UPDATE 1-Canadian panel dismisses case against credit card companies
* Credit card firms can continue to set rules for merchants
* Tribunal says regulation is the best way to address issue
* Banks to benefit from ruling, analyst says
TORONTO, July 23 (Reuters) - Canada's Competition Tribunal has dismissed a complaint about the rules imposed on merchants by the Canadian arms of MasterCard Inc and Visa Inc , a victory not only for the card companies but for the banks that issue the cards.
The decision, released on Tuesday, means credit card providers may continue to prohibit merchants from imposing a surcharge on customers that use credit cards, especially premium cards.
The Competition Bureau, an independent enforcement agency, had argued that the credit-card company rules put customers at a disadvantage and suppress competition among card providers, and in 2010 it asked the tribunal to strike them down.
Typically, merchants must pay a fee ranging from 1.5 to 3 percent on card purchases, with higher fees charged for premium rewards cards. That compares with a processing fee of about 12 Canadian cents for an Interac debit transaction, the bureau said.
The bureau said this penalizes cash customers because retailers are forced to raise prices for all customers to cover the fees, instead of raising prices only for card users.
WIN FOR CANADIAN BANKS
In a summary of its decision, the tribunal agreed that the rules have an adverse effect on competition, but said that under its legal interpretation the relevant section of Canada's Competition Act does not apply.
It said the proper way to address the issue would be to change the regulations that cover the transactions.
"The Tribunal made no award of costs and noted that the (Competition Bureau) commissioner advanced a case which should have been brought, even if the commissioner was not entirely successful," it said in the summary.
Canada's credit card market is dominated by Visa Inc and MasterCard Inc, which together control about 90 percent.
The cards are issued mainly by banks, which reap hefty fees and interest charges from them, particularly from premium cards whose use may have fallen if the tribunal's decision had gone the other way.
"It's great news for the banks," said Peter Routledge, an analyst at National Bank of Canada.
Shares of the country's big banks were down modestly on Tuesday, apart from Canadian Imperial Bank of Commerce, one of the largest issuers, which was up 0.4 percent at C$77.81.