The Competition Bureau says Canada's credit card issuers have set up a perverse system that thwarts the normal rules of the marketplace and costs consumers billions of dollars annually.
The lead counsel for the bureau opened the case against Visa and MasterCard with a sweeping indictment of their practices.
Kent Thomson told a tribunal Tuesday that Canadian merchants are paying among the highest fees in the world for the privilege of accepting credit card purchases.
But what Canadians don't know is that those fees added about $5-billion to consumer costs last year, he says.
Credit card fees can be as high as 50 times greater than those on debit cards, he says.
Mr. Thomson says Visa and MasterCard are able to get away with such uncompetitive practices by denying merchants from charging extra for credit card purchases, or even differentiating from premium cards, whose fees can be more than double those of standard cards.
Mr. Thompson says the system is rigged in such a way that the most affluent consumers — who typically use premium and super premium cards — spread the higher costs for those cards to those that don't use them.
The issue was referred to the tribunal by the Competition Bureau after a group representing independent firms complained they suspected credit card companies engaged in price fixing.
The hearings, which operate much like a trial, are expected to run until the end of June.
Credit card companies typically charge businesses a range of 1.5 per cent to 3 per cent of the customer's total transaction, but the "no-surcharge" rule prevents them from tacking on a surcharge to offset the extra amount.
The credit card companies have argued that if businesses were forced to charge a fee for use, it would result in a form of discrimination against credit card holders, who would have to pay more for using the cards.
Visa and MasterCard operate the two largest credit card networks in Canada.
Together they processed more than 92 per cent of all credit card transactions by Canadian consumers in 2011, representing more than $322-billion in purchases, the bureau has said.
The bureau first brought its application to the quasi-judicial tribunal in December 2010 with a challenge under the price maintenance provisions of the Competition Act, which allows the Competition Tribunal to prohibit certain agreements or contracts that influence prices upwards or discourages the reduction of prices.
The bureau launched its investigation in 2009 in response to complaints by merchants.