Finance Committee on March 22nd, 2007

[Jannick Desforges, Manager , Legal Services, Option consommateurs]

At the moment, one third of the 55,000 ATMs in Canada are owned by financial institutions. The remaining two thirds are owned by private companies. When white label ATMs in businesses charge convenience fees of about $2, part of the fee goes to the company that owns the ATM, and the other part goes to the business person. So, depending on how busy the business is and the agreement between the business person and the private company, the monthly revenues from one of these white label ATMs in a business are very high. It is an extremely lucrative machine to have. Some business people have told us that they were increasing their revenues by $6,000 a month if they have one of these ATMs in their business.

[Thierry St-Cyr, Bloc, Jeanne-Le Ber, QC]

Let us talk about some alternatives. If I am in a business or a restaurant in Montreal, and someone tries to force me to use the white label ATM, they will not do that a second time, because I will take my business elsewhere.

Is it true that these white label ATMs are located more in cities than in the regions?

[Jannick Desforges]

Over the last 10 years, banks have withdrawn from some neighbourhoods and closed down some branches. In 1996, there were over 7,000 bank branches. In 2006, there were fewer than 5,600. So a lot of branches have closed, particularly in poorer neighbourhoods and in rural regions. It is not unusual to find white label ATMs in places where banks used to be located.

[Thierry St-Cyr, Bloc, Jeanne-Le Ber, QC]

You're proposing the abolition of convenience fees between different companies. If we legislate in this regard, it will be about banks only. Don't you fear that this will further reduce the number of ATMs that the banks install and that it could leave even more room for these white label ATMs?

[Michel Arnold]

The scope of our proposal goes beyond banks. We're also proposing that ways to limit these fees in the private sector be examined. It's important that this issue, which is an important one for consumers be addresses by Parliament.

[Thierry St-Cyr, Bloc, Jeanne-Le Ber, QC]

Perhaps with Mr. Protti, I would like to get back to the issue of the cost of transactions and the link between the price and the cost of the transaction. Citizens in my riding often talk to us about bank fees, because it's something very concrete in their daily lives. We understand that there are fees when you go to an ATM, but most of these fees are fixed: the rental of the room, the purchase of the equipment and the design of software to handle all this. The variable part, which includes among other things handling of envelopes, seems to me to be quite marginal on the whole. Therefore, in practice, whether you have 1,000 transactions a day at an ATM or 100, the cost of that ATM is quite stable and can vary very little according to the number of transactions. That being the case, why are the transaction fees much higher for someone who withdraws $20 five times?

[The Chair, Conservative, Brian Pallister]

Thank you, Monsieur.

We continue with Mr. Dykstra now, for five minutes.

[Rick Dykstra, Conservative, St. Catharines, ON]

Thank you, Mr. Chair. I appreciate the presentations this morning. I just want to indulge in a few questions.

Mr. Johnson, you mentioned that you may be a rose between two thorns. My father refers to this as a pain somewhere on the anatomy.

You bounced around a little bit on the regulation question. Certainly on this side of the table it's not something we would really like to get into or even contemplate, but you did touch on it. At the same time, you had this personal or at least what sounded like a philosophical view that regulation by government isn't something that should happen on this issue. Maybe you could just clarify that for us.

[Dr. Lew Johnson]

Thank you, sir.

Let me say in passing, in reference to Mr. Protti's comments a moment ago, that I can recall when we had black and white television, rabbit ears, and one channel. We certainly have advanced technologically in many aspects of life, and banking is no exception.

[Rick Dykstra, Conservative, St. Catharines, ON]

I'd like you to get to the answer, because I only have five minutes.

[Dr. Lew Johnson]

I'm sorry, sir.

[Rick Dykstra, Conservative, St. Catharines, ON]

All right.

[Dr. Lew Johnson]

Regulation is a practice that is imposed when market forces fail. I'm moving into the whole argument about the Bank Act regulation of banks in Canada; clearly you're aware of it. There are aspects of provision of financial services that are a fundamental need, and one might say a right, of all Canadians—aspects of access to financial services that are constrained, with the current commodification of resources. By commodification, I mean replacing banks with the name of the bank on a number of machines around town, conveniently located--convenient to the banks--in terms of cost reduction and the reallocation of resources.

[Rick Dykstra, Conservative, St. Catharines, ON]

Thank you.

Mr. Protti or Ms. Michell, we've heard the argument. It seems that it's coming down to, or the argument has certainly come down to, the ability to have access, whether it be in rural areas, whether it be for those with disabilities, whether it be for students, whether it be for seniors. It's an area that you could potentially address as representatives of the banks. Is it something you or they are considering in terms of cost reduction?

[Raymond Protti]

They're considering it on a continuous basis. I don't think there's a product or a service that's offered by the individual banks that's not under constant and continuous review as to whether the quality can be improved, whether or not it can be at a better price, and in particular whether or not you can steal some customers away from the other banks. There's a continuous review.

