Mr. Doug Kreviazuk (Vice-President, Policy and Public Affairs, Canadian Payments Association):
First of all, l'd like to thank the members for the invitation and the opportunity for the Canadian Payments Association to speak on this important issue here today.
The Canadian Payments Association, or CPA, was created by an act of Parliament in 1980. Our membership currently stands at 136 financial institutions, including the Bank of Canada, the chartered banks, the trust and loan companies, credit union and caisse populaire centrals, cooperative credit associations, and other institutions.
Parliament has given us a very specific mandate to establish and operate the national clearing and settlement system; to facilitate the interaction of our system with others; and to facilitate the development of new payment methods and technologies. Parliament has further set out a clear public policy mandate for the CPA to promote the safety, soundness, and efficiency of our systems, taking into account the interests of all users. As such, the CPA plays a leadership role in providing safe and efficient clearing and settlement systems for Canadians.
Payments are the lifeblood of our economy. Every day, Canadians, businesses, and governments use a variety of payment instruments to purchase goods and services, make financial investments, and transfer funds between two parties.
Financial institutions need arrangements to transfer funds among themselves. This is facilitated through clearing and settlement systems and a framework of rules and standards maintained by the Canadian Payments Association. On an average day, we clear and settle $202 billion. Last year alone, we cleared and settled more than 5.7 billion payment transactions.
The CPA operates in a very well-defined environment. We operate pursuant to our legislated mandate and our clear public policy objectives, and under the careful oversight of both the Minister of Finance and the Governor of the Bank of Canada.
Our bylaws are considered statutory instruments. As such, they require Governor-in-Council approval.
The rules we develop in support of the various payment applications and for the operation of the clearing and settlement system are subject to scrutiny by the Minister of Finance, who has the power of disapproval on any CPA rule, in whole or in part, for public policy reasons.
The CPA also owns and operates this country's Large Value Transfer System, which has been designated as a systemically important payments system under the Payment Clearing and Settlement Act. As such, the Governor of the Bank of Canada has direct oversight responsibility for this system and the affairs of the CPA with regard to that system.
But the relationship with both of these important oversight bodies extends well beyond the formal requirements established in the legislation. As an effective self-regulated organization, the CPA fosters and promotes close relationships with all the stakeholders in the payment system.
In this regard, the CPA maintains a rigorous consultation process. In the development of new rules or policies for the payment system, we rely heavily on the advice provided by specialized committees composed of members and stakeholders alike.
Once the new policy has been drafted, it's presented to the Stakeholder Advisory Council for their consideration and guidance. Subsequently, board approval is sought for the release of this policy for broad public consultation. Only after stakeholder and member input is fully considered will the final recommendation be put forward to my board of directors. If the new or amended rule is approved by the board, it will immediately be sent to the Minister of Finance for his consideration. The minister has disapproval power of any CPA rule within 30 days of receipt.
A moment ago, I spoke of the importance of the Stakeholder Advisory Council. It’s been in existence since 1996, but only enshrined in our legislation since 2001. The council is composed of 18 stakeholders, representing retailers, large and small corporate entities, provincial and federal governments, payment service providers, and consumer groups. Given the breadth of knowledge on this council and the diversity of its composition, the members of this council participate in all significant activities at the CPA.
Now, returning to my mandate for a moment, the first mandate, “to establish and operate the system”, is in fact critical to a well functioning Canadian economy, but the CPA's facilitation role is equally important for the smooth operation of the payment system and its evolution. The change drivers to the payments system are many, but the CPA continues to be responsive to the industry's needs through the provision of a rules framework for payments and the portal for members to clear and settle these payment transactions.
As a result, the focus of financial institutions and payment service providers need not be on the back end of the payments system, but on the front end and the development of new and more efficient payments applications to meet the needs of Canadians.
Before I conclude, I'd like to briefly comment on credit cards. Credit cards have not historically been seen as part of the CPA's scope. When the CPA was first created back in 1980, payments were, for the most part, paper cheques, and our business was to clear and settle payments drawn on demand deposit accounts. Since credit cards at that time did not draw on demand deposit accounts, they were not seen to be part of the CPA's mandate, and that remains true today.
