Canadian Competition Tribunal Rejects Antitrust Suit on Credit Card Surcharging

The Canadian Competition Tribunal yesterday rejected a claim by the Canadian Competition Bureau seeking to require credit card networks to create a right to allow merchants to surcharge consumers who use credit cards for payment.

Canadian consumer groups recognized this as a big win for consumers:

Consumer groups were hailing the decision as a major victory, noting that it means credit card users will be protected from unwanted surprises at the checkout counter, such as surcharges.

The Competition Bureau noted among other points that in other countries where merchants have been given the power to surcharge, they have imposed surcharges opportunistically by surcharging above cost.

In the United States, a recent settlement in a similar antitrust suit gave merchants the power to surcharge credit card transactions in the United States. I criticized that element of the settlement at the time as injurious to consumers for precisely the reason that consumer groups in Canada opposed surcharging–which is that it gives merchants the ability to quote consumers a low price and then ambush them at the checkout counter by forcing them to pay a higher price. Under the cash discount act of 1981, merchants already possess the right to offer cash discounts to consumers (you probably have noticed this at gas stations whenever gas prices rise). So why also demand a right to surcharge? Because merchants know that by quoting a non-transparent price on the front end and then ambushing consumers with a surcharge at the counter many consumers will pay the higher price rather than put the goods back on the shelf, or in the case of services, the consumer will have already accepted the services and so will be forced to pay the surcharge if they have insufficient cash to cover the transaction.

In Australia and England, where surcharging has been permitted, government authorities have noted that surcharging at above cost rates is most common for products such as online purchases and travel. Why? Not because costs are higher in those industries. But obviously because for online purchases and products such as airline tickets, hotels, and rental cars, cash is not a suitable substitute for plastic. This indicates that merchants are not surcharging because they have to in order to cover cost, but because they see surcharging as a way of extracting rents from consumers who have a more inelastic demand for using payment cards.

On net, despite the fact that the antitrust settlement in the United States permits surcharging of credit card transactions, as I noted previously, it is preserves the pro-consumer principle of setting interchange fees by market forces rather than Dick Durbin’s central planning. In addition, many states have already outlawed ambush surcharging of credit cards and many more are contemplating it. As noted, merchants retain the option to provide cash discounts if they like.