Some Canadian retailers will be hanging out signs in 2011 encouraging consumers to pay cash or debit for their purchases, instead of using credit cards.

Some Canadian retailers will launch a campaign in the new year to encourage customers to use cash or debit instead of credit cards. (Elaine Thompson/Associated Press)It's the latest salvo in what is turning into a nasty spat over fees that credit card giants Visa and MasterCard charge merchants for accepting their cards.

"What we're looking at doing is giving small merchants the choice of a sign they can post in their businesses that would encourage customers to pay with either debit or cash," Canadian Federation of Business senior vice-president Dan Kelly said in an interview with CBC News.

The issue came to a head Wednesday, when Canada's competition commissioner announced she is taking the credit card companies to a tribunal to try to force changes in how much the card companies can take, and how that amount is calculated.

The Competition Bureau is also asking for a change in merchant agreements that prohibit any sort of surcharge by retailers on credit card purchases.

MasterCard vows to fight proposed changes

In a written statement to CBC News MasterCard said it plans to fight the Competition Bureau.

'The result would be to enrich merchants at the expense of customers.'—Betty DeVita, MasterCard Canada

"If these changes were implemented by the Competition Bureau, the result would be to enrich merchants at the expense of customers," said Betty DeVita, president of MasterCard Canada.

The CFIB upped the ante on Friday, when it fired off letters to MasterCard and Visa, asking whether merchants suggesting payment by cash or debit would be punished under the card company's merchant agreements.

Kelly told CBC News if the companies object to the campaign it will work against them.

"If they do that they're proving the Competition Bureau's case," he said.

Competition commissioner Melanie Aitken is taking Visa and MasterCard to a tribunal to fight for changes to the way fees are charged to businesses and the terms of merchant agreements. (Compteition Bureau)MasterCard said that merchants are free to offer discounts or other inducements to customers who pay by cash or debit. It says its concern is that some retailers may gouge consumers by charging premiums on credit card transactions.

The Retail Council of Canada also weighed in on Friday suggesting the CFIB's approach is the wrong one.

"That is certainly at odds with our view on the issue," council spokesman Mark Beasley told CBC News.

While the retail council is firmly in the corner of the Competition Bureau in its fight, Beasley said legislative change is the approach that would best bring the credit card companies into check.

"There are implications for reverting back to cash and frankly we think that it's a step backwards going back to cash and we're looking forwards, looking for a regulatory framework that will apply to this market," he said in an interview.

Visa and MasterCard have been under growing pressure over the fees they charge merchants that range from 1.5 per cent of a transaction cost, to three per cent or higher on premium cards.

Retailers also oppose the provision that they can't apply a surcharge to credit card payments, nor can they decline to accept credit cards that charge higher fees.