That point aside, we're all aware that the landscape continues to change quickly. In this regard, the CPA continues to play a leadership role in providing safe and efficient clearing settlement systems to meet the current and future needs of Canadians.
Thank you very much.
Mrs. Anu Bose (Head, Ottawa Office, Option consommateurs):
Thank you very much, Mr. Rajotte.
Committee chairs, vice-chairs, committee members, the clerks of the committee, and analysts, let me begin by thanking you for giving Option consommateurs the opportunity to appear before you on the issue of fees charged to merchants and to consumers for the use of credit and debit cards.
Option consommateurs was established in 1983. We are a non-profit association whose mission is to promote and protect consumers' interests and to ensure they are respected. Our head office is located in Montreal, and we've recently opened a small office in Ottawa.
We intervene on matters of public policy with both the Government of Quebec and the federal government. We have been involved in analyses of the Canadian financial services sector for several years, through research, surveys, and by representing consumers' interests in different fora, such as the Canadian Payments Association.
With me today is Ms. Geneviève Reed, from Montreal, who is the Head of the Research and Representation Department of Option consommateurs. I will hand the floor over to my colleague.
Ms. Geneviève Reed (Head, Research and Representation Department, Option consommateurs):
There has been much recent discussion that it is consumers who ultimately foot the bill for interchange fees, whether or not they use their credit cards. In addition, it appears that all consumers "subsidize" business and premium credit card users through overall increased prices of the goods and services which they consume. This practice combined with other practices such as cuts in the minimum monthly payment, over-limit and late-payment penalties, discounted introductory interest rates, cash advance cheques, cash rebates, payment holidays and countless offers in the mail and in stores, do the consumer no favour. Instead, they only confuse the ill-informed or already indebted consumer.
Credit products are increasingly complex. Unfortunately, a significant segment of the Canadian population faces challenges of basic literacy and, most likely, also challenges of financial capacity and financial literacy. We believe that it is time, where credit cards are concerned, to reduce the imbalance between large corporations and individual consumers. We must also raise the principle of lender responsibility, by this, we mean the responsibility of the financial institution which chooses to provide a new credit card to someone already carrying $40,000 of unsecured consumer debt, or is unable to alert a consumer immediately when he or she exceeds the credit limit.
Lending institutions often overlook their obligation to provide full disclosure, to provide sound financial advice and to assess the repayment capacity of their borrowers. Several witnesses whom you have heard during previous sessions of this committee have already demonstrated the problem. The system is complex and full of holes. Canadians are certainly heavy users of credit and debit cards. They use these payment mechanisms without really understanding how they actually operate and without always knowing what their rights and responsibilities are.
Credit cards and debit cards are electronic payment instruments, they are monetary transactions without paper currency or cheques. We have observed with alarm that in 21st century Canada, there's no recognition in the Currency Act of electronic money. It simply does not exist. Instead, electronic payment systems involve multiple stakeholders whose activities are each subject to different regulatory frameworks. No one player appears to bear overall responsibility. There must be clear and fair rules for all players in the system. At present, users bear the responsibility and risks related to electronic payments even though they themselves do not create these risks. In addition, the majority of the instruments governing electronic payments provide no penalties for non-compliance. The delegation of supervisory powers to the private sector leads to a democratic deficit since the interests of consumers cannot be properly represented as they are in a parliamentary or regulatory process.
Take the example of debit cards. Their use is governed by the Code of Practice for Consumer Debit Card Services, adopted in 1992. The application of this code is voluntary. And according to various surveys and studies, the financial institutions apply it partially and unevenly and consumers are left in the dark. Since Interac may change its business model and Visa and MasterCard may enter the debit card market, we believe it is imperative that governments ensure that Canadian users of debit cards are guaranteed a safe and fair environment.
I will now hand the floor over to Ms. Bose, who will share with you our conclusions.
Mr. John Scott (President and Chief Executive Officer, Canadian Federation of Independent Grocers):
Good morning. My name is John Scott. I am the president and CEO of the Canadian Federation of Independent Grocers. With me today is François Bouchard, who is the owner of The Country Grocer here in Ottawa. He's also the volunteer treasurer of our organization.
