If the Competition Tribunal strikes down the federal no-surcharge rule, consumers could see retail costs plummet -- or they could see their premium credit cards get declined -- say analysts.

The federal watchdog group, the Competition Bureau, filed an application with the Competition Tribunal in December to strike down MasterCard and Visa's no-surcharge and honour-all-cards rules. The rules bar merchants from refusing certain credit cards or charging consumers a fee for paying with a card. The Competition Bureau alleges that the rules harm businesses and lead to "hidden costs" for consumers.

Soon after the challenge was filed, MasterCard and Visa fired back, alleging that the Competition Bureau's position was "anti-consumer" and could lead to skyrocketing fees for credit cardholders.

Now, advocacy groups from both sides of the debate say that they're planning to launch consumer awareness campaigns in the next year so that consumers can decide for themselves who's right. As the groups prepare to fill your mailbox with fliers, here are five things you need to know about the dispute.

1. Each time you swipe with your Visa or MasterCard, the merchant is charged a fee
Credit card issuers typically charge Canadian merchants 1.5 percent to 3 percent for each transaction. That means that if you spend $9 for a burger at your local diner, the restaurant will have to pay anywhere between 14 to 27 cents in transaction fees. That may not sound like much for one person; but merchants say that the costs add up.

Issuers counter that the transaction fees are necessary because of the costs associated with processing and maintaining credit cards. At a Senate committee hearing in 2009, Nancy Hughes Anthony of the Canadian Bankers' Association, pointed to a laundry list of credit card expenses that prompt issuers to tack on higher fees -- including administering fraud protection and rewards programs, processing credit card transactions and maintaining technology for transactions.

2. The higher-end the credit card, the more the merchant must pay
Canada's transaction fees are among the highest in the world, says the Competition Bureau, and premium credit cards - such as high-end rewards cards - cost merchants the most to process. As premium credit cards rise in popularity, merchants say they are having trouble keeping up with the costs associated with higher-end cards.

According to the Retail Council of Canada, the number of Canadians using premium credit cards has increased significantly in recent years, putting "a squeeze on merchants who are seeing their fees skyrocketing." The Retail Council also says that consumers are often unaware that high-end rewards cards cost retailers more to process.

3. The Competition Bureau wants the Competition Tribunal to strike down the no-surcharge rule so that merchants can pass that fee on to card users
Currently, retailers are not allowed to charge consumers a surcharge for using a credit card, nor are they allowed to refuse a premium credit card if the retailer accepts other cards.

The Competition Bureau argues that these rules are unfair to retailers and restrict their ability to compete. Greg Scott, a spokesman for the Competition Bureau, says that if a customer insists on using a premium card, retailers should have the option of charging that customer a fee to offset the transaction costs. Merchants, says Scott, "need to have the ability to encourage consumers to use lower-cost options. Surcharges are one way to do that."

Scott also says that in places where credit card surcharges are allowed, most retailers choose not to use them. However, the flexibility to do so, if necessary, is important to maintaining their businesses, says Scott.

4. Issuers say that striking down the rules would lead to higher fees for consumers
Visa and MasterCard argue that striking down the country's no-surcharge and honour-all-cards rules will lead to higher costs all around. Both issuers say that if the Competition Tribunal strikes down the no-surcharge rule, merchants will take advantage of the ruling by charging consumers more than the amount that the merchant has to pay for the transaction. "If these changes were implemented by the Competition Bureau, the result would be to enrich merchants at the expense of consumers," said MasterCard Canada president, Betty DeVita, in a statement.

Bruce Cran of the Consumers' Association of Canada agrees. Cran says that if the Competition Bureau is successful, consumers "can look forward to such things as 10 percent surcharges on credit cards they use" and embarrassing experiences in which their credit cards are rejected by merchants. Cran points to the United Kingdom and Australia as examples, arguing that studies in both countries  -- where surcharging is allowed -- have found that merchants such as airlines have deliberately "inflated" fees.

"We have been amazed at the behavior of the Competition Bureau," says Cran. "[Surcharging] is certainly not in the interest of consumers, and it's not in the interest of Canada as a whole."

5. But merchants deny issuers' claims and say that striking down the rules would lead to lower prices on goods
Retailers say that transaction fees lead to "hidden costs" for consumers because merchants must make up the difference by hiking prices on the goods or services that they sell.

According to the Retail Council of Canada, Canadian consumers have paid more than $11 billion in "hidden fees" since the fall of 2008. "The stakes are high," said Retail Council president Diane J. Breisbois in a statement. "And Canadians are looking for decisive government action that will reign in the runaway fees charged to merchants who have no choice but to pass these out-of-control costs to consumers in the form of higher prices."  

Greg Scott of the Competition Bureau agrees. Scott argues that consumers will likely see lower costs on goods and services if merchants are given the flexibility to encourage consumers to use lower cost payment options. "The evidence is that [surcharging] has a positive impact on both consumers and merchants," says Scott.