Visa, MasterCard and the country's biggest banks are accused in a lawsuit of being part of a price fixing conspiracy that has forced merchants to pay billions of dollars in credit card transaction fees.
A proposed class action in B.C. Supreme Court names the big credit card companies and 10 banks as defendants.
The suit alleges merchants are forced to accept every Visa or MasterCard presented by customers — including premium cards — even though merchants are charged much higher fees for premium cards.
At the same time, merchants are not allowed to charge more for accepting premium cards.
"The lawsuit alleges that merchants are forced to raise prices for all customers to cover the cost of transactions with premium cards," Ward Branch, a partner at law firm Branch MacMaster says in a statement.
"Our research suggests that these fees cost Canadian merchants $5 billion in 2009 alone. The system is bad for Canadian merchants, Canadian consumers and for the Canadian economy as a whole."
Lawsuit follows competition bureau case
The lead plaintiff in the proposed class action is Mary Watson, a merchant who has owned a furniture store in Vancouver since 1990.
The suit seeks to recover the fees that the credit card companies and banks "are alleged to have collected illegally from merchants."
To proceed as a class action, it has to be certified. None of the allegations has been proved in court.
The card companies charge a fee of 1.5 to three per cent of the total amount of the transaction each time a credit card is used. That can mean $15 in fees paid by the merchant when a customer charges a $500 purchase. The fee paid by a merchant for a debit transaction, on the other hand, is about 12 cents.
MasterCard Canada said it "intends to vigorously defend this action."
The Canadian Bankers Association said it's the credit card companies — not the banks — that make up the rules that force merchants to honour all cards. "The banks have no control over these rules," the association said.
This lawsuit echoes arguments made by the Competition Bureau of Canada late last year, when it moved to strike down the rules companies impose on merchants that accept their credit cards.
The bureau said it was concerned with the current prohibition on merchants from encouraging lower-cost forms of payment, such as debit and cash.
Under the current agreement, merchants cannot offer lower prices for non-credit card transactions.
"Without changes to the rules, merchants will continue to face high costs for credit card acceptance while consumers, even those who use lower-cost methods of payment like debit or cash, will continue to pay higher prices," competition bureau commissioner Melanie Aitken said when she launched the case in December.