Before I address the credit card fee issue and the proposal by Interac to restructure, I'd like to put the issue into context by ensuring that members of these committees understand the unique situation of independent grocery retailers in the Canadian market. This $72-billion retail food industry is both highly competitive and very concentrated, with approximately 85% of food distribution in the hands of only five corporations.
While statistics suggest that independent grocers account for about 40% of overall retail food sales, this seeming dichotomy is explained by understanding that independent grocers that are not large enough to buy products directly from the manufacturer must garner their goods from a wholesale operation of one of these major players. In fact, Canada is a very rare country indeed, because a company can operate retail stores, franchise, and wholesale all in the same market.
In order to stay on the playing field in this extremely difficult environment, it is critical that the independent grocer be differentiated from all other competitors. But given the high concentration in this market and the impact of buying power, you can imagine how hard it is for us to maintain our competitive position. Consequently, to the maximum extent possible, the independent must have a degree of certainty in its operating cost structure.
One of those cost centres is the expense associated with financial transactions, such as the growing and ubiquitous use by consumers of debit and credit cards. At one time, acceptance of these cards in the retail food environment was a “nice-to-have”. Today it's a must-have. It's almost a public utility.
I don’t want to use our time to regurgitate the endless statistics and percentages that you've been bombarded with through the course of these hearings. The crux of the issue, from our perspective, is that Visa and MasterCard control 94% of the credit card market in Canada, which enables them to impose and adjust very high fees both to retailers and to consumers. Based on their history, the planned move by these two huge corporations to enter the debit and credit card market suggests that there will be an upward trajectory in fees in the future.
In the past 18 months alone, Visa and MasterCard have taken a ton from our retailers. We know that the new enhanced credit cards that have been extensively marketed to the public have resulted in totally unexpected double-digit fee increases to the retailer. There is no cost certainty here, and there is no ability to control the cost base. Simply put, the consumer is told by the issuer that the cards are accepted at all retail outlets, and the retailer, regardless of size, must accept all of those cards or lose a percentage of customers. Imagine trying to train a cashier on the different appearance of a Visa card.
We are strongly of the opinion that these fee increases, if allowed to continue on their present unchecked course with no accountability or caps, will force some of our people out of the market. You all know that the profit margins in grocery are already razor-thin, and, because of scale, an independent grocer simply does not have the ability to negotiate a lower fee. For competitive reasons, it is impossible to pass these unexpected fees on to the consumer. No, for the independent grocer, disproportionately higher fees challenge the competitive landscape of the market. In such cases, the independent grocer, because of cost pressures, simply becomes less competitive.
Second, let's be really clear on this. When small businesses such as independent grocers are forced by ever-changing and uncontrollable external cost structures to go out of business, many elements of our society suffer harm, including the consumer, local producers, employees, and indeed, the diversity they bring through their entrepreneurship to our Canadian economy. In fact, every political party represented here cites small business as being the backbone of the economy in every election campaign. Why would you do anything to damage their competitive nature?
Enhanced credit card fees present an extremely difficult problem, but issues pertaining to the potential restructuring of the debit card and Interac agreement are even more daunting. The reality is that debit cards are much more prevalent in our stores than cash or credit cards. In fact, in some cases, 60% to 70% of all transactions are done with debit. Debit fees are very important to a retailer. They're based on so many cents per transaction.
Independent grocers are already at a disadvantage because they don't have the ability to negotiate transaction fees at the same level as major players. However, through the non-profit status and operation of Interac, we've arrived at a reasonable degree of certainty in the cost structure, and we do compete effectively in the Canadian market on that basis.
But any adjustment to this system or, in the worst possible case, a change to a percentage-based transaction, would dramatically exacerbate the cost differential that currently exists and would artificially and negatively affect the competitive landscape.
That's why it is imperative that if Visa and MasterCard are allowed to implement a debit system here, it should operate under the Canadian rules that govern Interac. Fees must relate to the cost of processing, plus only a reasonable rate of return with no contemplation of, or ability to move to, a percentage charge.
