Industry Committee on Nov. 18th, 2009

[Robert Bouchard, Bloc, Chicoutimi—Le Fjord, QC]

That's good.

[Richard Taylor]

Mr. Chairman, if you wish, we can obtain a number of complaints by section of the Competition Act.

[The Chair, Conservative, Michael Chong]

Thank you, Mr. Taylor.

Mr. Bouchard.

[Robert Bouchard, Bloc, Chicoutimi—Le Fjord, QC]

In your presentation, you also said that the Interac association might change status. It currently has the status of a not-for-profit association and is taking steps to obtain that of a for-profit entity.

Have you assessed the impact that that potential change may have on consumers? Are you able to say whether that change would be beneficial or disadvantageous for consumers?

[Richard Taylor]

We are currently examining that question. We haven't completed our examination, but we're going to be able to make our decision public next week.

[Robert Bouchard, Bloc, Chicoutimi—Le Fjord, QC]

You say you aren't the only ones trying to determine whether interchange fees constitute a violation of the act. Do you exchange information with those who do the same work as you?

[Richard Taylor]

I'd like to ask my colleague to answer that question.

[Martine Dagenais]

When we know that international agencies are investigating a particular aspect or case that we are examining as well, we contact them. However, as Richard mentioned, there are confidentiality clauses that we have to comply with, and the same is true of our foreign colleagues. Confidential information has to remain confidential, of course, but we are generally aware of their efforts.

[The Chair, Conservative, Michael Chong]

Thank you, Ms. Dagenais.

Mr. Lake.

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

Thank you, Mr. Chair.

My thanks to the witnesses for coming today. I understand it's complicated, because most of the questions that we would want to ask, you can't answer. So I'm going to focus on history and process.

You said in your opening statement that the tribunal issued a consent order in 1996 addressing the bureau's concerns. Can you talk about what those concerns were at the time.

[Richard Taylor]

In 1996, the bureau and Interac entered into a consent order that addressed concerns the bureau had regarding the activity of members of Interac, mostly the large banks, who controlled the network at that time. The consent order provided for several measures to increase competition in the market for debit products, including easier access to the network. The consent order embodies the settlement negotiated between the bureau and Interac to resolve the competition concerns.

The respondents were alleged to have engaged in a practice of anti-competitive acts contrary to the abuse of dominance provision. Among other things, they restricted membership in Interac to Canadian deposit-taking financial institutions that were members of the Canadian Payments Association, thereby prejudicing retailers, third party processors, and other banks from participating as members. It restricted certain network privileges to charter members who were the respondents of Interac and effectively closed access to other members. It established excessively high initiation fees and member fees for its services. It therefore discouraged participation in the debit network. It prohibited members from charging cardholders and other members for ABM use, and it imposed strict account eligibility criteria and limitations.

What it effectively meant was that membership was limited to the major banks and a few others that were members of the club. Since the order was issued, there are now 62 members, and we have a very competitive market.

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

What can we expect from your reports? I know you can't say what's going to be in them, but what kinds of things are you going to tell us? We have two reports, it sounds like, coming out within the next few weeks. What types of things will we find out?

[Richard Taylor]

The Interac report will give our reasons for either not challenging or challenging the order. The issue is whether or not the order issued by the courts, which was so important to the development of the debit network in a competitive and not a monopoly fashion, is still needed. We are looking closely at that, and we're close to a determination.

On the credit card matter, we will decide within the coming weeks what our next steps will be. This includes looking at abuse of dominance under section 79, resale price of maintenance under section 76, how the interchange fee is set, and what restrictions are placed on merchants by the credit card networks.

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

With respect to the process, Interac came to the bureau asking for your consent before it filed an application. Why would they do that?

[Richard Taylor]

I can't speak for Interac; I can only assume that they would like us not to intervene. If we were to intervene, they would feel that we'd done our homework and that we could be a significant factor before the tribunal. So they want to try to convince us that there will be no harm in making the changes they would like. If we don't intervene and oppose the transactions, the tribunal would likely decide in their favour.

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

Regarding the process of amending the consent order, what does that process look like? Right now, they're just asking what you would think of it. But there's a process that involves going before the Competition Tribunal. What is that process?

[Richard Taylor]

They can apply at any time; they don't need our permission. It's up to the tribunal to decide.

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

Can you tell us whether you've looked into the situation since 1996?

[Richard Taylor]

We've done this only in our current investigation.

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

I think I'm good, thanks.

[The Chair, Conservative, Michael Chong]

Thank you, Mr. Taylor. That was valuable information about these upcoming decisions on debit and credit.

We will now go to Mr. Thibeault.

As a quick clarification, in some ways it's a lot like Canada Revenue Agency's advance tax rulings, where the corporation could seek to get the agency's decision or views on a tax matter before a company decides to effect that decision. In some ways it's a similar idea. Is that right?

[Richard Taylor]

It is, Mr. Chairman. It's a little different. We have a very good program called the advisory opinion program. Businesses can come in to us, as part of our compliance initiative, and tell us hypothetically what they want to do in the future, and we will tell them whether it's likely to run afoul of the law or not. It's similar to that.

But you're right. In a sense, it is similar.

[The Chair, Conservative, Michael Chong]

Thank you very much.

Mr. Thibeault.

[Glenn Thibeault, NDP, Sudbury, ON]

Thank you, Mr. Chair.

Thank you for your presentation today.

You're right, trying to understand the debit market is a complex issue, when $168 billion, I believe, is the number Interac is helping to look after right now. I believe you said it was 99.9% of that market, so that's a significant amount of money that seems to be working right now.

I know it will be difficult to answer some of the questions, so I'm trying to phrase them to get more of your opinion.

Would it be fair to say that if Interac doesn't get the consent it needs, they're then put into an unfair advantage because they're going to be competing with Visa and MasterCard, which are coming in as for-profit companies, and Interac will be not-for-profit?

Does that make competition fair? I'm looking for your opinion on that.

[Richard Taylor]

I don't know if it would give them an unfair advantage. I can't speak to the reasons Interac wants to make the change. But I don't think it's fair to say it gives them an unfair advantage. I think Interac believes quite the opposite.

That's indeed what we're currently looking at, whether or not the not-for-profit status that's been so important to keeping the debit network competitive since 1996 hinders them from competing because of various restrictions that not-for-profit corporations have on them by their very nature. That's indeed what we are currently looking at.

What we want to do is make sure the market goes forward in a competitive fashion and that there are no abuses of dominance and no abuses of market power, and that when new entrants come in they don't lever their existing market power in other areas to dominate another market. These are all things we are looking at that members of the committee have so astutely raised already here. These are exactly the things we're looking at.

But I don't think it's an unfair advantage that we're worried about. It's whether or not it will disadvantage them.