Finance Committee on March 22nd, 2007

[Mike Wallace, Conservative, Burlington, ON]

In the United States, there is an Electronic Funds Transfer Act, I think it's called. I think you even mentioned it before. I think it protects consumers, if I'm reading it correctly, to a maximum of $50, if they can prove that there is fraud, that there was an approval of the piece.

Do you expect that to be a discussion at your consultation piece? Is it something I can expect your organization will review, after you're finished your consultation? After that's done, should this government, or the government of the day—I'm not sure when you're embarking on this—be moving in that area in terms of legislation? Is it an area you'll be discussing?

If I'm wrong.... There might be protection out there that I don't know about from legislation. If you could let me know, or comment on that, I'd appreciate it.

[Doug Kreviazuk]

I'm not aware of any specific legislation in that regard. That said, I'll make two points.

First, the work we will be doing will involve the participation of stakeholder groups, including the consumers associations. If they are concerned about particular issues in that regard, certainly these will be discussed and debated within the forums we will be having.

Secondly, the Department of Finance, as I understand it, has been working on an e-commerce code of conduct, which as we understand it—we have not been privy to the drafting thus far—may deal with some of these consumer protection issues, broadly defined, regarding e-payments.

[Mike Wallace, Conservative, Burlington, ON]

Those are my questions. Thank you very much.

[The Vice-Chair, Liberal, Massimo Pacetti]

Thank you, Mr. Wallace.

Ms. Wasylycia-Leis, you have six minutes, please.

[Judy Wasylycia-Leis, NDP, Winnipeg North, MB]

Thank you, Mr. Chairperson.

Thank you very much for being here.

As you know, we had a considerable discussion on this whole area when dealing with Bill C-37, the changes to the Bank Act. We deferred to a later point recommendations from many groups on a complete overhaul and review of the area of electronic payments, because it is such a major issue for consumers.

I know the Canadian Payments Association is involved in terms of some guidelines and in trying to oversee this area. However, overall, it seems to me that this area is largely unregulated. As you said, it is based on voluntary support. You've talked just now about a code of ethics for electronic payments. It seems to me that we've gone way beyond that approach, and that we, as parliamentarians, need to be working on a legislative framework in this area.

I want to start by asking you about the recommendations that we've had from Option consommateurs, and also from CCI, the Canadian Consumer Initiative. Both of those organizations, and others as well, have documented serious problems with the electronic payments system. I'm going to refer to their study and information from back in the spring of 2006.

They commissioned a study that reported 900,000 pre-authorized debit problems in two years. They said it breaks down to about 1,000 mistakes each day. They identify the problems in terms of wrong amounts, wrong dates, or inadequate funds. I could go on and on, but I don't want to take up the time of the committee. I'm sure you know this study very well.

First of all, I'd like your comments on the study, on the problems at hand, and on whether or not you would support this committee going forward with a recommendation to the government that we work hard at developing a new legislative framework. Whether it's part of the Bank Act or separate makes no difference at this point. I think the question is how much we are going to start to come to grips with this ever-changing world.

[Doug Kreviazuk]

If I may, as some of the previous speakers did say, regulation should be our last fallback. We should be looking toward it—

[Judy Wasylycia-Leis, NDP, Winnipeg North, MB]

Why?

[Doug Kreviazuk]

—only if there's a market failure.

[Judy Wasylycia-Leis, NDP, Winnipeg North, MB]

Isn't this a market failure?

[Doug Kreviazuk]

In the case of the one you have cited, it was predicated on a report commissioned by the Union des consommateurs, in Quebec. As a result of that study, we have commissioned a task force. We have been reviewing the pre-authorized debit rule. We have been working with many consumer groups dealing with these particular issues. In fact, we will be launching focus groups on a strong-man model, for a new rule in April and May of this year. We'll be coming back to our board of directors later this year for recommendations to change, in order to address many of the concerns that have been raised there.