We do not accept the contention of Interac that this non-profit entity can compete against these two multinational credit card companies by continuing to offer low-cost alternatives. In essence, Interac would be placed in the same situation as the independent grocer. Because of lack of scale, the firm would have no alternative but to raise its fee base. Small business ends up being the victim.
It is imperative that we continue to maintain an accessible and equitable debit card system in Canada. We have yet to hear a convincing argument as to why a debit fee should have anything to do with the size of a grocery bill. The money is being transferred from the customer's account to the issuer in real time, and it's not a credit charge or a loan.
Canada has allowed a very unique system to develop. This open, unregulated system has created some huge challenges that have recently been exacerbated by the unwanted charges from value-enhanced credit cards.
It is now imperative that we as Canadians ensure the development of a fair, made-in-Canada payment system. We need to control the spiralling costs of accepting value-enhanced credit cards. More importantly, we need to ensure that we maintain a flat, reasonable, and cents-per-transaction merchant fee for debit cards. We need a system that provides for accountability and oversight. In short, together, let's develop a made-in-Canada solution that's fair to all players.
Thank you very much for allowing us the opportunity to bring our concerns to these committees today. We look forward to responding to your questions.
Mr. Duff Conacher (Chairperson, Canadian Community Reinvestment Coalition):
Thank you, Mr. Chair.
My name is Duff Conacher. I am the coordinator of Democracy Watch and chairperson of the Canadian Community Reinvestment Coalition. Thank you for the invitation to appear today on this very important topic, which essentially amounts to corporate responsibility and effective accountability measures in this area of access to credit, fair pricing, and the fair treatment of consumers across Canada.
The Canadian Community Reinvestment Coalition is made up of 100 organizations from across Canada. They are citizen groups that have come together and have been together now for 13 years. During this time, we have been advocating measures to effectively increase the accountability of banks and other financial institutions.
I welcome this opportunity today. I will not repeat the very well-stated concerns and problems with the current marketplace that other witnesses have already set out. Instead, I will highlight a couple of other factors having to do with access to credit and the credit card market.
I agree with Mr. Scott that this access-to-credit system is essentially now a public utility and should be regulated as such. Other public utilities are required to prove that their prices are fair and are required to go through public reviews before they can hike any of their rates. We need to apply this practice to our systems of basic credit and overall banking services.
The banks and other credit card companies have marketed credit cards much like tobacco companies have marketed their products, trying to hook youth on these products with images of security, freedom, and all the wonderful things that will come with credit, with little information about the downside. The downside, of course, is not to physical health but to financial health. Being hooked on debt can be just as damaging in the long run as being hooked on tobacco.
We need to have measures in place to ensure that these companies are providing full information, and also that consumers are receiving full information from other sources, because they generally will not trust the information that is coming from sellers. They realize that the seller is always trying to sell them something and does not have an incentive to fully inform them about any product.
The coalition was here in February 1997 before the industry committee, which held the last hearings on credit cards. Those hearings were unfortunately cut short by the election call in the spring of 1997, but I'd urge all members of the committee to read through the transcripts of those hearings. They contain some very interesting information. Pretty much all the stakeholders appeared, but because of the election, the committee did not issue a report.
Here we are now, 12 years later. The problems haven't gone away and have actually become worse as the gap between the credit card interest rate and the Bank of Canada prime lending rate has increased. We have also seen unilateral increases over the past year. It is our position that the banks are essentially trying to recoup the $16 billion in losses they suffered mainly due to their own decisions to get involved in very risky lending.
Since then, there have been three rounds of reviews of the Bank Act and financial institutions legislation. None of the rounds has produced any measures that will protect consumers from gouging and ensure that banks and other financial institutions are serving everyone fairly, at fair prices.
We heard from John McCallum, when he was secretary of state for financial institutions and entering his first cabinet meeting in 2002, that credit card interest rates were “grotesquely high”. That's a direct quote. Yet nothing has been done about these grotesquely high credit card interest rates since then.
