Federal watchdog says retailers are being misled on credit, debit card payments

A federal consumer watchdog says some credit and debit card payment companies are breaking rules it created to protect retailers, which in turn could be costing Canadians more money.

The Financial Consumer Agency of Canada issued a warning to the industry on Wednesday that it will not tolerate payment companies who mislead merchants into paying hidden fees or lock them into confusing contracts.

The concerns stem from a code of conduct introduced by the federal government nearly three years ago designed to encourage further clarity in the contracts signed between retailers and credit and debit card companies.

But the agency said it found some payment companies, who it did not name, have been misrepresenting the terms of contracts with merchants by advertising and promising rates that they were unable to honour.

"Over the past year, we have seen certain practices by some in the industry that undermine the letter and spirit of the code," said commissioner Ursula Menke in a release.

"This guidance is meant to address these issues by providing better disclosure to merchants and eliminating inappropriate sales and business practices that result in increased costs for merchants, and consequently for consumers as well."

The agency said its investigation found that some merchants signed agreements that they later discovered were linked to additional contracts that had different cancellation clauses, penalty fees or costs associated with them.

While the merchant was able to cancel the agreement without penalty, the agency said they were still locked into paying additional fees to cancel the other contracts.

"In some cases, these penalties were enough to deter a merchant from invoking his or her right to cancel all contracts without penalty," the agency said in its report.

As part of the findings, the consumer agency outlined a summary form for payment companies that would disclose key information from the agreement they make with merchants.

The report was met with a positive reaction from the Retail Council of Canada, which lobbies for retailers.

Diane Brisebois, president of the retail council, said she was pleased that the commissioner recognized that "retailers have been dealing with unfair and unscrupulous practices from some in the payment card industry."

Payment transaction processor Interac said it would adopt the increased disclosure practices.

"We continue to fully support the code of conduct and commend the FCAC commissioner for taking this step to help clarify what is expected of the market when adhering to the Code of Conduct," said Interac president and CEO Mark O'Connel in a statement.