Finance Committee on May 12th, 2009

[The Co-Chair, Conservative, Michael Chong]

Thank you, Madam Swift.

We'll go to Mr. Lake.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

Thank you, Mr. Chair.

I want to start by saying that I definitely have some sympathy for what you're talking about here today. It seems that there's a real concern about a lack of competition and a lack of transparency. Some of those concerns seem quite valid.

I'm also concerned, as Mr. Bernier expressed earlier, about regulation. We need to be very careful when we start talking about regulation. There are often, with government regulations, unforeseen consequences. It can be a slippery slope once you start moving.

I noted the difference between the recommendations. The biggest difference seems to be that the coalition group over there is focusing a little bit on price regulation, whereas CFIB, I noted, does not have a recommendation for price regulation. There's a recommendation for other forms of regulation.

Mr. Thibeault, in his first round of questioning, used the phrase “one step forward” when he talked about this regulation, implying, of course, that there are other steps to come. Once we go down here, who knows? We might go after that.

I would be interested, Madam Brisebois, if you could talk about your organization's or perhaps the whole coalition's stance, for example, on regulating gas prices, regulating grocery prices, labour prices--a national minimum wage and things like that. I'd be particularly interested in, for example, regulating the rate on retail credit cards. They have the highest rates of interest paid. I'm curious to hear your thoughts on whether that should be the next step in terms of price regulation.

[Diane Brisebois]

Thank you for this question. I think we need to clarify something.

This coalition is not asking for price fixing or for price caps. We are in fact asking for regulations for oversight for transparency and accountability. Since merchants cannot compete in a market where Visa and MasterCard own 95% of the credit card market, there should be a system in place to ensure that whatever they're charged has a correlation with the service that's provided. I think that's different.

In relation to other markets, I would suggest that that is in fact the reason you're not getting calls to regulate. If you're looking at the retail market, it is the best example. If I want to buy organic eggs, I have a thousand places I can go to buy organic eggs and I can make the decision based on the value I receive and how much I should be paying. If I'm not prepared to pay that price, I have a choice. I can go somewhere else.

That is in fact the big difference, Mr. Lake. In this case you have two companies that own 94% of the market and who indeed set the prices. In fact, what we're saying is we may need, strangely enough, regulation and oversight to ensure that they stop setting those prices or those fees in a way that makes this business non-competitive.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

Thank you.

As I said before, I have sympathy for the situation right now. I would think there are several ways we can solve this problem. Of course, the government can get involved in terms of regulating prices, as has been suggested, or it can get involved in terms of changing the rules in some other areas to do with competition, transparency.

Alternatively, of course, the parties involved can solve it themselves, which sounds like that's been a hard road so far. I'm sure Visa and MasterCard have some people watching on TV or maybe even in the room here as we have this discussion. I would caution them probably not to come to the committee and say there's no problem whatsoever. I don't know that there would be much appetite on the part of anyone at the table to hear that there's no problem. I think we recognize there's a problem. I want to hear from them what ideas they have for solving the problem.

If I could, I'll just turn to the CFIB and give you a chance to respond. You haven't talked about price regulation. Maybe you could explain why you haven't talked about that, and maybe you can elaborate a little bit more on the ways you have thought about to solve the problem. Perhaps there's been thought given to working with the other parties outside of government to see if there's some resolution to this.

[Catherine Swift]

We also haven't ruled out regulation, just for the record. The main reason I think we're all here is to have a proper study. We have a bunch of studies in the U.S. I'm not saying they're perfect, but at least we have a better understanding of what's happening in other marketplaces than the one we have in Canada. I think a proper research project has to be undertaken, however constructed, to really help us understand what is going on in this market, how prices are being determined, and what in Canada--as people interested in public policy--would be best for our country, for our merchants, for our consumers, for our economy.

We don't think that's been done yet. We've made some recommendations, obviously, as to what we think should be components—a code of conduct, something that maybe they have to report on before a parliamentary committee and say, “Okay, here are the components of a code of conduct and we've been compliant with them”, and so on.

As I say, we do have recommendations. We do think some oversight by some agency that is tasked to do that is needed, and we can debate which one it should be. That's why we felt we had to get to that step first before determining if we actually need to take the regulatory step or if we can satisfy this by other means.

[The Co-Chair, Conservative, Michael Chong]

Thank you, Madam Swift.

Mr. Vincent, you'll be the last committee member to ask questions.

[Robert Vincent, Bloc, Shefford, QC]

Thank you, Mr. Chairman.

I'll go back to Mr. Lake's assumption that regulation has unexpected consequences, but the lack of regulation also has unexpected consequences. You said that interchange fees had climbed quite quickly from one month to the next. Under regulations, a minimum rate could be established. That's why you want regulations introduced.

Going back to the debit card issue, earlier it was said that there weren't any interchange fees with Interac. If MasterCard and Visa entered the picture, the consequences would be greater for everyone, including consumers. The fee increase will be passed on to someone; I imagine it will be consumers.

What legislation should we pass respecting debit cards?

[Gaston Lafleur]

Thank you for your question, Mr. Vincent.

It must be acknowledged that, currently, Canada definitely has the best debit card system we can hope for. The system works very well and is based on costs.

The entry of MasterCard and Visa into that market will create a situation that cannot be justified in any way. We know what happened in the United States, where a very different system is used, a mixture of direct costs and a percentage of transactions. In our minds, it's important to retain what works well and to ensure that all businesses that want to enter this market do so under similar conditions. We must ensure we do not go to an ad valorem system, which is not warranted, as is the case in the United States. We should at least allow Visa and MasterCard to enter the market on a direct cost basis.

If that were the case, some form of regulation would clearly be necessary. That's essential in our minds. If we move toward the current American method, I assure you that costs will rise in an unwarranted manner. Despite the fact that we're aware Interac will have to compete with those businesses in one way or another, the fact remains that we'll have to regulate the framework within which that competition occurs. Otherwise, honestly, our system will take a hit.

[Robert Vincent, Bloc, Shefford, QC]

I liked Ms. Brisebois' answer. She said that, if Interac became a for-profit entity, Visa and MasterCard would be interested in becoming acquirers. The system in place in Canada works well. If Interac seeks the creation of a for-profit entity, we can reasonably think that the other two corporations will get their hands on Interac, saying that all the distribution points are in place and that they need only buy the business and continue in the same manner.

Is that a plausible scenario?

[Gaston Lafleur]

Thank you for your question. Honestly, I don't have a crystal ball, and I wouldn't dare give you an incorrect answer. That's one possibility. In our minds, it's important to ensure that what works well continues to work well. In our view, the entry of MasterCard and Visa into the Canadian debit market heralds some serious problems, especially if the use of direct costs is not regulated. We should use the direct cost method and not the ad valorem, the percentage route.

[The Co-Chair, Conservative, Michael Chong]

Thank you, Mr. Lafleur and Mr. Bouchard.

Thanks to all committee members for their questions and comments, and thanks to our witnesses for their comments.

This meeting is adjourned.