Businesses in Canada can now add surcharges to bills when customers use a credit card to pay.

The new rules are the result of a settlement in a long-running class-action legal battle launched by merchants against Visa and MasterCard and financial institutions. Credit card companies had long resisted allowing businesses to pass on these transaction fees as it could lead consumers to switch payment methods to avoid the additional cost. Instead, the fee had been paid by merchants.

The fee is applicable to any credit card transaction, not just retail ones. This means purchases in person, online, over the phone – including subscriptions and bills – could all be subject to a transaction fee if the business decides to include it.

The new fees will be applied at the merchant’s discretion anywhere in Canada, except for Quebec, where the Consumer Protection Act prohibits it.

How high are transaction fees on credit card purchases?

Credit card companies say the average fee is 1.4 per cent, but it can go up to a cap of 2.4 per cent for small merchants and for expensive cards such as American Express. The fee paid by the customer can’t be higher than the fee that would be paid by the business on the transaction.

The surcharge amount depends on the brand of your credit card, and the type of credit card you use, such as premium or standard ones.

When does it come into effect?

As of Oct. 6, businesses are allowed to charge an additional fee on credit card transactions. However, they have to register their plans with their credit card processor 30 days before starting to pass on the surcharge to customers.

How do you know if a retailer is charging you a transaction fee?

Businesses have to disclose information on credit card surcharges at the entrance of their physical stores, on every receipt, and at the point of sale online, in person and over the phone. Upon purchase, you should be informed of how much the surcharge is and you can back out before completing the transaction without penalty.

How can you avoid paying credit card transaction fees?

The surcharges will apply to payments made by credit cards, but debit and cash payments remain the same. At stores, customers can opt for cash or debit payments to avoid surcharges, or they can shop at stores that don’t charge a fee. Online payments predominantly go through credit card services, but some retailers that accept Interac Debit payments can offer an alternative.

There are considerations that might persuade customers to use a credit card despite the charge, such as being able to wait until the end of a bill cycle to pay for a purchase. Some credit card plans also include extended warranty on purchases, purchase protection, or insurance against damage, loss or theft.

Another consideration for many Canadians is credit card reward programs, the value of which will be directly affected by the surcharges.

How does the surcharge affect credit card rewards?

Canadians will have to do some mental math to compare how much they lose to surcharges and how much they gain in credit card points on a purchase.

Patrick Sojka, founder of, said the average reward program has a value of one cent or point per dollar spent, or 1 per cent. If you pay a 1.4-per-cent fee on credit card transactions, you cancel out the value of that average reward.

Some cards offer higher reward rates that will exceed surcharges, Mr. Sojka noted. Two examples he cited are American Express Cobalt, which offers points at a rate of 5 per cent of spending on food and restaurant meals, and Scotiabank Gold American Express, which offers a 6-per-cent reward rate on spending at Sobeys, IGA and Safeway grocery stores, and 5 per cent on other food and restaurant spending.

However, some of the credit cards with higher reward rates also come with higher annual fees, which you should also factor into the equation. For instance, the American Express Cobalt costs $155.88 a year, and the Scotiabank Gold American Express adds $120 to your annual bill.

For these and other cards with higher reward rates, you have a judgment call to make when paying a retailer with credit card processing fees.

Who is charging credit card fees?

An estimated one in five small businesses is planning to pass on credit card transaction fees to their customers, according to a survey by the Canadian Federation of Independent Business.

According to the CFIB’s online survey of 3,914 members, conducted from Sept. 1 to Sept. 8, 19 per cent of respondents were planning to add the surcharges as soon as they could. Another 26 per cent said they would do so if their competitors did; 40 per cent said they were not sure yet; and 15 per cent said they would not.

Those in consumer-facing businesses were the least likely to say they would pass on the costs. Only 12 per cent of retail, 17 per cent of personal services and 19 per cent of hospitality businesses said they were sure to add the surcharge.

On the other side, businesses that often sold to other businesses were more likely to want to pass on the transaction costs. Those sectors include transportation (37 per cent); finance, insurance and real estate (32 per cent); and construction (31 per cent).

For those who did not want to pass on the fees, 79 per cent said it was because they thought it would alienate their customers.

The Globe and Mail, October 13, 2022