Update: Code of Conduct for credit and debit card industry

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(Jan. 21/10) CRFA has offered comments in response to the federal government’s proposed Code of Conduct for the Credit and Debit Card Industry in Canada.  In addition to providing specific comments on the draft Code’s various policy elements, CRFA also made recommendations for Code implementation and other measures necessary for fair business practice by credit card companies.

The federal government has taken an important first step in recognizing the power imbalance between credit card companies and merchants by proposing this draft Code of Conduct.  The Code will help to improve transparency and disclosure by credit card companies, while allowing merchants to choose the cards they accept and payment options they provide.

The following is a quick summary of CRFA’s recommendations.  To read CRFA’s complete submission, click here.

Transparency and disclosure

• Appoint a federal body to oversee Code compliance and monitor effectiveness
• Oversight body to monitor practices and processes for setting fees and rates
• Develop standardized billing system to provide merchants with detailed information by card type
• Identify card type on customer card consistent with wording or symbol on rate schedule and billing statement

Notice period for fee changes

• Ideally, agreements between merchants and processors should be binding with no increases imposed without re-negotiating the contract
• 180-day notice period to merchants of any change in fee or change in terms resulting in additional costs to merchants

Cancellation of contracts

• 180-day period in which merchants can cancel their contracts following a notice of change of fees or other terms of the contract without termination fees, cancellation fees or other penalty
• No automatic renewal of contracts
• 60-day notice period prior to end of the contract

Obligations to accept debit card or credit card payments from same provider

• No obligations to accept debit card payments from the same payment network and vice-versa
• Allow merchants to choose whether they wish to accept “premium” cards
• No amendments to credit card merchant agreements without express written authorization of merchant
• No “grandfathering” of debit card agreements in place, that are inconsistent with the Code, prior to Code finalization

Discounts for different methods of payment

• Difficult for a restaurant to set a discount rate at appropriate level
• In addition to discounting, merchants should be permitted to reject, or charge a premium for “premium” cards and be permitted to “steer” customers by recommending that they pay with a lower card.

Choice of debit card payment on co-badged cards

• Restaurant operators should be able to choose the order in which payment networks are offered to their customers without being charged additional fees for exercising this right
• Critical because it means that payment companies will have to compete on price
• Priority routing, already programmed into the processing system by credit card companies, must be removed, at no cost to merchants
• Merchants must be able to exercise freedom of choice on a per transaction basis
• Roll-out of new debit card products should be suspended until technology is available to all merchants, at no extra charge, to enable them to switch order of payment network options

Branding of co-badged cards

• Ensure co-badged cards cannot be preferentially branded
• Establish a standardized size, colour and placement of network name/logo on cards

 Separate payment cards

• Agree that debit and credit cards should not co-reside on same payment card

Premium Cards

• Negative options techniques and misinformation should not be used to switch cardholders over to new premium cards
• Require disclosure that there are higher fees for merchants associated with premium cards and that these cards will not be accepted by all Visa and MasterCard merchants
• Existing premium cardholders that wish to switch to a card with a lower merchant discount rate and higher acceptance rate should be able to do so without charge

Other issues

• Operational concerns associated with the conversion to chip-card technology that don’t consider the specific needs of the hospitality industry
• PCI compliance timelines and costs without restaurant operator input

Related articles

• New code of conduct for credit and debit card companies good news for restaurant operators
• Avoiding the debit card trap

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