Telecom Order CRTC 2022-335
Ottawa, 8 December 2022
Public record: Tariff Notice 573
TELUS Communications Inc. – Introduction of a credit card processing fee for regulated services in Alberta and British Columbia
The Commission denies the application from TELUS Communications Inc. requesting the introduction of a credit card processing fee for its regulated services in Alberta and British Columbia.
With respect to forborne/unregulated services, while the Commission has chosen to forbear from certain regulatory powers, it is of the view that the practice of charging a credit card processing fee is unacceptable and would negatively impact the affordability of telecommunications services. Should this practice continue, or should it become a practice within the telecommunications industry, the Commission is prepared to explore all available regulatory options in the near future.
Credit card processing fees
- In 2018, a class action lawsuit filed by various retailers against MasterCard, Visa, and card-issuing banks was resolved via settlement and received court approval in British Columbia, Alberta, Saskatchewan, Ontario, and Quebec. This settlement resulted in MasterCard and Visa modifying their No-Surcharge Rules and permitting merchants to surcharge customers who pay by credit card, starting on 6 October 2022, subject to caps on surcharges and requirements for customer notification.Footnote 1
- Prior to this settlement, businesses had to absorb the costs associated with processing credit card payments and could not directly pass them onto customers through a surcharge.
Regulated and unregulated/forborne services
- The Commission only regulates the retail prices of telecommunications services when market forces and competition are not sufficient to protect consumers in a given market. For retail customers, regulated services generally include wireline telephone services in rural and remote regions, and certain Internet services in the Far North.
- In cases where the Commission deems that there is sufficient competition to protect the interests of consumers, the Commission can choose to forbear from certain regulatory powers. When the Commission chooses to do so, the services are referred to as unregulated/forborne services.
- Telecommunications service providers (TSPs) must seek and receive Commission approval before they can apply charges or modify rates for their regulated services. They do not need to seek Commission approval to do so for their unregulated/forborne services.
- The Commission received an application from TELUS Communications Inc. (TCI), dated 8 August 2022, in which the company proposed changes to Item 108 – Customer’s Responsibility for Charges of its General Tariff (General Terms of Service). The application was filed as Tariff Notice 573. In its application, TCI proposed the introduction of a credit card processing fee for its regulated services in Alberta and British Columbia.
- Specifically, TCI proposed to introduce a credit card processing fee of 1.5% of a customer’s payment amount, plus applicable taxes, when a customer makes a payment via credit card. The proposed fee would apply to new and existing customers of TCI’s regulated services in Alberta and British Columbia who make payments via credit card for these services.
- TCI submitted an example of how the proposed fee would be applied to a customer’s bill in Alberta for the amount of $100. The federal Goods and Services Tax (GST) would be applied before the proposed fee, resulting in an amount owing of $105.00. The proposed 1.5% fee would then be applied to the amount of $105.00, for an amount owing of $106.58. Finally, GST would be applied to the dollar amount of the proposed fee ($1.58 in this example), resulting in a total amount owing of $106.66.
- TCI submitted that the proposed fee would cover the processing costs that credit card payments incur. The company submitted that it planned to provide advance notices regarding the fee to its existing customers starting in mid-August 2022.
- The Commission received 3,918 interventions regarding TCI’s application. The majority of interventions were submitted by individuals who opposed TCI’s application. The Commission also received interventions from several consumer advocacy organizations.
- The interventions received in response to TCI’s application highlighted a number of different concerns and arguments. Many interveners raised concerns with the potential anti-consumer implications of TCI’s application, the affordability of telecommunications services in Canada, the already high profits of TCI and other TSPs in general, and the broader economic context (inflation, pandemic recovery, etc.). Interveners also commented on the potential for TCI’s proposed fee to disproportionately affect certain groups of customers, as well as the potential for double billing, and the argument that credit card costs are an established cost of doing business was raised in many interventions. Finally, many interveners expressed concerns that TCI’s application could set a dangerous precedent. A large number of the interventions received by the Commission raised these issues with respect to unregulated/forborne services, such as wireless and Internet services, which are not covered by TCI’s tariff.
