Finance Committee on May 12th, 2009

[Marc Garneau, Liberal, Westmount—Ville-Marie, QC]

Thank you.

My second question is, have you approached the government to see whether a regulated solution should be considered?

[Diane Brisebois]

We're under the impression that this is exactly what we're doing right now, but I think you're asking whether we've spoken specifically to the minister. We have tried to inform the government, and we have certainly had some very productive meetings with various ministers, as well as with different MPs. We have felt, though, that we needed to ensure that all members of Parliament were informed, specifically because we represent so many businesses, and they are represented in all of your constituencies. So this is our next step.

We understand, based on the comments we have received, that looking at this and concluding that regulations are required is a big leap, especially when it's coming from industry associations.

So we have been speaking to as many people as possible, but we're extremely grateful that we're before all of you today.

[The Co-Chair, Conservative, Michael Chong]

Thank you, Madam Brisebois.

We're going to go to Mr. Thibeault now.

[Glenn Thibeault, NDP, Sudbury, ON]

Thank you.

About a month ago we heard from Conquest. It had had 37 years in business; numerous people were laid off, lost their jobs. I'd like to get their statement correct, but I believe it was citing “unrealistic and unreasonable demands by credit card companies” as having put a business, a Canadian business that was around for 37 years, out of business.

Now we have Air Canada looking at CCA protection. We talked earlier, in my very first round of questioning, about 97%.... We're looking at small and medium-sized businesses across our country. If Conquest had to lay off people, what's happening now to small businesses, in an economic downturn, when their profits are being pulled away? I haven't heard of any layoffs at Visa or MasterCard. Maybe I'll ask them that question.

Can you tell me what's happening now to small and medium-sized businesses that are trying to stay afloat and are losing their profits, when they're even reducing their profit margins to stay afloat? How are they staying alive? Are they laying off people? Are they stopping expansion? Are they taking less themselves?

[Diane Brisebois]

It's all of the above. When we surveyed our small to mid-sized merchants as well as our coalition members, the same survey results came back. The only way we stay afloat is, as Catherine mentioned, that if we're to remain competitive we will have to eat some of this unexpected cost. That means we find ways to cut hours, to lay off, and to limit the amount of merchandise we are displaying in our stores. It has all sorts of impacts—all of them negative, unfortunately.

[Glenn Thibeault, NDP, Sudbury, ON]

Did you want to mention anything?

[Catherine Swift]

Yes. In addition to what has been said, we've done research in downturns over the years, and one of the things the individual business owner does—and all of our members are privately held companies—is cut their own compensation. In other words, they're maybe taking out a second mortgage on their family home or something along those lines, because naturally, their personal finances are very intertwined with their business finances.

[Glenn Thibeault, NDP, Sudbury, ON]

Overspending by consumers was mentioned as one of the reasons the interchange fees and interest rates have to go up. We're not looking for regulation that's going to take away responsibility. What we're looking for is a fair, equitable, and transparent system. We should all know what we're getting when we sign on the dotted line on a contract or when we sign for a credit card. Is that correct?

[Catherine Swift]

First of all, the problem with people overspending and not being able to pay their credit card bills is supposedly taken into account by the interest rates. We know these interest rates are varied, but we know some of them are very high, at a time when we have really low prime rates. I'm beating the drum to have the individual banks before you, because they're issuing the cards.

I had a member recently say he had two daughters in university and they both wanted a credit card. He agreed but told them they'd have to hold to a $500 limit and pay it off every month. They behaved very well. But then he turns around and they both have $5,000 limits. People have to be responsible, as consumers, as holders of credit cards. But it works both ways. Is that responsible behaviour on the part of the bank? I don't think so.

[The Co-Chair, Conservative, Michael Chong]

Madam Coady.

[Siobhan Coady, Liberal, St. John's South—Mount Pearl, NL]

I want to go back to my previous line of questioning, because there seems to be a lot of confusion around this. We had a situation where Visa changed its interchange fees—various rates, higher on the premium card, higher on restaurants, lower on some others. They say, though, that they kept their rate at 1.6%, on average. Then there's the merchant discount rate. Did you see that rate change about the same time that you saw the change in your Visa rate? Did it change in addition to the Infinite card?

[Justin Taylor]

I can only speak about the agreement we had with our payment processor. As soon as Visa announced the change to the structure fees, it was passed on to us immediately. It wasn't just a change from the single interchange fee to this grid of interchange fees. There was also the introduction this year of an assessment fee and a foreign transaction fee. So there were other fees that made up the merchant discount rate.

