Industry Committee on June 2nd, 2009

[The Co-Chair, Conservative, James Rajotte]

Thank you.

Monsieur Laforest, vous avez cinq minutes, s'il vous plaît.

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

Thank you Mr. Chairman.

Good morning to all our witnesses.

I have a few questions for Option consommateurs.

You raised a point that hasn't really been discussed throughout our hearings. You stated that the whole credit card payment system is complex and is full of holes. Without presuming which conclusions the committee will make, I would say that I agree with you. In fact, the system is rather complex and there are several holes. There are individuals who profit from this who are not necessarily consumers.

You raised the issue of cash. You say that electronic cash does not exist in Canada. Do you think it exists in other countries?

[Geneviève Reed]

Thank you for the question Mr. Laforest.

In fact electronic transactions are usually subject to legislation, for example they have been in the United States since 1978. So we'll agree that we are a little behind. The legislation that was passed in the United States, the Electronic Fund Transfer Act, is not perfect but at least it provides a minimal framework for fund transfers.

There is another law as well as a code that works in the same way in other countries, including Great Britain and Australia. So this does exist in other countries.

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

We've been told that in Canada there are more and more electronic transactions—one can call this electronic cash. People are using paper money less and less. At the same time there is legislation that defines what currency is, without referring to electronic cash. That is rather archaic.

Do you think that adding a part on electronic cash to the Currency Act would be a good start in dealing with the issue of regulations or a framework?

[Geneviève Reed]

Unfortunately I don't know what all the ramifications of such a change would be. The issue involves much more than simply recognizing the existence of electronic cash.

In Canada, for several years now, we've been asking that consumers be made aware of any harmonization procedures that are initiated and the responsibility that each party has when corrections to mistakes are made, when there are losses, thefts, solicitation, etc. These are all part of a much broader issue than simply that of including electronic cash in the Currency Act.

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

Option consommateurs is a consumer advocacy group. Last week, the Canadian Bankers Association appeared before us. One might say that they are a bank advocacy group.

In your brief you say that people—and, unfortunately, a significant segment of the Canadian and Quebec population—are poorly informed and not very literate with respect to the financial sector. I agree with you. Is it not your impression that the people advocating for interests other than those of the consumers are benefiting significantly?

How do consumers react to your demands, to your crusade to defend them? I sometimes have the impression that consumers don't mind paying more when they use their credit cards because they don't know that they're paying more.

[Geneviève Reed]

Yours is a two-part question.

First, one mustn't forget that in Canada, 42% of adults between the ages of 16 and 65 years old—almost half of the population—have a number two literacy level, which means that they are able to understand a simple text. The Financial Consumer Agency of Canada is currently proposing a broad study on numeracy, that is, the financial knowledge of Canadians.

Second, it's all very well to provide information to consumers. However, too much information should not be provided. Minister Flaherty recently tabled regulations on disclosure, information etc. In the United States there is what is called the Schumer Box, and even Senator Schumer has said that this is not necessarily the best way to inform consumers. When information is provided, it's important to always consider the consumers' perspective, and not necessarily that of the company.

[The Co-Chair, Conservative, James Rajotte]

Thank you, Ms. Reed.

Thank you, Mr. Laforest.

Mr. Bernier, you have the floor.

[Maxime Bernier, Conservative, Beauce, QC]

Thank you Mr. Chairman.

I will pick up where my colleague Mr. Laforest, and Ms. Reed left off, that is, about the information that should be provided to consumers. They spoke about this earlier.

You raised Minister Flaherty's draft regulations. How do you perceive those regulations? We heard comments from other consumer associations that told us that this draft regulation is a step in the right direction. We're hoping that it will be passed as quickly as possible, and that this specific need for the consumer to be better informed will be met.

If you were going to amend this draft regulation, what would you do?

[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.

[Maxime Bernier, Conservative, Beauce, QC]

Are there any other precedents in other countries on tailoring information regarding minimum payments, as you suggested?

[Geneviève Reed]

I can't tell you that today because I do not have the results of our study. We recently undertook a study on this issue. I could send our findings to the committee members, as I stated to Mr. Thibeault earlier on.

[Maxime Bernier, Conservative, Beauce, QC]

Thank you.

I have a question for Mr. Scott.

Earlier on it was stated that credit cards are very popular amongst consumers. The Bank of Canada also undertook a study and they told us that credit cards are one of the most costly methods of payment.

Why do you think consumers still use credit cards to such an extent? There are other ways of making payments instead of credit cards. Is providing information sufficient to make the consumer aware of this issue?

[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.

[Maxime Bernier, Conservative, Beauce, QC]

Thank you very much.

[The Co-Chair, Conservative, James Rajotte]

Thank you.

We'll go to Mr. Rota, please.

[Anthony Rota, Liberal, Nipissing—Timiskaming, ON]

Thank you, Mr. Chair.

Thank you for coming out.

I have a quick question, Mr. Scott, regarding your partnership. Do you have any partnerships with credit card companies? Do you receive any reward or memberships? Is there any kind of negotiation that happens en masse for all of your members or does each member negotiate on his own?

[John Scott]

Do you remember when I started off and tried to explain the structure of the industry? If you're buying or you franchise from one of the major players, the odds are that you can piggyback on the rate they have negotiated. Different rates are negotiated by the major players in the country.

If you end up in a situation such as that of Mr. Bouchard, who has a single store and an affiliation with a couple of stores, he's negotiating on his own. That's a choice you make. You either want to be a franchisee of a major company that controls everything you do, in which case you may get a lower transaction charge, or you're on your own to negotiate the best rate you can.

[Anthony Rota, Liberal, Nipissing—Timiskaming, ON]

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.

[John Scott]

You are absolutely correct about the competitive situation. Because of the strength of the large players in Canada, there really isn't any centre where there isn't some form of competition within driving distance, except in the case of some very remote communities. You don't pass those costs on to the consumer.

In some of the northern communities that you're talking about, somebody might pay, for example, as high as 7¢ a transaction on a debit card, whereas the corporate rate might be 1¢ or even less than 1¢. That's the strength of negotiating power.

Let's get back to the certainty. That grocer has figured out how to compete despite the 7¢ per transaction he is paying, but if you go to a percentage transaction, those stores won't be there anymore. That was our point earlier.

[Anthony Rota, Liberal, Nipissing—Timiskaming, ON]

That's exactly what I was concerned about. With a fixed rate of 7¢ on a transaction, or even as high as 40¢ or 50¢, you have a fixed cost. It's there. The cost of the transaction, whether it's a large or a small one, is going to be the same. Whether it's on $10,000 or 10¢, that transaction cost is basically not much different. To go to, say, a percentage-based debit fee to make that transaction happen could be devastating to the small grocers.

[John Scott]

Just take, let's say, your 3¢ or 3% on a $200 bill. Even with my simple ability in mathematics, I can see the difference.

[The Co-Chair, Conservative, James Rajotte]

You have five seconds, Mr. Rota. I'm sorry. Thank you.

We'll go to Mr. Wallace, please.

[Mike Wallace, Conservative, Burlington, ON]

Thank you, Mr. Chair.

Thank you to our guests for coming.

I'll start with Mr. Scott.

Just so I'm clear, obviously you're in favour of competition. If you're an independent grocery business, obviously you're keen on competition, because there's a lot of it out there. Your basic premise to us on the debit side is that you're not concerned with Visa and MasterCard entering the marketplace as long as the rules are that they are at fixed costs, not percentages. Am I accurate in that statement?

[John Scott]

That's right: cents per transaction. Now--