- The Commission has identified the following issues to be addressed in this order:
- Ability of customers to avoid the fee
- Affordability and just and reasonable rates
- Cost recovery and double billing
- Unjust discrimination
- Unregulated/forborne services
Ability of customers to avoid the fee
Positions of parties
- Many interveners submitted that charging a credit card processing fee is an anti-consumer practice. They expressed concerns that seniors on fixed incomes and lower-income customers who might rely on credit card payments would be disproportionally affected by the proposed fee. Additionally, many interveners submitted that there are problems with other payment methods; for example, cash payment is often inconvenient or unavailable, while bank transfers lack the security of credit cards and do not allow customers to build their credit scores or collect reward points. Many interveners also submitted that TCI heavily encouraged them to pay by credit card.
- The Public Interest Advocacy Centre (PIAC) and the National Pensioners Federation (NPF) [collectively, PIAC-NPF] submitted that TCI is not justified in charging a different rate for customers who pay by credit card, and that TCI did not provide sufficient support for such a rate.
- With respect to the broader implications of the proposed fee, many interveners expressed concern that, if TCI’s application is approved, other telecommunications companies will likely implement similar fees. However, one intervener noted that TCI is the only telecommunications company so far to request a credit card processing fee and that other companies may take the opportunity to offer customers more favourable terms.
- TCI indicated that the proposed fee would be completely avoidable for all customers, would not result in increased rates for any telecommunications services, and would allow TCI to charge a just and reasonable fee for the optional service of making payments by credit card, which is the best way to ensure its continued availability to its customers.
- TCI expressed the view that interveners’ concerns may result from a lack of knowledge of all the available payment methods; customers can avoid the proposed fee by making pre-authorized payments from a chequing account or by Visa Debit, or by making one-time payments through a bank or by Visa Debit, Visa Prepaid, or MasterCard Prepaid. TCI also submitted that these alternative payment methods are just as safe and secure as credit card payments, that the processes for billing disputes and refunds are similar or identical to those for credit cards, and that the majority of TCI’s customers pay by means other than a credit card.
- With respect to the broader implications of the proposed fee on the telecommunications industry, TCI submitted that if the Commission prohibits TSPs from charging credit card processing fees, the result would be asymmetric regulation that disadvantages the telecommunications industry and its customers relative to industries in which such fees are permitted. Further, TCI noted that credit card payments to the Canada Revenue Agency and some utility companies are already subject to percentage-based surcharges imposed by third-party service providers, and that some of these surcharges are higher than TCI’s proposed fee.
- While some customers could avoid the proposed fee by using alternate payment methods, the Commission considers that there are valid reasons for customers to prefer paying by credit card. Credit cards typically offer increased fraud protection compared to alternative means of payment. Additionally, credit card payments offer flexibility for those who are struggling to pay their bills; the proposed fee could have a disproportionate impact on some lower-income Canadians who cannot practically avoid such a fee.
- The Commission acknowledges the concerns raised by interveners that paying with methods other than credit card can be difficult and that TCI has encouraged payment via credit card. While TCI indicated that no customers are required to pay by credit card, the Commission considers that this reflects on TCI’s ability to inform its customers of all available payment options. Treating credit card payments as an optional service depends on the argument that all customers can use alternative payment methods with no adverse effects, and this argument is not supported by the interventions received. Accordingly, the Commission considers that in practice, it would be difficult to characterize TCI’s proposed fee as being entirely avoidable for all customers.
- With respect to TCI’s argument that preventing TSPs from charging credit card fees would disadvantage the telecommunications industry relative to other industries in which regulators do not prevent companies from surcharging their customers, this argument presumes that other industries compete with the telecommunications industry, which is not the case, and that credit card processing fees will become common in most other industries. The Commission considers that this outcome is not certain; for example, businesses may decide that the risk of alienating their customers is too great.
Affordability and just and reasonable rates
Positions of parties
- Many interveners expressed concern about the affordability implications of TCI’s application, given the broader economic context of high inflation and pandemic recovery. OpenMedia submitted that allowing the addition of a new fee to customers’ bills would make essential connectivity more expensive in Canada, and that this would be particularly harmful due to the highly inflationary economic context and the already high rates that Canadians pay for telecommunications services compared to other countries.
