11/04/2014 09:40 EST | Updated 01/04/2015 05:59 EST

Visa, MasterCard agree to hold interchange fees at 1.5% for 5 years

Canada's largest credit card companies have agreed to limit the amount they charge retailers to process transactions, to 1.5 per cent of the value of what's being sold for the next five years.

The long-rumoured move was confirmed via press release Tuesday morning, as Visa and MasterCard, which together dominate the credit payment processing industry in Canada and abroad, have agreed to cap the amount they will charge retailers at an effective average rate of 1.5 per cent.

Most consumers aren't aware that retailers pay credit card companies what's known as an interchange fee every time a credit company processes a transaction. While debit terminals usually charge a fixed fee of a couple of cents no matter the value of the goods being sold, the fees to use credit cards can range from below one per cent with some cards, to closer than three per cent or more.

So-called "premium" cards that come loaded with loyalty points and incentives for consumers to spend more have caused the interchange fees to ratchet higher in recent years, retailers say.

They say they have to increase prices to keep up with those fees, to the point that the Canadian Federation of Independent Business says those fees are increasing the costs of goods for consumers in Canada by between $5 billion and $7 billion a year.

Tuesday's move will be implemented no later than April, and will be verified annually by an independent third party to ensure they're doing what they promised.

"Although the written commitments announced today by Visa and MasterCard do not represent a massive reduction in the 'swipe fees' charged to merchants, the CFIB is confident they will reduce some of the cost pressure and end the regular fee hikes that have been the norm over the past five years," the group said Tuesday.

The new rules also pledge that retailers are bound to see some sort of reduction in interchange fees, even if they are OK with the current system. In a statement, Visa said if any of its clients are disadvantaged due to the decision, it will terminate or amend it for them.

Tuesday's move is technically a voluntary one, but comes after several years of pressure from Ottawa for the industry to sort the issue out.

The high fees were a bugaboo for the late Jim Flaherty, and the issue has been just as prevalent since Joe Oliver became Canada's finance minister.

"As a result of the voluntary proposals, there is no need for the government to regulate the interchange rates set by the credit card networks," Oliver said Tuesday.