These proposals by Minister of Finance Flaherty were made just a week ago. You should have before you a news release that the coalition issued on May 22 responding to the proposals. If you don't have it, you will soon, as it is being translated. The proposals are too little, too late, to protect financial consumers from being gouged.
Three of the eight proposed regulations change only credit card disclosure requirements, and only in minor ways. Another proposal only addresses consumer consent for increasing the credit limit. Another only limits debt collection practices in one way. None of these five of the eight proposed regulations will do anything to prevent gouging, nor will the proposal to create a task force on financial literacy. It will largely be redundant, given the existence of the Financial Consumer Agency of Canada, which has been doing financial literacy work for the past eight years now.
While the proposed 21-day interest-free period and a restriction on one fee, and payment allocation requirements will protect a very few customers from a very few charges, none of the proposals would decrease the likely already excessive credit card interest rates. Nor will they affect the extra interest rate and fee hikes the banks and other companies have unilaterally imposed in the past year, nor their overcharging for various credit card services.
What will actually bring accountability to the banks? What will effectively require them to do something that will actually help consumers in return for the up to $200 billion in subsidies offered to the banks? What will balance the marketplace, especially to balance the fact that consumers pay for all financial institution advocacy simply because the financial institutions charge consumers--
Ms. Geneviève Reed:
Thank you for your question, Mr. Bouchard.
At present, consumers generally find it hard to understand their own statements, so if more financial information were added, it might confuse consumers more rather than helping them. That is one point.
Moreover, we believe that these fees should not be paid for only by consumers. The interchange fees come on top of all the other fees imposed on consumers, whether we are talking about over-limit fees, minimum-payment rate changes or other fees.
The problem seems to be very complex, as do the impacts. The repercussions for merchants are very significant, as they have explained. There is no doubt that in sectors like the grocery industry, merchants cannot pass along the costs to consumers because that would increase the price of the food, which is an essential commodity. In other areas, however, there might well be an increase in product prices, which worries us for the medium term. These costs cannot be absorbed by the system, but only by consumers in the long run.
Ms. Geneviève Reed:
Right now, the various types of electronic payment, such as credit, debit and pre-authorized payments, are regulated differently. As I mentioned, there is a voluntary code governing debit payments, which applies to debit cards, and there are the CPA rules that apply to pre-authorized payments by debit card, for example. There are all sorts of rules that no one has a comprehensive handle on.
In our view, there is a need for clear rules, in particular concerning transparency of the costs, responsibility and risk allocation. In the case of credit card advances, consumers currently bear the responsibility if there is fraud involving their card. Why are they not responsible when the fraud involves a debit card instead of a credit card?
There is also the issue of how to settle disputes. It would be important to know how many days a company has to settle a dispute, if a dispute arises, and how it is to be settled.
Finally, there is the matter of regulating solicitation. As you know, solicitation for credit, both by mail and in stores, is very widespread, and we feel that it is inappropriate.
Mr. Chris Warkentin:
I'm just trying to get through a number of questions here, so I appreciate the answer as it pertains to customers and the folks who use credit cards.
In your testimony, Mr. Scott, you talked about the ever-changing and uncontrollable external cost structures that are inflicted on small business or businesses in general as it pertains to the interchange and transaction fees charged to your businesses and the businesses you represent. This is something that I think came as a surprise to many consumers as these hearings have unfolded. There is a different interchange fee that the small business or the business owner has to pay depending on which credit card or Visa they pull out of their wallet.
In fact, if they pull out one Visa, it might be one fee for the business, and if they pull out the other Visa, it might be a different fee for the small business. It's made me a lot more aware of what I'm using when I pull out a credit card at the grocery store.
As it pertains to these uncontrolled and ever-changing fees, do you have a suggestion as to what we should come up with in terms of a recommendation? Is it so much the fact that it's ever-changing and that it fluctuates from one card to another or is it just that fees for certain cards are higher than for others?
I guess my question would be this: should we recommend that there be an across-the-board levelling of those fees so that at least, even if they're higher, small businesses would have an understanding of the cost structure they're working with?
Mr. Duff Conacher:
Sure. As I mentioned, the first is a price review.