- Further, many interveners expressed dissatisfaction with the cost of telecommunications services in Canada, the profits made by TCI and large TSPs more generally, and a perceived lack of competition in the market. One intervener submitted that accessible and affordable high-speed broadband and wireless Internet is an essential utility, and that Canadians pay among the highest prices in the world for these telecommunications services. The Manitoba CoalitionFootnote 2 argued that approving TCI’s request would increase TCI’s already significant profits with no benefits to consumers and would contradict the Commission’s established policy, including the 2018 proceeding on misleading and aggressive sales practices (Telecom and Broadcasting Notice of Consultation 2018-246) and the Wireless Code.
- One intervener submitted that courts have allowed surcharging because MasterCard and Visa have unfavourable terms for vendors, and the Commission’s decision should reasonably allow companies such as TCI to recover costs that they had previously absorbed unjustly. However, they also submitted that affordability is a concern with respect to essential services like telecommunications, and that low-income Canadians may find the proposed fee to be a noticeable increase in expenses.
- Finally, the Manitoba Coalition submitted that TCI did not provide enough information to justify its request and demonstrate that the proposed fee would lead to just and reasonable rates, consistent with subsection 27(1) of the Telecommunications Act (the Act). It further submitted that TCI’s regulated services presumably already account for costs related to credit card payments and that the existing rates have been approved as just and reasonable; therefore, any changes to these rates must be similarly approved.
- TCI indicated that credit card payments are not at the core of providing telecommunications services, and that they only fall under Commission jurisdiction because they are incidental to the business of providing telecommunications services, as outlined in section 23 of the Act. TCI submitted that nothing on the record of this proceeding demonstrates a valid telecommunications law rationale to deny its application; in particular, there is no basis in the Act to deny this application on the grounds of affordability.
- TCI submitted that comments about the impact of the proposed fee on affordability of telecommunications services are misguided and irrelevant to this application, because its proposed fee is avoidable. While TCI encourages pre-authorized payments, it has always offered a variety of other payment options and has never required customers to pay by credit card.
- With respect to the concerns raised regarding the profits made by TCI and large TSPs more generally, TCI submitted that the purpose of the proposed fee is to recover and limit costs, not to generate revenue. TCI further submitted that comments opposing the proposed fee based on TCI’s revenues and profitability misunderstand the purpose and impact of the proposed fee. TCI’s profitability does not assist in the determination of whether the proposed fee is just and reasonable.
- Finally, TCI submitted that it is charged an unavoidable, percentage-based fee each time it accepts a credit card payment. The company cited a Supreme Court of Canada statement that the ability of a regulated utility to have the opportunity to recover its operating and capital costs through rates is a key principle in Canadian regulatory law. TCI argued that regulators must assess costs based on their reasonableness and must also allow the utility to recover reasonable costs. TCI submitted that the fee proposed in its application is clearly just and reasonable, consistent with the requirements of the Act.
- With respect to concerns about TCI’s proposed fee impacting the affordability of telecommunications services, the Commission considers that it is unreasonable for TCI to dismiss the broad affordability impacts of an additional fee applied to customers’ bills.
- Pursuant to subsections 27(1) and 27(5) of the Act, every rate charged by a Canadian carrier for a telecommunications service must be just and reasonable, and the Commission may adopt any method or technique that it considers appropriate in its determination of whether a rate is just and reasonable. Accordingly, the Commission is not required to follow any particular methodology in fixing rates, nor is it required to follow the same methodology in all circumstances. These provisions require the Commission to balance a broad range of interests and objectives when determining just and reasonable rates, including: carriers’ interests in a fair rate of return; customers’ interests in fair prices and the policy objectives set out in section 7 of the Act, which explicitly include the objective of rendering reliable and affordable telecommunications services; competitiveness in the market; the needs of the telecommunications system as a whole; and the interests of the public at large.
- How the Commission achieves the requirement set out in the Act that rates must be just and reasonable is entirely at the Commission’s discretion. Furthermore, while a carrier’s costs in the provision of a service are relevant considerations, they must be balanced against considerations relevant to the achievement of the policy objectives. This exercise is not conducted in a vacuum, and the Commission must consider the prevailing circumstances at the time of the inquiry when determining whether a rate is just and reasonable.
- Contrary to TCI’s argument, even if the proposed fee is incidental to the provision of telecommunications services, the affordability concerns that have been raised directly engage with the policy objectives set out in paragraphs 7(b) and 7(h) of the Act.Footnote 3 The Commission considers that approval of TCI’s proposed fee could negatively impact the most vulnerable consumers, especially as Canadians are currently contending with price increases for many essential goods and services due to high inflation.
