In what is believed to be an effort to comply with its agreement to keep its average interchange rate at or below 1.5%, MasterCard Canada has increased the minimum personal and household income requirements on all of its World Elite MasterCards, issued by all Canadian credit card issuers.
Doing so would effectively reduce the number of cardholders with high interchange credit cards.
The changes are effective December 1st, 2016. The new minimum personal income requirement for the World Elite MasterCard will go from $70K to $80K and the minimum household income requirement will move from $120K to $150K.
Why You Need A Minimum Income May Surprise You
Contrary to popular belief, minimum income requirements are not mandated by your credit card issuer to ensure they get high “spenders” on some cards versus others. The minimum income requirements are actually determined and set by MasterCard and Visa.
The reason why MasterCard and Visa have minimum income requirements for different types of cards i.e. World, World Elite, Infinite, Infinite Privilege, is due to a clause in the Canadian Code of Conduct which reads:
“9. Payment card network rules will require that premium credit and debit cards may only be given to consumers who apply for or consent to such cards. In addition, premium payment cards shall only be given to a well-defined class of cardholders based on individual spending and/or income thresholds and not on the average of an issuer’s portfolio.”
The history behind the Canadian Code of Conduct was that the Canadian Government wanted the networks (Visa/MC) to justify why they were charging high interchange fees to merchants for some cards and not others. The networks’ response was that some cards merited a higher interchange rate because they attracted a higher spending clientele.
However, in practice, issuers were simply marketing and converting all of their plain vanilla cardholders to premium cards, which charged super high interchange rates to Canadian merchants. Issuers liked this because, even though Visa and MasterCard set the interchange rate, it’s the issuers that collect interchange fees as revenue. The higher the interchange rate, the more the banks make.
After a huge outcry by Canadian merchants who saw their average interchange fees skyrocket overnight, the government told issuers that if they were not willing to regulate themselves, the government strongly suggests (Voluntary Code of Conduct) they rein themselves in, before they get regulated by the feds.
As a result, the networks agreed that credit card companies could only issue premium credit cards, i.e. those with higher interchange rates, to people who meet a minimum income threshold. The presumption being, that the higher the income, the more likely that person is to spend more in stores, thereby justifying the higher interchange fees merchants would have to pay, to attract that type of customer.
So that explains the introduction and rational for minimum income requirements on credit cards in Canada. Credit card issuers are mandated by the Canadian Voluntary Code of Conduct to only give a high interchange rate credit card “to a well-defined class of cardholders based on individual spending and/or income thresholds.”
Why MasterCard Raised The Minimum Income Requirements
Of course, each of the networks took advantage of the ambiguity in the clause and tried to set the income threshold as low as possible, so that the largest number of people could qualify for the minimum income requirement.
Unsurprisingly, Canadian regulators were still not satisfied with the high interchange fees merchants were being charged. As a result, in the fall of 2014, both Visa and MasterCard agreed to keep average interchange rates across their entire portfolio at 1.5%, for the next 5 years.
So why did MasterCard increase the minimum income requirements now? In all likelihood, MasterCard Canada forecasted that it was going to exceed the 1.5% interchange cap it agree to with Canadian regulators. As a result, they increased the minimum personal income threshold from $70K to $80K and the household minimum income requirement from $120K to $150K to reduce the number of people with high interchange fee World Elite MasterCards, thus reducing the average interchange rate of the entire MasterCard portfolio.