In the past decade when Canadians have been asked about access to credit and these banking services, 90% have said these are essential to function in society. Whether you're trying to travel or rent a car, you just need to have access to basic credit. We view it as something that should be treated as other essential services are treated, like energy utilities. When you have the concentration of market share within a few companies, there is even more reason to do so.
So in order to establish where the fair baseline is in terms of fair prices, you need to go through an audit. Send in the auditors to these companies. Don't trust their own figures, because they can fudge them given the looseness of general accounting rules and how often their credit card divisions are mixed in with all their operations. Do these independent audits.
Nothing would be disclosed that would be proprietary. It would just simply let consumers know what the profit levels are that these companies are operating at. If they're operating at profits margins of 50% to 100%, just the news of that is going to bring down the prices and interest rates the next day. But if it doesn't, then the government steps in and goes further.
Secondly, consumers pay for all of the advocacy of financial institutions and the other companies. Why? Because these companies can easily add a loonie or a toonie to their charges or a percentage point to their interest rates and raise millions of dollars--tens of millions and hundreds of millions of dollars overall across the industry because they have 25 million customers.
How do you balance that out? Well, we're sitting here as consumer groups with very limited budgets, trying to interest people and get them to join in support across the country. It's very difficult. We can't just add a loonie or a toonie to some bill we're sending them like the institutions can. So at no cost to the industry or the government, the government can require these companies to enclose a one-page pamphlet like this one, like the magazines used to use. It's a lick-and-stick. It would describe the group and invite people to join. They'd stick their cheque in and send it back.
Twenty-five million Canadians would receive it. If only 3% responded, there would be a group of 750,000 members. If there were a $40 membership fee, the group would have a $30 million budget. Then you would have a group that people could call, that could help them shop around, and that could be here participating in policy-making processes. It could also help people complain. It could do a ton of financial literacy work that no other organization could possibly do as effectively as a group that's run and funded by consumers themselves.
Then you need an overall audit of competition as well.
Do those three things and you'll actually have effective accountability, fair treatment, and fair prices.
Ms. Geneviève Reed:
Thank you for your question, Mr. Bernier.
I do not have the regulation before me. I'm sure you will be receiving our comments between now and the end of the consultation.
However, it should be pointed out that in Quebec, the Consumer Protection Act which has been in existence for about 30 years, goes very far and provides very good protection for consumers. We would like to see the same kind of legislation and regulations for all Canadian consumers.
We think that the regulation on the 21-day period is very positive. We feel that this is the right step forward. However, we do have some concerns with respect to other regulations.
It is good to provide information to consumers but the information truly has to be tailored, an example being the regulation on minimum payments. I know that the banks told you that it would cost millions of dollars. No, it can't cost millions of dollars. Statements of accounts are tailored to provide individuals with points, to inform them on how many points they have and what they can do with those points. Could they not be informed about the implications of only making minimum payments each month? Honestly! What are we, stupid? I think that it is doable and that it must be done. This kind of information has to be tailored. It cannot only be about general minimum payments. That's one example.
Mr. John Scott:
That's a very interesting point and it's one the committee should take note of.
Of course, the consumer continues to use credit cards, and I don't know whether the committee has been told this yet, but Canadians are the number one points collectors in the world. That's not proportional, but absolute: they're number one in the world. It's an interesting point.
But one thing we should remember in Canada is that our consumers use their credit cards less in the grocery store than consumers do in the United States. There's still that thing in the back of the consumer's mind that the debit card or cash is the way you pay for required commodities, as opposed to borrowing against the necessities of life.
So the enhanced credit cards are a problem for us, for sure, but they're not as significant a problem as the debit card. Why would consumers continue to use the credit cards? I think the consumers associations are in a better position to answer that than I am, sir.
Mr. Anthony Rota:
That's exactly what I expected as an answer. It leads me to my next question concerning small grocers.
Mr. Bouchard or Mr. Scott, I think it'll be a combined answer, if you don't mind.
Small grocers are forced to negotiate on their own and basically have no clout. If you have your one store, you're on your own. There are small specialty stores in large urban centres, and it's very important to have those stores, because they cover a certain niche.