- In light of the above, the Commission considers that approval of TCI’s application would not lead to just and reasonable rates, pursuant to subsection 27(1) of the Act.
Cost recovery and double billing
Positions of parties
- Many interveners submitted that the cost incurred by TCI to process credit card payments is a cost of doing business and should not be borne by the customer. Some interveners also argued that this cost is likely incorporated into TCI’s pricing, making the proposed fee a case of double billing.
- One intervener submitted that credit card processing costs are not new, and as a consistently profitable company, TCI has always included these costs in its pricing. The intervener suggested that the Commission should deny TCI’s proposed fee for existing customers, since they are already paying for these costs as part of their existing contracts, and approve the proposed fee for new customers on the conditions that the fee and overall cost are just and reasonable and that the fee is transparent. Similarly, another intervener suggested that the Commission should approve TCI’s request with one of two conditions: either existing customers should be able to break free of their contracts without penalty, allowing them to seek out competitors who do not charge credit card fees, or the proposed fee should only apply to new contracts.
- PIAC-NPF submitted that the Commission should require TCI to file a cost study, arguing that TCI must demonstrate how it currently recoups the credit card processing costs from all its customers, and that customers who do not pay by credit card should no longer pay for anything related to such costs in their rates. PIAC-NPF proposed that TCI should instead reduce its rates for customers who do not pay by credit card, or else add any amount retained on customers who do not pay by credit card to the calculation of the rate increase for the company’s price cap calculation.
- OpenMedia expressed the view that TCI’s proposed fee would constitute bait-and-surcharge pricing, because it would effectively be a price increase that is applied to customers’ bills without being included in advertised pricing. Footnote 4 OpenMedia further submitted that the proposed fee would be a price increase because the cost of processing credit card payments was already considered in TCI’s pricing structure.
- With respect to comments from interveners stating that the costs incurred by TCI for processing credit cards is a cost of doing business, TCI submitted that there is no principled reason to prohibit a carrier from recovering credit card processing fees from customers who incur them. TCI submitted that its proposed fee supports the efficiency objective set out in paragraph 7(c) of the Act.Footnote 5 Specifically, it would allow the company to reduce its operating costs and incentivize customers to use lower-cost payment methods. In TCI’s view, prohibiting this method of cost reduction would act as a subsidy from Canadian carriers and their subscribers to the credit card companies, and there is no justification in the Act to establish a subsidy for another industry.
- Additionally, TCI argued that Commission policy and precedent has allowed for the charging of fees for similar optional services, such as extra lines or directory listings, and carriers have the ability to levy late payment charges and non-sufficient fund fees (both of which are forborne from Commission approval as per Telecom Decision 86-7). For these reasons, TCI submitted that it would be inconsistent for the Commission to conclude that no customer can incur optional charges in the context of the fee proposed in this application.
- With respect to concerns of double billing, TCI submitted that its rates do not fully compensate it for the costs of processing credit card payments; to some extent they are accounted for in its cost studies, but for most services cost studies do not reflect current costs because they were conducted before credit card payments were common. TCI argued that the proposed fee would allow it to partially recover these unavoidable costs; the settlement agreement caps companies’ credit card processing fees at the lowest average interchange fee between the credit card brands, and therefore TCI would likely be undercompensated for these costs.
- TCI is of the view that it has provided all relevant information and a formal cost study is unnecessary. TCI submitted that the proposed fee would simply flow through the third-party cost incurred when a customer pays with a credit card. TCI also submitted that if the Commission lacks relevant information, it can and should seek TCI’s disclosure of this information instead of denying the application.
- With respect to PIAC-NPF’s suggestion that TCI should reduce its rates for customers who do not pay by credit card, TCI submitted that the proposed fee should not be accompanied by a reduction in general rates. There is no need to consider the price cap implications of the proposed fee because it is a standalone charge and does not impact non-forborne rates. TCI further submitted that a full cost review would be inconsistent with the purpose of the price cap regime’s objective of incentivizing efficiencies and minimizing regulatory burden, as set out in Telecom Decision 2007-27.
