Finance Committee on May 12th, 2009

[Danielle Chayer]

That's exactly what's happening, but we tried to do something about it.

Thank you.

[The Co-Chair, Conservative, Michael Chong]

Thank you, Ms. Chayer.

Ms. Brisebois, go ahead please.

[Diane Brisebois]

I'd like to clarify that there's no transparency. There has been, seemingly, a bit more discussion with Visa and MasterCard. But in fact, at a meeting, when we asked why they were introducing all these new fees, the answer was “Because we can.”

I think that would explain the relationship that exists.

[The Co-Chair, Conservative, Michael Chong]

Thank you.

Mr. Bernier, go ahead please.

[Maxime Bernier, Conservative, Beauce, QC]

Thank you, Mr. Chairman.

I also want to thank the witnesses who are before us today. We're dealing with an important question. Everyone, at least most Canadians, has a credit card, I imagine. I would like to understand a little about the problem, since you're asking us to make regulations.

You know that I prefer deregulation to regulation. The issues really have to be important for it to be necessary to impose regulations, especially in the case of business people, as was said earlier. Business people usually don't want to have the government on their backs. However, you're asking us to intervene. In my opinion, something must have been causing a problem for years for all the businesses you represent.

In terms of regulation, one of the solutions you're proposing is transparency, no one can be opposed to transparency. I have here the recommendations of the Canadian Federation of Independent Business on the subject. I'm sure you're in favour of them.

Furthermore, you're telling me about the Australian model, and I would like to know a little more about that matter. I believe the regulation there goes beyond mere transparency. They regulate the fees and costs that credit card issuers apply. So we're starting to talk here about price-setting by the government. That's the proposition you seem to prefer.

In short, I would like to be given a little more detail on the Australian model and have it explained to me why we should adopt it. With respect to the recommendations on transparency, I've read them. I entirely agree with you on that point.

My questions are for all the witnesses. Who wants to answer?

[The Co-Chair, Conservative, Michael Chong]

Mr. Lafleur, go ahead please.

[Gaston Lafleur]

Thank you, Mr. Chairman.

I believe we've quite clearly demonstrated that, in the current context, we have no bargaining power. In a situation of healthy competition—and I use the word “healthy” because it's important in the present circumstances—parties can negotiate and market forces can operate. However, no one around this table could claim that we are in a situation of healthy competition, and thus that market forces can operate.

When we have an adhesion contract, it means something, in civil law back home. That implies that there is a contract and that you sign. That's the only law we have. You have to meet obligations. Otherwise, the card can be withdrawn. We're telling you clearly that our consumers and we ourselves consider that the use of credit cards has value. We respect that fact. We know the extent to which this payment method is used.

Regulation would help create a framework within which businesses wishing to compete with the financial institutions could continue to do so. However, as regards the interchange fees, there would be assurances that they are indeed costs related to those products, and not percentages that ultimately can have an inflationary effect. I'm going to give you an example. Gasoline prices substantially increased last year. They moved up from 80¢ to $1.48 a litre. However, the convenience store that sells gasoline receives 2¢ or 3¢ per litre sold, regardless of the value of the litre, but the cost of the transaction by credit card, which he must bear, is based on the value of the transaction. When that convenience store sells 50 litres of gas at 50¢ a litre to a consumer, the consumer pays it $25. Multiply that amount by 2% and you get 50¢. However, if the price per litre climbs to $1.50, the convenience store stills receives only 2¢ per litre sold and has to pay $1.50 in fees. That's a big increase.

You absolutely have to understand that our businesses want to continue using credit cards, but that that will have to be done in a context where it is possible to apply regulations so as to ensure that the costs paid are used in calculating the interchange fee. We haven't talked about debit cards, a very important issue.

[Maxime Bernier, Conservative, Beauce, QC]

Do you want to add something?

[Danielle Chayer]

Indeed, people very rarely request regulation in the business environment. Except that, less than a year ago, there was a single fixed rate, which had been the same for 20 or 25 years. In a few months, we went to various rates that complicated our lives and that are now much higher. We still can't understand what that money is used for. Sometimes we get the impression it's to pay the marketing costs of the companies that want to go after even more card users, but, ultimately, it's really the merchants who pay. It worked before, but it doesn't work now and they don't want to hear what we have to say. That's why we're appealing to you.

[The Co-Chair, Conservative, Michael Chong]

Thank you, Ms. Chayer.

Thank you, Mr. Bernier.

Mr. Vincent.

[Robert Vincent, Bloc, Shefford, QC]

Thank you for accepting the joint committee's invitation to come and testify today. We haven't yet talked about debit cards. This is the opportunity to do that because that's another problem we see on the horizon.

We know that Interac requested the Competition Bureau's consent to authorize the restructuring and for it not to be a non-profit organization or association, but to be a for-profit entity.

So the problem will take another shape for you. If Visa and MasterCard decided in 2009 to offer a debit card and Interac decided to become a for-profit entity, what would be the impact of that? Currently there is an impact on credit cards, but there will be an even greater one on debit cards. What impact will that have on your associations and businesses?

[The Co-Chair, Conservative, Michael Chong]

Mr. Wilkes.

[David Wilkes]

There are a couple of questions there. With respect to the Interac consent order and looking to the Competition Bureau to restructure it, we recognize that there is some need for Interac to update their decision-making models to streamline the way they do things and the way they go to market.