I'm in northern Ontario. I have small communities that are served by one store. There is one store, and the community is isolated, but it's not far to go to one of the majors. The cost of the interchange fee or that transaction in the smaller stores is passed on directly to the consumer, or it's more than likely absorbed by the store, because they can't afford to add any more to the cost. The cost is already up there. The larger stores can pass it on because they have a little bit more play, and they can play better with the suppliers as well.
Here's the scenario I'm thinking about. We have small communities that have the one store, which is struggling to be there in the first place. We're talking about service to small communities. We're talking about jobs, about where people work. It's a major employer in a small community.
Realistically, what are the chances of those stores getting wiped out or having to close down because they can't afford to stay open? They have that extra cost that makes them just a little more expensive, causing people to leave the community, go elsewhere, drive for an hour, and maybe save a few dollars on their groceries. More and more, this really leaves the community at a disadvantage. It causes more and more of a drain on the population because the services aren't there.
I'm pushing and pulling and maybe digging a little deeper than the purview of this committee, but I really am concerned about the survival of small communities that really centre around a grocery store or a central store that supplies them with goods.
If I can have your comments on this, I'd appreciate them.
Mr. Mike Wallace:
I appreciate that. I have one more question for you. I just want to clarify something.
We have heard at this committee about premium cards, and I was as ignorant as the next guy about this. I have two cards in my wallet. One's a plain old Visa, with nothing on it, and then I have a Visa that collects air miles. Neither one of them is what the banks and the Visa companies call premium cards. Premium cards, like an Infinite card, have no credit limit. These others actually do have credit limits; I'm not at them, but they do have credit limits.
So there's a regular card, a premium card that would collect points, and then an Infinite card, which really.... When they say 12%, that's what they're talking about. They're competing against Amex and those guys, who have no limits on their credit, and they are charging more for that.
Mr. Conacher, you've compared the banks to a public utility. I don't necessarily agree with you on that, but that's okay. To me, a public utility is the gas company. One gas line comes into my house. The hydro comes into my house. They're public utilities and they are regulated based on ROI, return on investment.
You keep talking about gouging profits and reasonable profits, so it sounds like you believe in profit, which is nice to hear. What's your definition of “reasonable profit”? What's your return on investment?
Mr. Duff Conacher:
That is an after-tax profit.
When you're talking about this area, you don't want banks and other financial institutions providing access to credit to be profiting excessively, because they are increasing the cost of capital, the cost of money that runs through the entire economic system, and the entire economic system can be damaged by that increase.
It's not that we call them a public utility' Just place them on the spectrum, from a sole entrepreneur private company to the other end of the spectrum, a monopoly public utility, but they're closer to that because they are providing this essential service. If the consumers are right, and according to everyone's ideology, the consumers are always right, 90% of consumers believe that access to basic banking services and credit is an essential service. Therefore, they're right, so treat it like an essential service and regulate it like an essential service.
Hon. Dan McTeague:
I just opened that envelope this morning, so I was glad to see groceries and gas, two areas that I am rather familiar with, as part of the target of the new Infinite cards.
Mr. Bouchard, you said something very interesting, which some of us who have worked on this in the past may not have picked up on.
Mr. Scott, you suggested that in the case of your industry, when you have an increase, it has a devastating impact on the bottom line.
Perhaps you could explain to us whether the 30 people you have working for you or had working for you have been affected.
The Canadian grocery association came to us and said that when they see an increase, they pass it on to consumers, the practical effect being that the poor guy who happens to walk in to get a bag of milk for his family actually winds up having to pay for this increase to grocery stores.
In your case, however, you can't pass it on. You have to absorb it. So I want to know, from your perspective, how many people may wind up on the employment insurance lines as a result, if they can qualify.
Mr. Glenn Thibeault:
Thank you, Mr. Chair.
Last week we had most of the major banks here talking about what they think of this issue. One of the things I heard loud and clear from them is that they're receiving no complaints.
