Canadian COMPETITION LAW

December 15, 2010

The Competition Bureau announced earlier today that it had filed an application with the federal Competition Tribunal, and was launching a challenge, against Visa and MasterCard in relation to alleged “restrictive and anti-competitive rules that Visa and MasterCard impose on merchants who accept their credit cards.”

In making its announcement, the Bureau stated:

“The Commissioner of Competition alleges 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. Merchants in Canada pay an estimated $5 billion annually in hidden credit card fees.

The anti-competitive restraints on merchants result in higher prices for all consumers, whether they pay by cash, cheque, debit or credit, because merchants pass along some or all of the high costs they are forced to pay as a result of Visa’s and MasterCard’s anti-competitive rules.

…

The rules challenged by the Bureau prohibit merchants from encouraging consumers to consider lower cost payment options like cash or debit, and prohibit merchants from applying a surcharge to a purchase on a high cost card. Further, once a merchant agrees to accept one of Visa or MasterCard’s credit cards, that merchant must accept all credit cards offered by that company, including cards that impose significant costs on merchants, such as premium cards.

Canada has among the highest credit card fees in the world. Many countries have taken steps to reduce the fees paid by merchants. Canadian merchants that accept Visa and MasterCard credit cards must pay a fee ranging between 1.5 and 3 percent or more of each purchase, nearly twice as much as their counterparts pay in Europe, New Zealand and Australia, but slightly less than in the United States. By contrast, the card acceptance and processing fee paid by merchants in the case of an Interac debit transaction is a flat fee of approximately 12 cents, regardless of the value of the purchase. To provide a practical example, a 3 percent hidden credit card fee on a $400 set of snow tires is $12, but if a debit card is used for the same purchase, the fee is 12 cents.”

According to the Bureau, Visa and MasterCard together processed more than 90% of all credit card transactions by Canadian consumers in 2009, representing more than $240 billion in purchases.

This case is interesting in that it is the first price maintenance application made by the Bureau to the Competition Tribunal since the new civil price maintenance provisions were passed as part of sweeping amendments to the Competition Act in 2009.  As part of the changes to the Competition Act, a number of previous criminal pricing provisions, including the former criminal price maintenance provisions, were repealed (and a new civil price maintenance provision enacted).

The new price maintenance provisions prohibit, among other things, agreements to influence customers to increase prices and refusals to supply based on another person’s low pricing policy.  Also, whereas the former price maintenance offences were “per se” offences (i.e., not requiring any adverse market effects to be proven), the new civil provisions now include a competitive effects test – i.e., it must be proven that price maintenance conduct has an “adverse effect” on competition in a market.  The former price maintenance provisions were widely criticized as being out of step with current economic thinking.

The case is also interesting in that the price maintenance provisions expressly includes credit card suppliers as one category of supplier against whom Tribunal orders can be made (though we are not aware of another Canadian price maintenance case that has proceeded on this footing).

If this case proceeds, it will offer welcome clarity to one of the key new provisions of the Competition Act, including what is required to prove price maintenance under the new section 76, the meaning and test for the new competitive effects element and how the economic analysis accords with other reviewable matters under the Act (e.g., abuse of dominance and the refusal to deal provisions, which as a result of previous amendments also incorporated an “adverse effects” competitive effects test).

For a copy of the Bureau’s Competition Tribunal application see: Competition Tribunal.

For a copy of the Bureau’s News Release see: Competition Bureau Challenges Visa and MasterCard’s Anti-competitive Rules.

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