We believe everyone in the debit business must play by the same rules—whether it's Interac, Visa, or MasterCard. The Canadian Payments Act has protected the Canadian debit system in a unique way. It's the envy of the world, and we should ensure that we do not lose that uniqueness and efficiency, which has become part of the way Canadians use debit cards.

Our first recommendation would be to ensure that there's a level playing field. Our second recommendation is that there be no ad valorem on any debit mechanism.

[The Co-Chair, Conservative, Michael Chong]

Madam O'Reilly.

[Brenda O'Reilly]

If they base the debit transaction on a percentage, looking at what I did last year in debit, which was 17% of my sales, it would actually cost me $4,500, according to the rate that Visa offers me right now. I'm assuming that it wouldn't be anything less than that, and I'm assuming that debit costs would go up if they were on a Visa debit card. It's a real cost, and it means about 20 hours a week of employment and another extra cost that we can't afford.

[Catherine Swift]

We agree that at a minimum we should never go to an ad valorem, a percentage of the value of the transaction. There's no justification for it. It is simply a money grab. Our American confrères recommended that we not permit cards that have both debit and credit capability, because it causes more confusion to the consumer and the merchant about the cost of the transaction. Once again, you get the surprise at the end of the month.

We have to devise a “made in Canada” solution. But if Interac goes for-profit, could it then be bought out by Visa or MasterCard? If so, we could lose our Canadian player in the mix that has served us quite well. A lot of thinking has to be done before Interac is permitted to go for-profit, and I would say even before we open the doors to let Visa and MasterCard into the debit market holus bolus, which is what they want to do very soon.

[The Co-Chair, Conservative, Michael Chong]

Thank you.

Mr. Blouin.

[Pierre-Alexandre Blouin]

I'm going to show you how fees have increased using a percentage rate. That's what's in store for us now. From 2007 to 2009, in the past two years for all retailers, credit card fees have risen an average of 37%. Most transactions are conducted by debit card. If you do the calculation, it's quite clear that the losses are major. For a supermarket, a fee increase in the order of 37% represents $66,000, and $7,700 for an medium-size grocery store. Those are very large fees.

We can't afford to have credit fees rise even higher. For some very large businesses, those fees can even reach $125,000. We can't transfer those fees overnight. We have to recover the money somewhere.

[The Co-Chair, Conservative, Michael Chong]

Thank you, Messrs. Vincent and Blouin.

Mr. Van Kesteren.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

Thank you, Mr. Chair.

Very quickly, Mr. Wilkes, you mentioned the debit system here, and you wanted to see some type of system that mirrors that. But isn't that voluntary? Isn't the pricing system voluntary in our debit system? That's not regulated by the government.

[David Wilkes]

Under the current debit system, as regulated under the Canadian Payments Act, the fees are defined by the transaction costs.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

Right. I think we need to make that clear.

I, too, am a lifetime member of your organization, as well as CFIB, and like Mr. Bernier, I'm very leery about regulations.

I'm looking at your first slide. If we dissect this, we can see that the majority of small businesses have, interestingly, one or fewer than five employees. It goes right down until you get into the 20 to 49. I guess what I'm saying is, how many of that majority--probably three-quarters--would agree with this position? Do you have those statistics? You do have those? I'd just like to see those statistics.

[Catherine Swift]

Yes. Our pie chart on page 10 shows the number who believe that the federal government expanding an approach.... By the way, we're not necessarily recommending regulation. We wonder if a proper process to just have a reporting relationship.... It doesn't have to be regulation per se. We're not saying that's necessarily the way to go. We do think we have to properly understand what's going on here. We believe the credit card companies and others have gone out of their way to confuse what's going on here. We're starting to get to the bottom of it, which is good, and we're understanding a lot more. They're not very comfortable with that, which speaks volumes to me. The federal government did include this proviso about consumers in the last budget, and we really felt that we wanted to expand that to merchants.

We did, however, also ask our members--and it doesn't happen to be in this presentation, but we can get it to you--virtually the same question we asked the general public, which is shown on page 11, and the responses were virtually identical.

So, yes, you're right, our constituencies are not typically ones that say “regulate, regulate” for anybody. Back in the early nineties, some of you may recall, we actually put out a call regarding chartered banks because small and medium-sized firms were being treated very badly. By the way, to their credit, they're not doing as much of the same bad stuff this recession. We actually asked the industry committee to have the banks come before them on a regular basis and--you know what?--just that requirement meant better data, better understanding of what they were doing, and better practices by the banks.

There don't necessarily have to be hard and fast rules.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

I agree with that. I remember those days, and I was part of that survey as well.

The point is, though, I also remember a time when the credit we wrote off was a whole lot higher than it is today. I think we have to recognize that too, that credit cards have removed a portion of risk in business. As well as that, they've made things a whole lot easier.

If the majority of the public wants us to do this thing, obviously governments will act, but I think we need to dig a little bit deeper. I feel there are some things that we are not....

My final statement would be that it's somewhat akin to having me pave my stone driveway because the neighbour's kid is throwing stones through my window. Isn't the real problem the fact that Canadians are addicted to credit and we have huge credit debt? As a result, the credit card companies have to protect themselves, and this is one of the ways they're protecting themselves.

[Catherine Swift]

I think what we're looking for, though, is transparency. One of the things that's happened in Australia, because they were restricted in terms of the interchange fees they could charge, is that they have started offering a plain vanilla card. Then if you as a consumer want the premium card, there is a fee for it. In other words, they are actually charging the person who should be paying and should be understanding. It's like having a tax that should be dedicated to what you want to spend it on. What we're getting here is such a bunch of confusion that nobody knows who's paying what.