Deceiving Plastic!

Summary
An investigation ran by the Competition Bureau of Canada will attempt to find out whether credit card titans like MasterCard and Visa are breaking the law by charging ridiculous transaction fees to businesses and retailers. Across the country, complaints are being made that these credit card companies are abusing their dominant position and charging unfair and unwarranted fees. Liberal New Brunswick Senator Pierrette Ringuette hopes that legislation can be brought to Australia’s level where interchange rates are maxed at 0.45% for businesses, 0.33% for governments and a friendly zero for charities. Compared to Canada’s rates, maxed at 3% for businesses, 1.8% for government and 1.5% for charities, Australia’s rates are downright small. The Retail Council of Canada has recently started a website, stopstickingittous.com, which boldly states Canadian consumers have paid over $4.5-billion dollars in hidden credit card fees in 2008. In simple terms, the credit card companies take approximately $2 out of every $100 businesses receive in sales. MasterCard has recently responded that they welcome the investigation and hope to clear up any negative press spread by the retail and business sectors.

Money and the Canadian Banking System
As the recession has caused households to cut down on expenses, cash is becoming both less available and less spent. Instead, credit cards and debit cards have taken over as easily accessible forms of money. While the non-profit association Interac dominates the debit market with its low flat-rate fees, monster credit card companies such as Visa and MasterCard are seemingly taking advantage of their dominant position. In doing so, they have put themselves in a predicament where consumers and businesses may be reluctant to favour credit cards as much as they do now. Credit cards are handy because they allow for purchases to be made on the spot without an actual item of monetary value and eliminate the need to carry cash. Despite this, the popularity of Visa and MasterCard may fall if the Competition Bureau of Canada discovers they are indeed in violation of Section 79: abuse of a dominant position. In any circumstances, high interest rates from either the bank or credit card companies defer people from spending and ultimately, will keep the company in a recession. It is commonly agreed upon that you must spend your way out of a recession. The more money paid towards interchange fees, the less money business and retailers will have to spend on business purchases and endeavours. In order to raise the demand for money, interest rates need to be low in all areas to increase the supply of money in order to encourage spending in the midst of a recession.

Reflection
Although it is only natural to feel ill will towards Visa and MasterCard after reading this article, they too are companies trying to meet their quarterly and yearly target in a time where the movement of money is scarce and slow. Credit cards have brought us convenience upon making transactions. As a great deal of Canadian citizens now pays with credit cards, consumption and spending have become a whole lot easier. If credit cards were to lose popularity, I would think that consumer spending would take a great hit as people would need time to adjust to spending cash over whipping out the plastic. In any sense, if people were able to adjust and the level of consumer spending does not decrease, we could be moving in a positive direction by spending cash rather than paying with credit cards and being hit with hidden fees. Undisputedly, the only party that benefits from hidden fees is the credit card companies, while both consumers and businesses lose money. I believe a good way Canada could encourage spending is to introduce competition in the way we pay for goods and services; it could help to lower fees paid by consumers and businesses. On the note of interest rates, however, it seems relatively simple to me how credit cards should be used. The most ideal way to use a credit card is to religiously clear the balance at the end of every month to avoid charges.

http://www.calgaryherald.com/business/fp/Competition+bureau+probes+credit+card+fees/1430376/story.html