Canada: Canadian Competition Tribunal Credit Card Ruling — An Update

Last Updated: September 25 2013
Article by Denes A. Rothschild, Jeffrey S. Graham and Stephen J. Redican

Most Read Contributor in Canada, September 2016

Recently, the Competition Tribunal publicly released the reasons for its decision issued on July 23 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. 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.


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-surcharge rule prevents merchants from charging a fee on transactions made with Visa or MasterCard credit cards;
  • 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 discrimination rule (only applied by MasterCard) prevents merchants from treating a customer who presents a certain credit card less favourably than a customer who presents a different credit card.

The Commissioner alleged that the above rules permitted Visa and MasterCard to upwardly influence or discourage reduction of the fees charged to merchants for processing sales with Visa and MasterCard credit cards by preventing merchants from encouraging payment by lower fee credit cards or other methods of payment. Because in the modern economy merchants cannot practically decline to accept Visa and MasterCard credit cards, the Commissioner claimed that these rules forced merchants to simply accept any increased fees imposed by Visa and MasterCard, resulting in increased costs to businesses and, ultimately, consumers.

The Decision

The Competition Tribunal dismissed the application filed by the Commissioner. Based on the language of section 76 of the Competition Act (price maintenance), along with the legislative history of the provision and other decisions, the Tribunal found that a violation of section 76 requires that there have been a resale. The Tribunal held that the Commissioner did not establish that a resale of Visa and MasterCard's services took place, and therefore, it dismissed the application on this basis.

However, in the event that it was wrong with respect to  its legal interpretation of the resale requirement, and the Commissioner's failure to satisfy it, the Tribunal continued with its analysis. Under this alternative analysis, it found that Visa and MasterCard's provision of authorization, clearing and settlement services (Credit Card Network Services) to companies which provide merchants with services enabling them to accept Visa and MasterCard credit cards for payment, including point-of-sale technology (Acquirers), constituted a relevant product market within which competition can be analyzed. The Tribunal further found that within that market, both Visa and MasterCard separately possessed market power, meaning the ability to profitability raise prices above the competitive level or to reduce service, quality or innovation for a significant period of time.

Continuing its alternative analysis, the Tribunal found that if the no-surcharge rule, which prohibits merchants from applying a surcharge for those customers paying with credit cards, were not applied, then merchants would impose surcharges to such an extent that Visa and MasterCard would be threatened by losses in transaction volume and revenue. In this situation, the Tribunal found that Visa and MasterCard would respond by either limiting increases or reducing fees, meaning that the rule upwardly influenced or discouraged reductions in these fees. Therefore, it held that the rule caused an adverse effect on competition. The Tribunal noted that it did not have sufficient evidence to find that the honour-all-cards or no discrimination rules had the same price effects or effects on competition.

However, the Tribunal found that even based on this alternative analysis, it would have declined to issue an order prohibiting or restricting Visa and MasterCard's imposition of their fees, as the imposition of a regulatory framework is the appropriate means of rectifying the adverse effects of the no-surcharge rule.

Under the price maintenance provisions of the Competition Act, any order in response to a violation is entirely within the Tribunal's discretion. In this case, the Tribunal noted that any order it could impose would be a blunt instrument, which could not be adjusted or refined based on legitimate concerns or issues in its application. For example, it noted that it had no jurisdiction over merchants to include obligations on them in fashioning a remedy, which could be required. The Tribunal cited experience in other jurisdictions as support for this point, and for a clear direction to the government that the proper solution is a regulatory framework regarding surcharging, which it said should be imposed sooner rather than later.

Future Direction

The Commissioner has indicated that she is reviewing the decision and considering next steps.

Given the suggestion that the proper solution to the concerns raised by the Commission is a regulatory framework, the views of the Minister of Finance (Canada) on the decision 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 matt

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