May 2015
PFD | Finance

May a Merchant Impose its credit card chargeback fees onto its clients?

By Neda Esmailzadeh

We have recently received a high volume of questions concerning a merchant's ability to impose its credit card chargeback fees onto its clients.

Most agreements with credit card companies require payment of credit card fees (an average between 1.5% and 3%). These fees may vary depending on the type of credit card used for such transaction (i.e. Platinum, Travel, etc.).

These fees do not stem from any law; rather they are a contractual requirement provided by your payment service provider.

Furthermore, most agreements with payment service providers include a clause that prohibits merchants to charge these fees to their clients, insofar as merchants may not require their clients to pay fees merchants have to assume as a result of a payment by credit card. The objective of this provision is to encourage clients and consumers to use their credit cards. Also note that credit card chargeback fees are prohibited in transactions concerning consumers as per the Consumer Protection Act.

These clauses were the subject of a complaint filed by the Competition Bureau of Canada in 2013 against Visa and MasterCard in order to prevent the use of such provisions in their dealings with merchants, the Bureau pleading that such practices place a significant financial burden onto merchants which in turn affects competition. The complaint was dismissed by the Competition Tribunal, rejecting the Bureau's arguments.

It is therefore generally prohibited to impose chargeback credit card fees unto clients and customers, which depends on the contractual provisions between the merchant and service provider. If you are not certain of your rights on such matters, please feel free to contact us for further information.