[Judy Wasylycia-Leis, NDP, Winnipeg North, MB]

I don't understand your resistance to a regulatory model in an area that is exploding around us, in which there are some obvious problems being cited regularly, and in which other jurisdictions have clearly moved toward regulation. Even the United States is way beyond us in this field. Why wouldn't we just get down to work and agree that, yes, we should have some. Why should it be left on a voluntary basis and to the goodwill of financial institutions when we're talking about consumers and protection of their own money and in some cases their own identity? What's the hang-up?

[Doug Kreviazuk]

It's not a matter of a hang-up. I've been around the CPA for a number of years and have worked very closely with most of the stakeholders. As Mr. Legault has suggested, we have a stakeholder advisory council that brings together all walks of life in the development of our rules. We do not produce those in a vacuum. We consult not only with the stakeholder councils, but very broadly with Canadians, and the development of our rules takes those consultations into consideration.

We believe that through our consultation forums we have received and have passed some exceptional rules. In fact, most recently, the online payment rule promulgated a little more than a year ago led to the rollout of Interac online. At that point in time, each of our members subscribed to the debit card code of conduct and the principles that underlie that for this rule, to give that added assurance and consumer protection.

So I believe the process of consultation, which is very broad, is very effective.

[Judy Wasylycia-Leis, NDP, Winnipeg North, MB]

Okay, I accept that. Well, I don't accept it all, but I understand what you're saying.

I think, then, part of the issue is getting information so we can even judge whether we accept what you're saying. You know, we can't even get immediately from banks the cost of electronic transmissions involving ATMs. Can you give us a breakdown of the cost, on average, for every one of these aspects of the whole electronic payments system, as is actually possible I think in Great Britain through their Office of Fair Trading, so at least consumers then know?

That's sometimes why you need regulations, because if you let it just be a self-regulating model, first, you're not always guaranteeing consumer protection, and second, there are a whole lot of costs that get passed on to consumers that may not be more than simple ways of increasing one's profit margins. Sure, the banks can say that all this new technology is just beyond their free will and it just happens. Or we can understand it in terms of something that's being pushed on consumers by financial institutions, because in fact it allows them--

[The Chair, Conservative, Brian Pallister]

Thank you very much, Madam.

[Judy Wasylycia-Leis, NDP, Winnipeg North, MB]

--to bring in profit from a whole number of other areas.

[The Chair, Conservative, Brian Pallister]

I won't permit a response because we've gone way over on Madam Wasylycia-Leis's time, but if you want to work some of your answer to that question into the next one, that would be fine too.

We'll move to Mr. Pacetti now.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Thank you, Mr. Chairman.

It's not necessary that you work that answer in.

One of the questions Ms. Wasylycia-Leis asked was how fraud occurs. I missed part of the answer. I was moving out of the chair. How does fraud happen if you're dealing with legitimate organizations? If there were to be some type of fraud revealed, couldn't you just get the money back?

[Doug Kreviazuk]

Actually, I'm not aware of how fraud could be perpetrated in a bill payment environment, because essentially the consumer is sent an invoice. I decide to go online to my bank site in order to make a payment.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

That's what I'm saying, so there's--

[Doug Kreviazuk]

You're paying it to a third party that has sent you an invoice. You're not paying it to yourself or to another fraudster.

Maybe I could pass it to Barbara.

[Barbara Ciarniello, Associate Vice-President, Credit Union Central of British Columbia, Payment Services, Canadian Payments Association]

I think there is one opportunity, and that would be on VISA or Mastercard, on the credit cards themselves. If someone managed to find your statement, either by taking it from the mail and by getting the information...they could make a payment to that account and it would be to their benefit, because they could then use the money that's supplied against the account to purchase.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

That's not the CPA's responsibility; that's VISA's responsibility.

[Barbara Ciarniello]

That is correct, but as far as the CPA is concerned, I don't believe there's an issue.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

So the CPA is not really exposed to much risk in terms of....

[Doug Kreviazuk]

Well, we deal with risk of a different nature. It's really the risk between financial institutions.

It's the financial institution that deals with the clients and the customer and biller risks. Now, our rules do establish liabilities between the financial institutions, and in many cases on how to return an item.