Code of Conduct for the Credit and Debit Industry – Part 1

Decoding the Code – Part 1

On April 16, 2010, Finance Minister Jim Flaherty introduced the Code of Conduct for the Credit and Debit Industry in Canada.  This was in response to the merchant outcry for more legislation in the card processing industry.  The perception was that the payment card brands were free to set pricing as they saw fit and the merchant community could do nothing but pay the associated fees if they wished to continue accepting credit and debit cards.  With the introduction of premium cards and card type pricing, the once simple merchant statement became a document requiring hours of reconciliation.

The voluntary Code of Conduct was introduced as a means to provide the merchant clarity.  By their own definition, the Government indicates this purpose for the Code:

The purpose of the Code is to demonstrate the industry’s commitment to:

1. Ensuring that merchants are fully aware of the costs associated with accepting credit and debit card payments thereby allowing merchants to reasonably forecast their monthly costs related to accepting such payments.
2. Providing merchants with increased pricing flexibility to encourage consumers to choose the lowest-cost payment option.
3. Allowing merchants to freely choose which payment options they will accept.

But unless you fully understand the Code and what each participant in the payment industry is required to do, you won’t know when the Code is being violated.  As a merchant, do yourself a favour and ensure that you are educated and comfortable with what the Code means to you.

There are 10 policy elements of the Code, each one addressing a specific concern of the industry.  In this first part of Decoding the Code, we’ll go through the first 5 and try to provide some clarity.

1. Increased Transparency and Disclosure by Payment Card Networks and Acquirers to Merchants

This policy requires that your merchant statement outline exactly what you are paying for.  Your statement should display the type of card accepted, the interchange rates for each card type, the number of transactions and what your effective merchant discount rate is.  Your effective merchant discount rate is the combination of all interchange, assessment fees, switch fees and/ or processing fees associated with each transaction.

2. Payment card network rules will ensure that merchants will receive a minimum of 90 days notice of any fee increases or the introduction of a new fee related to any credit or debit card transactions.  Payment card networks will provide at least 90 days notice to acquirers for rate and / or fee changes and at least 180 days notice for structural changes.

Your Acquirer must provide you with a minimum of 90 days notice before they change your rate for either debit or credit card fees.

3. Payment card network rules will ensure that following notification of a fee increase or the introduction of a new fee, merchants will be allowed to cancel their contracts without penalty.

Upon receiving notification of a fee change, a merchant has the opportunity to assess the new costs and may cancel their contract with that Acquirer without a cancellation penalty. Merchants can only cancel should fees change due to increased fees or an introduction to a new fee.  Merchants may not cancel their contracts should their fees raise due to a predetermined fees schedule (such as increased volumes, increased chargebacks, etc.) if their contract included the fees schedule at signing.

4. Payment card network rules will ensure that merchants who accept credit card payments from a particular network will not be obligated to accept debit card payments from that same payment card network, and vice versa.

If you are currently accepting credit cards (MasterCard, Visa or American Express), you will not be required or obligated to accept any debit card products these payment brands introduce if you do not wish to.

5. Payment card network rules will ensure that merchants will be allowed to provide discounts for different methods of payment (e.g. cash, debit card, credit card).  Merchants will also be allowed to provide differential discounts among different payment card networks.

As a merchant, you are now allowed to incent your customers to use a different method of payment by offering discounts or special offers associated with each form of payment.  Any discount must be clearly indicated at your point of sale.

If any of these policy elements are confusing or unclear, be sure to contact your Acquirer and have them walk you through the definition until you are comfortable.