FAQs: Merchant Credit Card Processing

Current Regulations and Laws

Unlike many US states, there are currently no Canadian laws that prohibit merchants from passing transactions fees onto customers. However, both Visa and MasterCard (the card-brands) have regulations regarding these practices. All merchants accepting these card-brands inherently agree to their Merchant Operating Guidelines (MOG) and monetary penalties could be imposed by these card-brands for not abiding by their rules. It’s also important to note that card-brands operate under unique legal entities in each country, and the rules of Visa Inc. (USA) will differ from the rules of Visa Canada Inc. When this document refers to Visa and MasterCard, it is referring to the Canadian entities.

Convenience Fee vs. Surcharging

First, it’s important to differentiate between surcharging and having a “convenience fee”. Surcharging is the practice of passing processing fees on to customers as a penalty for paying by credit card. Both Visa and MasterCard’s rules generally prohibit merchants from engaging in any acceptance practice that discriminates against the use of a card-brand in favor of any other acceptance brand. A merchant may not directly or indirectly require any Visa or MasterCard cardholder to pay any fee in connection with a payment card transaction that would not be charged if another payment method was used. For example, some small restaurants and retailers require customers to pay “3% extra for credit cards”. This is considered surcharging and is prohibited. Convenience fees on the other hand are considered a fee for providing a customers with an entirely new payment option from other payment options normally available. This usually applies to card-not-present transactions (online) where the payment method was previously not available to customers. The convenience fees is charged on all types of transactions available for this new payment method, and is charged to cover the costs of this new “convenience”.

Current MasterCard Canada Regulations

MasterCard prohibits surcharging and convenience fees in a card-present environment (where the cardholder presents their card in person). However, MasterCard does allow for convenience fees in card-not-present environments (online) in cases where the on-line payment option has become an entirely new payment option from other options available. There are regulations when implementing a convenience fee: – The convenience fee must be clearly stated at the time of payment to the cardholder. It is important the customer is aware that this payment method is offered as an extra convenience and chooses that method over other conventional payment methods. The cardholder must agree to the convenience fee each time. – A convenience fee cannot be charged for automated monthly (recurring) transactions since the cardholder would not be agreeing to the convenience fee on each transaction. While there are no rules in whether the convenience fee should be a percentage or set dollar amount, it is recommended to make the fee a set dollar amount as it fits better within the convenience fee model. Merchants should calculate an average processing cost based on an average transaction size and advertise that set fee amount as the convenience fee.

Current Visa Canada Regulations

Visa’s official Merchant Operating Guidelines state that all surcharging and convenience fees are prohibited in both card-present and card-not-present environments. However, there are many Canadian organizations including most Canadian universities and Canada Revenue Agency, who have implemented convenience fees by following MasterCard’s guidelines. Visa has been absent in responding to calls for clarification on its position for these card-not-present practices, most likely not wanting to officially update its guidelines, while not wanting to lose processing volume to its main competitor, MasterCard. Understandably, this may deter merchants from implementing any “convenience fee” practices. As a processor, we cannot provide guarantees that Visa may not enforce its current official policies on such practices. Merchants must make a decision at their discretions on whether to implement the practice.