Interchange fees, surcharges and the Code of Conduct: what Canadian cardholders and small businesses should know

Card rewards are paid for largely by interchange fees: each time you pay by credit card, the merchant's payment processor pays a fee to your card issuer, set by the card network, and premium rewards cards generally carry higher interchange than basic cards. Two policy changes affect what you see at the till. Since 6 October 2022, merchants outside Quebec may add a surcharge of up to 2.4% on credit card payments if they disclose it in advance, and the FCAC says surcharging is not permitted in Quebec. And on 19 October 2024, commitments the federal government secured from Visa and Mastercard to lower interchange fees for eligible small businesses took effect, which the government expects to save small businesses about $1 billion over five years. The Code of Conduct for the Payment Card Industry in Canada, supervised by the FCAC, governs how networks and processors treat merchants.

This guide belongs to the cashback versus points overview. It explains these rules from the cardholder's side and covers the basics a small business owner using a rewards card should know; detailed merchant processing comparisons are outside its scope.

Who gets paid when you tap your card

The merchant usually does not set your price by card type, so everyone pays for interchange through general prices whether or not they use a rewards card. This is one reason surcharging was allowed.

Credit card surcharges

According to the FCAC's merchant guidance:

• a merchant may add a surcharge to credit card transactions, except in Quebec;
• the surcharge is capped at 2.4% and cannot exceed the merchant's actual cost of accepting the card;
• a surcharge cannot be combined with a service or convenience fee on the same transaction;
• the merchant must display surcharge information at the point of sale (in store and online), at store entrances and on every receipt, and notify its acquirer or network in advance;
• you must be told about the surcharge before the transaction is completed, be able to cancel without penalty before authorizing payment, and be able to pay another way, such as debit or cash.

Debit surcharging depends on the network's rules, and some networks forbid surcharges on prepaid cards. Surcharging was permitted following the settlement of merchant class actions against Visa and Mastercard; the networks' amended rules allowed it from 6 October 2022. Mastercard's rules do not allow surcharges on Debit Mastercard or prepaid cards.

What a surcharge does to your rewards. On a $200 purchase with a 2.4% surcharge you pay $4.80 extra. If your card earns 1.5%, the reward is $3.00 (or $3.07 if the surcharge also earns). You are about $1.80 behind compared with paying by debit. A card earning 4% in that category would still come out ahead by about $3.20, but only if the purchase falls in the bonus category.

The 2024 interchange reductions for small businesses

The federal government announced commitments from Visa and Mastercard to lower credit card interchange fees for small businesses, and Budget 2024 described them as protecting reward programs for consumers while saving eligible small businesses about $1 billion over five years. The reductions took effect on 19 October 2024 (Finance Canada news release of 17 October 2024). Eligibility is assessed separately for each network: annual Visa credit card sales volume under $300,000 or annual Mastercard volume under $175,000; non-profits under these thresholds also qualify. Finance Canada said more than 90% of businesses that accept credit cards would see interchange fees reduced by up to 27%: in-store consumer credit interchange moves to an annual weighted average of 0.95%, while online interchange falls by 10 basis points (reductions of up to 7%). Because the details are applied through each merchant's processor, a small business owner should:

1. ask the processor whether the account has been classified as eligible;
2. compare statements from before and after the change;
3. check whether the processor's own markup changed at the same time.

For cardholders, the government's stated aim was that consumer rewards programs would not be reduced as a result. Programs can still change for other reasons; see points expiry and program changes.

The Code of Conduct for the Payment Card Industry

The Code was introduced in 2010 and revised in 2015 and 2024, according to the FCAC. American Express, Discover, Interac, Mastercard, Visa and UnionPay have agreed to it. Networks must build it into their rules and agreements, and it applies to issuers, acquirers and other participants. The FCAC monitors and supervises compliance but does not resolve individual disputes.

Key merchant protections listed by the FCAC:

• notice of 30 to 60 calendar days before most fee increases or new fees;
• the right to cancel without penalty after a fee change, generally by giving notice within 70 calendar days;
• the right to decline renewal by giving at least 45 days' notice;
• a monthly statement;
• express consent for new products and services (no negative-option sales);
• freedom to choose which domestic credit or debit networks to accept and to offer discounts for cheaper payment methods.

If you run a small business and use a rewards card

• Keep business and personal spending on separate cards; it simplifies bookkeeping and tax records.
• A business card account is generally not covered by the Bank Act's consumer credit card provisions, which apply to accounts used for non-business purposes, so the 21-day grace period and $50 liability rules may not apply in the same way. Read the agreement.
• Rewards on business spending may have tax consequences; ask an accountant or check with the Canada Revenue Agency.
• When you accept cards from customers, your processor statements and the Code's rights are the starting point for any fee question.

Frequently asked questions

Can a store refuse my credit card?

Yes. Merchants choose which networks to accept, and the Code allows them to accept debit but not credit, or some networks but not others.

Can a merchant charge more for American Express than for Visa?

Network rules and the surcharge conditions above apply; the merchant must disclose any surcharge before you pay. In Quebec, no credit card surcharge is allowed.

Is a "convenience fee" the same as a surcharge?

No. A convenience fee is a flat fee for a payment channel, such as paying a bill online. It cannot be combined with a surcharge on the same transaction.

Where do I complain about a surcharge?

First to the merchant, then to the merchant's card network or acquirer if you can identify it; the FCAC accepts information about compliance. In Quebec, contact the OPC.

Sources

• Financial Consumer Agency of Canada — Code of Conduct for the Payment Card Industry in Canada; merchant surcharges, service fees and discounts
• Budget 2024 — commitments on small business interchange fees
• Department of Finance Canada news release, 17 October 2024 — eligibility thresholds and in-force date of the lower interchange fees
• Office de la protection du consommateur — prices and payment by card in Quebec
• Canada Revenue Agency — tax treatment of business expenses and rewards