tightrope—on one side, there are your operational costs, and on the other, the happy faces of your loyal customers. So, how do you balance this without crashing head-first into the pavement?

1. Explore Alternative Cards

Remember, not all cards are made equal. With Visa and Mastercard facing the heat, perhaps it’s time to consider others like American Express. It might not be the most popular option, but you’d be surprised how many customers might appreciate the added choice. Plus, the American Express Cobalt happens to be the best credit card in Canada for most consumers, which can further benefit your customers. 

2. Boost Loyalty Programs

Did you know Canadians love their loyalty programs? And we aren’t talking about just one or two. On average, a Canuck is juggling multiple loyalty memberships at once. So, by integrating your payment systems with loyalty rewards, you’re not just offering points – you’re building relationships. Plus, this sweet deal gives your customers an option to sidestep surcharges by redeeming points for purchases. It’s a win-win!

3. The Power of “Buy Now, Pay Later”

Buy Now Pay Later (BNPL) isn’t just a trend—it’s a movement. With no interest and no hidden charges, it’s a great alternative to credit card payments. By embracing this, you’re giving your customers flexibility and choice, and who doesn’t love that? Popular BNPL providers include PayBright, Klarna, Sezzle, and more. 

4. Entice with Discounts

Instead of adding, why not subtract? Offer discounts for specific payment methods. Maybe a little off for those paying cash? This way, you’re incentivizing alternatives without making credit card users feel penalized. Remember, transparency is key. Use clear signage and keep customers in the loop about any discounts.

5. The Case for Crypto

This may seem counterintuitive, but now is the time to consider accepting crypto payments. Not only does it allow your customers to bypass credit card surcharges altogether, but it also allows you to access an untapped clientele of crypto enthusiasts. New technology has developed to eliminate the stress of crypto price volatility. For example, SmartPay by CoinSmart allows you to accept crypto payments from customers, immediately convert them into Canadian Dollars, and automatically deposit them into your business bank account.