Industry Committee on June 2nd, 2009

[The Co-Chair, Conservative, James Rajotte]

Thank you.

We'll go to Ms. Coady now, please.

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

Thank you very much.

I have a couple of questions along the debit side, if I may, Mr. Bouchard and Mr. Scott. I'm concerned about a couple of things around the debit card and the impact that it may have on you as independent grocers. Specifically, are you at this point changing over your terminals so that you can have the chip debit card?

What cost is that to you, Mr. Bouchard?

[François Bouchard]

We're in the process of changing right now. What's happening is that obviously since we're “one of”, the payment processing companies aren't necessarily first with us, so we have to wait for the technology to be finalized before we're able to do that.

Once we do that, the responsibility will also switch. We're now responsible for the full pop on anything that happens with fraud on those cards, whereas right now we are protected in some fashion, so we are obviously preparing for that.

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

I want to reiterate that, and I want you to reiterate that again, because I asked the same question to the banks. They assured me that no indeed, the fraud component will still rest with the bank. You're saying no, it will not. Would you please--

[François Bouchard]

The current rule is that on any card I accept now, as long as I do everything by the book, I will be covered to a certain level. It depends on whether it's an online transaction or an in-store transaction.

Once the chip payments are in place, if I don't have the technology to accommodate it and I have to pay for that technology, the responsibility lies on me--no one else.

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

Do you know approximately what kind of impact that's going to have on you financially?

[François Bouchard]

I'd have to get back to you. Sorry.

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

If you would be so kind, please get back to me, because I've been reassured at committee that there will be no cost to the merchant on this. I'm quite concerned about the downloading of the cost of the terminals onto the merchant, as well as the potential cost of fraud being downloaded onto the merchant and, ultimately, of course, onto the consumer.

What other concerns might you have on this potential of Visa and MasterCard entering into the debit card market?

[François Bouchard]

My concern is that now we have a system that works and I know what I'm going to pay. They can come back to see me, and they have; certainly last April they sent me a notice saying that on the Interac the interchange fee had gone up by x percentage on a transactional basis. But it presently works. I can live with that reality. Why change the whole thing? The impacts are atrocious.

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

I have a couple of comments on the potential of the debit card. I'm going to ask CPA as well as you.

One of the concerns I have on the debit cards with Visa and MasterCard entering into the debit card system is the potential of this points accumulation. We've already talked about that significantly on the credit card side and the costs that are now being borne by merchants and, potentially, ultimately the consumer. Do you share that same kind of concern on that side?

The other concern I have is that currently the interchange rate on debit cards is set at zero. If it were moved to a potential interchange fee versus a flat fee, could you comment on both of those? I'd ask CPA to comment as well.

[François Bouchard]

Certainly. There is no doubt that the concern is there. If they're going to start collecting points on their debit cards, I'm not going to get any more consumers than I currently have. I'm not going to gain anybody. I'm going to change that regular debit card for a points card that's going to cost me more as a merchant and that may cost the consumer because they're going to have a card or a fee to pay for as well. I don't benefit as a merchant in any way, shape or form. I can't see any benefits to it.

Again, I'm stating that the system currently works the way it is. As for why they would want to change it, it's just going to have an impact on me and 3,800 of my colleagues all over Canada, and we're not ready. We can't deal with that.

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

Thank you.

If I could, I'll ask a similar question to the CPA. I have two questions for you, but I'll start with the first one. It's on the debit card side of things. Has it been your experience or is it your knowledge in this area that perhaps with a debit card they may potentially add value to that card, as they have added value or points to the credit card system? Has that been an experience? Have you seen that elsewhere?

[Doug Kreviazuk]

That's not really an issue from the CPA's perspective, but my observations are that within Canada we do see, for example, at least two financial institutions that offer debit cards that attach loyalty points to them. I've not done a survey, but I am aware that there are at least two.

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

Outside of Canada's borders, in Australia or the United States, are you starting to see the use of points on debit cards?

[Doug Kreviazuk]

Yes. They're tending to go that way.

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

Could you comment on interchange fees on debit cards? What has been your observation? Currently with the Interac system in Canada, it's a flat fee, a consistent flat fee. With interchange, of course, it could go up. Would you comment on that?

[Doug Kreviazuk]

Well, you are correct. The interchange fee within the Interac environment has been set. I'm not sure of the exact level, but I know what it was.

Around the world, the fees all vary, and the direction of the interchange fee could vary between whether it's a POS system at the merchant versus taking money out of a banking machine. They are generally set by the scheme or the payment systems that operate those, and that has really been the focus of discussion within government, regulators, and competition authorities around the world.

[The Acting Co-Chair, Conservative, Michael Chong]

Thank you, Mr. Kreviazuk.

Thank you, Madam Coady.

Mr. Carrier, you have the floor.

[Robert Carrier, Bloc, Alfred-Pellan, QC]

Thank you.

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?

[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.

[The Co-Chair, Conservative, James Rajotte]

Merci.

Merci, Monsieur Carrier.

Finally, we'll go to Mr. Van Kesteren, please.

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

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?

[Duff Conacher]

Yes. The coalition's position is that it's information that should be shared with customers, but there would have to be some further details provided so that the customer would be able to understand, to some extent, what happened, whether it was the fault of the business or whether something else occurred, with another customer, for example.

In terms of the level of fraud, again, one of the reasons we're calling for the audit is that I wouldn't trust the figures that are out there. In 1997 hearings on credit cards, government officials from the Office of Consumer Affairs at Industry Canada very much disputed the claims of the banks and other financial institutions about the actual level of fraud in the marketplace and the actual cost to those institutions. That's why an independent audit is needed to know what's really going on.

But consumers also do have a right to know this about businesses so they can take the self-protection measure of possibly not going to certain businesses--if it's actually the fault of the businesses that the fraud occurred.

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

Thank you, Mr. Chair.

I'll turn the questioning over to my colleague now.

[The Co-Chair, Conservative, James Rajotte]

You have three minutes.