- TCI submitted that the proposed fee is transparent and is not an example of bait-and-surcharge pricing because it has taken multiple measures to increase customer awareness and understanding of the fee, and it will continue to do so if the fee is approved.
- With respect to TCI’s submission that not allowing TSPs to surcharge customers would be tantamount to establishing a subsidy from TSPs and their customers to the credit card companies, the Commission considers that TCI’s desire not to subsidize the credit card companies must be weighed against the many interveners who submitted that they do not want to subsidize TCI’s cost of doing business.
- While it is true that the Commission allows TSPs to charge fees for services that have not generally been free for customers, such as extra lines or directory listings, the Commission considers that it is not reasonable to compare fees for these types of optional services with the credit card processing fee proposed by TCI, since payment by credit card is a service that has been available to customers free of charge for decades. Additionally, the Commission is of the view that denying TCI’s application would be consistent with the 2014 amendment to section 27.2 of the Act to prohibit providers from charging fees for paper bills. In both cases, providers would be prevented from charging for a service related to billing that was previously free to customers and should be considered a cost of doing business.
- With respect to TCI’s submission comparing the proposed fee to late payment charges and non-sufficient fund fees, the Commission is of the view that making late payments and attempting to pay with insufficient funds are not equivalent to making payments with a credit card, on time and in full. Most reasonable customers understand that the former behaviour will be discouraged with fees; however, according to the interventions received in relation to this application, many customers do not understand why they should pay a fee in order to pay their bills, on time and in full, using a payment method that they submitted TCI has encouraged in the past. The fact that the Commission has approved and forborne from regulating late payment charges and non-sufficient fund fees does not mean that it should approve TCI’s proposed credit card processing fee.
- The costs related to processing credit card payments have been a known cost of doing business for decades. Phase II costing methodology allows for the inclusion of billing and collection costs in the development of rates for services, so such costs have been accounted for in the past. The Commission is of the view that TCI has had the time and opportunity to fully account for these costs.
- The Commission considers that avoiding double billing is extremely important, and TCI did not provide evidence beyond its statements that such costs are not already incorporated into its rates, in full or in part. If TCI’s rates currently partially account for costs of processing credit card payments, as outlined in the company’s reply, the existing cost to customers would be partially duplicated by the proposed fee, which would not be appropriate.
- While service providers that are required to provide their services at regulated prices on non-discriminatory terms must be given an opportunity to earn a fair return on their investment, TCI has not provided any evidence (i.e., cost studies) to suggest that its current rates are not fair. The fact that TCI’s current rates may already partially account for credit card processing costs indicates that that these costs are being recovered through the rates that have been approved for these services.
- Furthermore, the Commission considers that TCI’s stated goal of increasing efficiency and recovering costs by disincentivizing payment by credit card appears inconsistent with its previous practices, based on interventions stating that TCI has encouraged customers to set up autopayment by credit card.
- As a result of the above, the Commission considers that the costs associated with credit card processing are a cost of doing business and have been included in the rates paid by customers in the past, and TCI’s proposed fee is not likely necessary for rates to be compensatory. Furthermore, approval of TCI’s proposed fee would (i) negatively impact consumer interests with respect to fair prices, (ii) be contrary to the public interest, and (iii) be contrary to certain policy objectives, specifically paragraphs 7(b) and 7(h) of the Act. These concerns outweigh any cost recovery or efficiency gains to TCI as outlined in its application.
Positions of parties
- PIAC-NPF submitted that applying TCI’s proposed fee to customers who use credit cards would be a case of unjust discrimination under subsection 27(2) of the Act. PIAC-NPF submitted that there is one rate under a rate category for all customers and that any deviation from that rate for any one sub-group of customers is unjust discrimination. A customer’s choice of payment method is irrelevant to the principles of tariffed rates.
- TCI argued that the proposed fee would not lead to unjust discrimination under subsection 27(2) of the Act because discrimination requires the differential treatment of similarly situated customers, and customers who choose to pay by credit card are not similarly situated to those who choose not to pay by credit card. TCI therefore submitted that it is neither unjust nor discriminatory for customers electing for optional services that incur costs to the company to pay more than those who do not.
- The Commission acknowledges that the issue of unjust discrimination has been raised. However, given the finding above that approval of TCI’s application would not lead to just and reasonable rates pursuant to subsection 27(1) of the Act, the Commission considers that it is not necessary to examine the issue of unjust discrimination at this time.
