Mr. Chairman, members of the committee, thank you for inviting Option consommateurs and giving us an opportunity to express our views about automated teller machine fees.
For those of you who are not familiar with our group, Option consommateurs was established in 1983. We are a cooperative involved in defending and promoting consumer rights mainly in Quebec, but we are interested in many Canada-wide issues as well. For a number of years now, Option consommateurs has been actively involved in the area of financial services. One of the things we did was take part in the discussions that led to changes to the federal Bank Act.
Generally, when greater competition is allowed, we expect a drop in prices and an increase in the quality of service. In the case of ATMs, exactly the opposite occurred. Since the Competition Tribunal opened up the market in 1996 and allowed companies that are not financial institutions to establish and run ATMs, the fees involved have increased steadily. Since January 2002, convenience fees have also been charged to non-clients at most financial institutions' ATMs. At the time, we asked financial institutions why they had started charging these fees. Their answer was that if the others were doing it, why not them as well?
Since 2000, we have seen that the number of ATMs owned by financial institutions, as Professor Johnson was saying, has been decreasing, while the number of white label ATM has been increasing. Some business people have even removed the direct payment system and replaced with a white label ATM. We will see later in our presentation that it is cost-effective for business people to have a white label ATM on their premises.
At the same time, financial institutions have fewer and fewer ATMs in some neighbourhoods and in some rural areas. Have you ever tried to find a CIBC, TD or Scotia Bank ATM in east-end Montreal, an economically disadvantaged neighbourhood? Contrary to the claim made by some bankers, consumers cannot always walk to their institution's ATM to avoid the ever-increasing fees involved in a switch transaction.
According to figures from the Interac Association, 66% of consumers use the Interac network to make withdrawals from an ATM that does not belong to their own financial institution. This is what the association calls shared cash dispensing. The association also stated that in 2006 in Canada over 285 million shared withdrawals were made by consumers.
As Prof. Johnson said, there may be three types of fee involved in an ATM transaction: the lump sum amount paid to the financial institution, generally monthly; the Interac charges, which range from $1.50 to $2; and the convenience fee, which may vary from $1 to $3. The Interac fee and the convenience fee are charged when a consumer uses an ATM that does not belong to his or her financial institution.
We think that financial institutions are profiting unduly from this situation. By charging convenience fees, they require consumers to pay twice as much as previously for the same service and they are increasing their profits considerably, because, without knowing it, consumers are already giving a good percentage of the Interac fee to the financial institution or to the business that owns the ATM that they use. A few cents of the $1.50 charge for using the Interac network actually go to the Interac Association. The rest is more profit for the financial institutions or the private businesses.
Let us look at how the Interac fees are broken down—for example the $1.50 fee. A few cents of each transaction go to the Interac Association. The association gets 1¢ per message. Generally, there are two messages involved in a transaction, the request and the reply. The association thus makes 2¢. Seventy-five cents go to the financial institution or the business that owns the ATM where the transaction takes place, either a white label ATM or an ATM owned by a financial institution. The remainder, 73¢, when the fee is $1.50 and 48¢ when the fee is $1.25, goes to the financial institution that issued the debit card.
Since I have very little time left, I will move immediately to our recommendations. You will be getting a copy of my presentation and you will be able to refer to it.
Option consommateurs recommends that Parliament hold a public inquiry into all the factors involved in bank service fees, particularly with respect to payment services, and determine the profitability of the operations associated with these fees for deposit-banking institutions and, in light of the findings of the inquiry, decide whether it should introduce legislation concerning these fees, whether or not they are charged by federally-regulated deposit-banking financial institutions.
Option consommateurs also recommends that legislation be introduced to eliminate the convenience fees for all ATM operators. We must also ensure that these fees are not simply passed on to consumers by increasing the cost of other basic services.
Finally, Option consommateurs recommends framework legislation to regulate all the different types of electronic payments. Otherwise, rules and limitations on bank fees should be included in the Bank Act.
Thank you.