There's a point that I understand was made by the CEOs when they met with the Minister of Finance. My understanding is that they said thank you very much, we have these products and services under constant review, and this is a useful input that was made to the process.

I want to come back to access, though. It is not recognized what a fundamental change the point of sale and debit terminals have meant to seniors, students, Canadians of all sorts and stripes. This use of the cash-back services has been explosive, and they are available in convenience stores, in grocery stores, in drug stores, in liquor stores, where Canadians live and work and do their shopping—

[Rick Dykstra, Conservative, St. Catharines, ON]

Those are fair points.

I don't mean to cut you off, but five minutes is five minutes. In this world you know how short that can be.

I can appreciate that. What it comes down to from my perspective is in the document you presented. Usually when you get a document or read a book, the thesis is somewhere in the middle or toward the end of the document. Here you have it right at the end. It is: “Regulation is simply no substitute for competition.” You are here, conveniently enough, on behalf of all the banks, versus their being here individually, so it does say that on the one hand it's competition, while on the other hand you do represent them as an organization.

I wonder, when you speak about competition, what happens and what the next steps are going to be. Right now, who in fact is the most competitive of the top five banks when it comes to my going to the bank? If I'm going to make a withdrawal out of an ATM machine, if it isn't my bank, who right now is the most competitive?

[Raymond Protti]

It all depends on your own profile. It depends on how frequently you use ATMs. It depends on how frequently you use your debit card. It depends on how frequently you go to the branch. There are literally hundreds of different packages available to you as a customer, so you have to really know your own profile, look across the banking system, see what the options are--because there are a huge number of options out there--and decide what package makes the most sense for you.

[The Chair, Conservative, Brian Pallister]

Merci, Monsieur.

We continue now with Madam Wasylycia-Leis.

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

Thank you, Mr. Chairperson.

I'm certainly happy we're having this preliminary hearing on the issue of electronic transactions, ATM fees, and the general area of electronic payments as well. You will know that from today we will look for more information in terms of how we pursue this in the future.

I want to start with Mr. Protti. I know he cannot be responsible for every bank and he doesn't speak for the detail of the major banks, but since he is the one who, when the NDP raised the question about fees being charged to access your own money, accused the NDP of bank bashing and of political rhetoric without a full understanding of the facts, I figure I can be pretty hard on Mr. Protti with my questions, and pretty pointed.

The first has to do with choice.

Mr. Protti, you suggested that long gone are the days when banks gave personalized service, that back 30 years ago you could only access banking between the hours of ten o'clock and three o'clock. I want you to know, Mr. Protti, that some people in this country would give anything just to have that much service, just to be able to access a bank with real people between the hours of ten o'clock and three o'clock, because, you see, what all the members of your association have done is selectively closed bank branches and hit communities without choice, without options.

You take away the bank branches, you leave a bank ATM, and then, before you know it, you sell that to a white label. What does someone in my constituency do, someone who hasn't the wherewithal to travel downtown or to the outer edges of the city, but go either to a payday lender or to a white label ATM because the banks under your association abandoned communities?

This is exactly what Option consommateurs is saying. There is no choice in many areas, so that argument has to be put aside.

Now let's get to competition. You talk about competition. Let me ask you this. Your report regarding ABMs for October 31, 2005, says the report excludes transactions made at private label ABMs owned by banks. I want you, Mr. Protti, to tell us today how many ATMs or ABMs are owned by banks. If you can't give us all the information today, how fast can you provide us with that information?

[Raymond Protti]

There are several points I'd like to respond to.

The first one is that we have 15,951 ABMs. I think that's the correct number owned by banks. There has been an explosive growth in non-bank ABMs. The reason there has been explosive growth in non-bank ABMs relates directly to a decision by the Competition Tribunal in 1996 to open up the system. When that decision was taken--

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

My question is on your involvement in private ATMs. It refers to private label ABMs owned by banks. This is from your own report.

[Raymond Protti]

I have no--

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

I would like to know how many private label ABMs are owned by which banks. That is from your own report.

[Karen Michell, Vice-President, Banking Operations, Canadian Bankers Association]

To the best of our knowledge, the banks do not own white labels at this point in time.

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

So you're going to go back and check your own report under “Number of transactions at bank-owned ABMs for the fiscal year ended October 31, 2006” and tell me the answer to this question at some point, rather than simply deny something that you put out in writing.

Okay, that's one question.

The second has to do with competition. Let me deal with the fact that the banks were involved in negotiating exclusive rights contracts in key locations for ATMs. We're looking at airports; we're looking at school campuses. You're virtually guaranteeing yourself extra fees and bigger profits. So how many exclusive rights contracts are the banks in the middle of negotiating, how many have you already negotiated, and how many are you in the middle of negotiating?