Canada: Bill Proposes To Cap Credit Card Interchange Fees

A Liberal private member's bill (Bill C-236) to amend the Payment Card Networks Act (Canada) (the PCN Act) went through first reading in the House of Commons on February 25th. The bill would amend the PCN Act to provide for a limit on "credit card acceptance fees".

The bill does not specify an actual rate limit and does not define the term "credit card acceptance fees". These matters are left for regulations, which will not be published unless and until the bill is passed. It is clear, however, that the intention of the bill is to give the Minister of Finance the power to impose a cap on the interchange fees that are charged to merchants on credit card transactions.

Here is a short history lesson to put this proposed amendment into context. In 2010, in response to concerns raised by merchants, the Government of Canada established the Code of Conduct for the Credit and Debit Card Industry in Canada (the Code, which was amended in 2015). The Code applies to payment card networks and their participants and is aimed at providing disclosure and additional rights to merchants that accept credit and debit card payments. Although the Code is voluntary, when the Code was released, the Government also introduced the PCN Act. The Department of Finance indicated at the time that the purpose of the PCN Act was to give the Minister of Finance the power to regulate the market conduct of the credit and debit card networks and their participants, if necessary. In other words, if the networks had not adopted the Code, the Government would meet the objectives of the Code by establishing regulations under the PCN Act. The six payment card networks that operate in Canada have adopted the Code.

In November of 2014, the Department of Finance announced that Visa and MasterCard had entered into voluntary commitments to reduce their interchange fees to an average effective rate of 1.50% for five years.

Bills to amend the PCN Act were introduced in previous sessions of Parliament in 2012 and 2013. Each of these bills, if passed, would have set specific caps on credit card exchange fees (at 0.05% of the transaction for most transactions), rather than leaving caps to be prescribed by regulation as the current bill does. Bill S-202, introduced in 2013, was referred to the Senate Committee on Banking, Trade and Commerce, which recommended as follows: "As changes to the Canadian credit card industry are continually unfolding in a voluntary manner, it is the opinion of the majority of the committee that government intervention is unnecessary at this time". Neither bill was passed.

The current bill was introduced by a private member of Parliament and so far, does not have the overt support of any party.

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