I don't know if anyone at Visa or MasterCard has ever taken a statistics class, because “average” should take into account the weighted average. You can say that, on average, you're charging one fee, but if you've moved all the cardholders to the higher-cost cards, that's no longer the average rate.

[Siobhan Coady, Liberal, St. John's South—Mount Pearl, NL]

Thank you clarifying that issue.

I want to ask a couple of questions about the consumer. I'm assuming you're absorbing this into your businesses. You're not passing it on to the consumer, so the consumer still has not really been made aware of these increases in cost. They've gotten these new premium cards. I was one of them. I got a premium card sent to me in the mail, and I put it in my pocket and used it, not realizing until now that there were extra costs. I know there's an agreement between you and Visa and MasterCard that you cannot surcharge, but you haven't been passing these costs on in your own prices. Is that correct, overall?

[Catherine Swift]

I think some of each. Every sector is going to respond to its own competitive conditions, which, naturally, are going to have some differences. If the economy was more robust right now, you'd probably see a few more costs passed on to consumers, just because the market would bear it. Right now, though, when everybody's fighting for business and wanting to keep their own businesses afloat, they're probably absorbing a larger proportion than they would otherwise.

The problem, though, is that consumers don't know what they're getting. There's no disclosure. They just get a card. They don't know it's a different kind of card. Who reads the fine print and all of that? That's where better information comes in.

[Siobhan Coady, Liberal, St. John's South—Mount Pearl, NL]

Thank you. I wanted to get that on the record.

I want to move to debit. Interac has requested to go from a not-for-profit to a for-profit. One of the reasons they give for this move is that Visa and MasterCard are entering the field, and Interac has to be more nimble. They need some governance changes—I think we all recognize that—and they need some cash for R and D.

Now I'm going to go to the switch fee. Interac has a switch fee, a small switch fee, for debit versus the interchange fee. I want to talk a bit about the CPA, because the Canadian payments system is the regulator of the debit system. As I understand it, the system for settlement for Visa and MasterCard is not under the Canadian Payments Association.

[Diane Brisebois]

You are correct.

[Siobhan Coady, Liberal, St. John's South—Mount Pearl, NL]

Thank you very much.

[The Co-Chair, Conservative, Michael Chong]

Do you have a short question? Go ahead, Madam Coady.

[Siobhan Coady, Liberal, St. John's South—Mount Pearl, NL]

What concerns do you have about that?

[The Co-Chair, Conservative, Michael Chong]

Go ahead, Madam Brisebois, and then we're going to go to Monsieur Laforest.

[Diane Brisebois]

Thank you.

There are several concerns. The first one, which we mentioned earlier, is that we believe the debit system is a Canadian system. You're going into Canadian consumers' banking accounts. It should be regulated under the CPA or a similar agency, as it is currently. And at the end of the day, it should be a flat fee, and it should reflect the cost of the transaction, with a normal return on investment.

[The Co-Chair, Conservative, Michael Chong]

Thank you, Ms. Brisebois.

Mr. Laforest.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

I'm going to share the time allotted to me with Mr. Carrier. Perhaps I'll ask just one question.

Since we started looking at the credit card payment process, we, as members, have heard from the Visa people who submitted documents to us that I can't table because I'll be asking them to do that when they come and testify. Two situations are described in those documents, to which I would ask you to react because I'm very concerned about this. It's a document that talks about myths and facts. It states: “Fact: The credit card companies charge hidden fees and retailers have no choice but to pay.” That same document states: “Fact: Retailers and consumers do not pay interchange fees; it is not a “hidden” tax. Retailers negotiate a merchant discount rate...” It continues with a second “Fact: Interchange fees are not known to retailers,” and, with respect to the facts, it states once again: “Retailers do not pay the interchange.” And yet a paper prepared by the Library of Parliament states very clearly:

[...] the payment processor receives payment (less the interchange rate) for the credit card purchase from the card issuer. The payment processor charges the merchant an amount known as the merchant discount rate [...] The merchant discount rate “may include the cost of the interchange rate; the cost of transaction processing, terminal rental and customer service; and the acquirer's or processor's margin [...]

I have two documents that contradict each other. I would like to hear what you have to say on that subject. I think this concerns you all.

[Diane Brisebois]

You have two documents that contradict each other; is that correct? You're asking me which one is true.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

Do they pay the interchange?