Although the RCC, the Retail Council of Canada, has 250,000 members who are bringing forward the “Stop Sticking It To Us” campaign, the CFIB has 2.4 million businesses that they support, and f those, 97% percent are under 50 employees, and they're hearing no complaints on the side of business. Again, they say they're hearing no complaints from the side of consumers.
Let's start with you, Mr. Scott or Mr. Bouchard. Is that an accurate statement? Are you not hearing complaints about credit card interest rates on both sides of merchant interchanges?
Mr. Robert Carrier (Alfred-Pellan, BQ):
Good morning ladies and gentlemen. Thank you for coming to this meeting on credit card issues. My first question is for Options consommateur.
The Bloc Québécois was the one who originally moved the motion that was passed by all our colleagues, that is to study the issue of credit cards. We were originally motivated to suggest this study because the consumers are the ones suffering this situation. The purpose was to resolve this situation. I expected rather strong recommendations from your organization, which represents consumers.
Someone said earlier that the banks appeared before us last week. We asked them what percentage of their profits came from issuing credit cards. They are supposed to be sending us that information. They are the only ones who can benefit from the current system, that is, a system that allows them to set interchange fees at their discretion, with no obligation to negotiate at all. Retailers therefore have to pass the costs of this system on to the consumers.
Your first two recommendations refer to the Competition Bureau. You even state that: "[...] the Competition Bureau should initiate an investigation into the profit levels associated with charges on the use of credit and debit cards [...]". In your third recommendation you suggest that the government do the following: "[...] undertake a consultation on the changing patterns of electronic funds transfer, including credit and debit cards and their regulation;"
In other words, you are recommending that other studies be undertaken. I would be disappointed, as a parliamentarian and as a member of Parliament, if we chose to do that. We are hoping to recommend solutions to improve the situation, and not simply to submit this to the Competition Bureau. We know where that will lead. That organization has often been asked to deal with the issue of fuel prices, which fluctuate significantly. Yet we have never gotten any concrete results. Personally I wouldn't give them very many mandates.
You referred to the illiteracy and financial inability of some consumers. Should we not be looking at that? Do you not think you should recommend that the interchange fee related to the use of their card be indicated on their bill? Earlier on my colleague asked you if you would be in favour of indicating the charges to retailers for using credit cards. The grocers here today seem to favour the idea of regulations. Those haven't yet been defined. Do you not think the government should take that route?
Ms. Geneviève Reed:
Thank you for your question, Mr. Carrier.
Option consommateurs' recommendations can also be very strong if you wish. According to everything you have heard over the past two or three weeks, regulations dealing with electronic payment systems are deficient. For years now we have been recommending that this sector be regulated so that the responsibilities and interests of all parties be clearly defined.
As I already stated, users of Interac cards and users of credit cards are not equally protected, which is dangerous. Furthermore, information has to be provided and emphasis has to be put on certain points, for example, the impact of minimum payments, interest rates and so on. Providing too much information does not help the consumer especially if they already have problems in understanding their statements.
That is why providing consumers with interchange fees information does not give them any more power or protection. Measures have to be passed that will protect consumers. Regulations were tabled by the Minister of Finance. We do not agree with all these regulations, because we feel they lack substance, especially in terms of over-limit fees. We cannot fathom why a bank is not able to call a merchant in order to tell them Ms. so and so is going beyond her credit limit and to please not authorize any more purchases.
Mr. Dave Van Kesteren (Chatham-Kent—Essex, CPC):
Thank you, Mr. Chair.
If I have the time, I am going to split my time with my colleague.
Mr. Conacher, I want to ask you about fraud. We all agree that transparency is a must in respect of credit cards, and we support protecting our consumers. The issue is that credit cards are being skimmed by fraudsters. We know this. It's a growing concern. As a matter of fact, I think last year over $1 billion was skimmed off. But we can't find out where this is happening because banks withhold the information. This can hurt retail business as well.
There are consumer advocacy groups, like the Consumers Council of Canada, that feel the law should be altered--we did deal with this in the ethics committee last year under PIPEDA--to simply allow banks to tell consumers where their credit card was breached. To quote the council, your agreement to get the credit card is with the bank, not with the retailer.
Would you be supportive of such a change and do you think consumers have the right to know?