Positions of parties
- The Manitoba Coalition submitted that the Commission should consider the broader impacts of credit card processing fees implicated in this application, and that the Commission has an opportunity to protect consumers’ interests against unjustified and unreasonable surcharges, in the spirit of the forthcoming Policy Direction. The Manitoba Coalition and PIAC-NPF both submitted that the Commission should deny TCI’s request for approval of the proposed credit card processing fee and initiate a broader proceeding to address the issue of credit card fees. Similarly, many of the interventions from individuals expressed concerns with credit card processing fees as a whole.
- TCI submitted that it is only seeking Commission approval to apply the proposed fee to its regulated services, and that Commission approval is not necessary to apply a credit card processing fee for its unregulated/forborne services. TCI submitted that this application is not the place to address credit card processing fees in general, and that interveners pursuing this goal should seek legislative change or take their concerns up with a banking or financial regulator.
- While this application is specific to TCI’s regulated services in Alberta and British Columbia, which would generally be wireline telephone services provided to residential and small business customers, TCI has indicated publicly that it will be applying the credit card processing fee to any charges being paid by credit card. Specifically, in addition to the wireline telephone services (in either regulated or unregulated areas), the fee would also be applied to mobile wireless and Internet services, which are forborne from Commission rate regulation or unregulated (meaning that TCI does not need Commission approval to charge these fees as they would for regulated services). TCI has sent notifications to its customers to inform them that such charges would be applied to these unregulated/forborne services starting 17 October 2022.
- Since the distinction between regulated and unregulated/forborne services is not evident to most consumers, most of the interventions from individual Canadians expressed concerns about the application of the proposed fee to unregulated services, particularly mobile wireless and Internet services. Additionally, both PIAC-NPF and the Manitoba Coalition submitted that the Commission should address the issue of credit card fees for telecommunications services more broadly.
- The Commission has analyzed TCI’s application under the current Policy Directions, as discussed further in this order. That being said, while it has not yet come into effect, the Commission notes that the Government of Canada has proposed a new Policy Direction that heavily focuses on the objectives of (i) ensuring affordable access to high-quality services in all regions of Canada, (ii) enhancing and protecting the rights of consumers, including rights related to accessibility, and (iii) fostering affordability and lower prices, particularly when TSPs are exercising market power. The application of a credit card processing fee would contradict these objectives and, in the Commissions view, such a fee is unacceptable and would negatively impact the affordability of telecommunications services.
- While the Commission has previously determined that it is appropriate to forbear from certain regulatory powers with respect to unregulated services, should the practice of charging a credit processing fee continue, or should it become a practice within the telecommunications industry, the Commission is prepared to explore all available regulatory options in the near future.
- In light of all of the above, the Commission denies TCI’s application requesting the introduction of a credit card processing fee for its regulated services in Alberta and British Columbia.
- The Commission notes that, should the practice of charging additional fees for the processing of credit card payments continue or be extended to unregulated services, by either TCI or other TSPs, the Commission is prepared to explore all available regulatory options in the near future.
- The 2019 Policy Direction states that the Commission should consider how its decisions can promote competition, affordability, consumer interests, and innovation.Footnote 6
- The Commission has reviewed TCI’s application in light of the 2019 Policy Direction and has considered its aspects to the extent necessary, using measures that are efficient and proportionate to their purpose. The Commission considers that denying TCI’s request to introduce a credit card processing fee is compliant with the 2019 Policy Direction since it will promote (i) consumer interests, because customers will be able to continue using an established, widespread, and secure payment method without paying new fees; and (ii) affordability, because customers who cannot practically use alternative payment methods will not be charged a fee to pay by credit card.
- Further, in compliance with subparagraph 1(b)(i) of the 2006 Policy Direction,Footnote 7 approval of this application advances paragraph 7(h) of the Act.
- Report regarding the retail sales practices of Canada’s large telecommunications carriers, Telecom and Broadcasting Notice of Consultation CRTC 2018-246, 16 July 2018
- Price cap framework for large incumbent local exchange carriers, Telecom Decision CRTC 2007-27, 30 April 2007
- Review of the general regulations of the federally regulated terrestrial telecommunications common carriers, Telecom Decision CRTC 86-7, 26 March 1986
- Date modified: