Finance Committee on March 22nd, 2007

[Doug Kreviazuk]

It does, yes.

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

Okay.

[Doug Kreviazuk]

And it's all set up through the rules.

[The Chair, Conservative, Brian Pallister]

The next speaker will be Mr. St-Cyr.

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

I will come back a second time on what Mr. McKay said. I hope that will not happen too often.

I would like to say a few words about instantaneousness. I know that you cannot answer, but perhaps you can tell your banking institutions that since money seems to move instantaneously, this should be reflected in the banking payment system. I know that ING, of which I am a client, is fairly good in that area. When I make a payment which does not go through, the money goes to a buffer zone for pending transactions, and I can see that the money has not yet been deposited in the other account. I can see that the money has left my account and that it is there. But with other institutions I deal with, when I do a transaction, my money is in limbo for a certain amount of time, and I don't know where it is. I simply wanted to point that out. I hope you will pass on this message.

Further, I have a question regarding processing delays. It seems that there's no consistency in this area amongst banking institutions. I would like to have an explanation. Let me give you an example from my own experience. At the end of the year, when the time comes to contribute to my RSP, I decide to sell some shares. I receive a cheque for the sale of these shares which I deposit into my account. On the same day, I write a cheque for my broker so he can take the money and put it into my RRSP. But since the cheque I received from my stockbroker is held for a certain number of days, the money is not immediately available in my account. So the amount is taken from my line of credit and I have to pay interest.

If the same rule applied to the cheque I wrote, it could be said that the bank still has not deposited my money into my RRSP. So you end up in a situation where the bank still does not have the money and yet charges me interest. However, it still has not transferred the money to the other institution.

First, do you process transactions involving cheques?

Second, how do you explain the fact that when it is convenient for the bank, the money is not available, but when it is convenient for the consumer, the money must be debited immediately?

[Doug Kreviazuk]

We do take care of the cheque clearing process as well, and in fact we're moving towards electronifying that. That's a huge initiative being undertaken today by the CPA and its member institutions. But there's really no direct parallel between the bill payment side, the electronic side, and the cheque clearing side.

Let me go back to the bill payment side. I think you suggested that when you make that payment, the funds come out of your account. Is that correct?

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

I was referring to cheques. On the same day, I deposit a cheque from whomever and write out another cheque for the same amount. The money from the cheque I have deposited is not immediately accessible to me from my account because it is being held somewhere. However, on the same day, when I write a cheque, the institution charges me interest because the money is not yet available. The institution, however, still has not transferred my money to the other party. Yet the bank has the money. Why is it charging me interest in this type of situation?

[Doug Kreviazuk]

With regard to the cheque, once it's made on deposit it needs to go through the cheque clearing system. That piece of paper needs to make its way back to the institution on which it's drawn to allow them to ensure that you do in fact have the money in your account and the cheque was signed by you.

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

Right.

[Doug Kreviazuk]

That could take a couple of days. The current experience in Canada is that financial institutions generally provide consumers with provisional credit, so they put the funds into your account on the day it's deposited. It is therefore then proprietary whether or not they implement a hold on those funds. In many cases, consumers are allowed to draw on those funds. It all depends on what the financial institution's policies are.

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

I understand.

[The Chair, Conservative, Brian Pallister]

Thank you very much, sir.

[Pierre Paquette, Bloc, Joliette, QC]

Unfortunately, we will not have solved your problem this year.

[The Chair, Conservative, Brian Pallister]

Before we conclude with Mr. Del Mastro, I would invite the committee members to remember that we will be dealing with Finance main estimates coming up here next week. We'll deal with FINTRAC, the Canadian International Trade Tribunal estimates, the Canada Revenue Agency, and the Superintendent of Financial Institutions as well. So I expect your briefing documents to be prepared in advance of those meetings enough that you'll have a chance--

[John McKay, Liberal, Scarborough—Guildwood, ON]

When is the meeting?

[The Chair, Conservative, Brian Pallister]

The week following the break.

We'll go to Mr. Del Mastro now.

[Dean Del Mastro, Conservative, Peterborough, ON]

Thank you, Mr. Chair.

I'd like to start off with a point that Mr. McKay was making, I think, which is that people have a tendency to procrastinate. In fact, you could probably argue that one particular gender is predisposed towards procrastinating, which is the one that I belong to. My wife tells me I procrastinate fairly regularly. But people tend to think that when they go into their website and they authorize a payment on their credit card, that payment has been made and it has been made on time.

The problem with the way the system works right now is it's not clear that those payments are not being made instantaneously. That's the problem. What happens is if this payment is received two days late by VISA, using it as an example, they will register that as 30 days late. It goes on your credit as R2. If you have a number of R2s on your credit rating, it lowers your overall credit score. And even though as far as you're concerned you've always paid your credit as agreed, you've always maintained it, you've been a good credit customer, you may not qualify for prime lending fees because of this misunderstanding as to how electronic payments are carried forth.

I've dealt a lot with retail finance at one time and a lot of people come in and tell me that they've always paid their bills, they've always paid them on time. They don't understand why their credit score would not be perfect, and I think this is a reason why; they don't understand that authorizing a payment is not the same as having made the payment.

How can we assist people? How can we make it so that they understand the system better and can use it better to their benefit?

[Doug Kreviazuk]

It's an excellent question, and certainly as we move forward in our consultation process, that is definitely one of the questions we will be asking and answering amongst our group.

That said, most of the time that we're aware of, billers do inform consumers on their statements to please ensure the bill is paid three days before due date.

[Dean Del Mastro, Conservative, Peterborough, ON]

Isn't that three or four bonus points?

[Doug Kreviazuk]

So disclosure certainly is an issue, but I know responsible corporates do provide much of that information for consumers' benefit.

I only look to the United States as an example as well in the electronic bill payment area. Their environment is very much identical to what we have here, except it is a little bit slower, so I take pride in the system that we do have here. There, electronic bill payments have to be processed up to two days in advance of the billing date just to move through their clearing system. But when you're on their online systems, when you're sitting down and making a payment, it may say right on the website, “This bill must be paid three days in advance of the due date”, or it will actually prevent you from entering a date to make that payment until that period has lapsed.

So it's just another way to educate consumers.

[Dean Del Mastro, Conservative, Peterborough, ON]

Okay. I appreciate that.

The other thing is that a small business, for example, may have very large cash transactions, particularly retail businesses where they're operating with large lines of credit. They're paying interest on one side and they're waiting for money to come in on the other side, and this cycle tends to go on and on.

At the end of the year.... Even though you get a fax that says the money has been sent or you get an e-mail saying that funds have been transferred, you may wait three or four days for those funds to arrive in your account, which means you've paid four days of excess interest on your account. It can be quite costly. In fact, it can be thousands and thousands of dollars at the end of the year.

How can we tighten this up? Is there an incentive for the banks to tighten this up, first of all? Secondly, if so, how do we do it?

[Doug Kreviazuk]

In the case you're speaking of, where there are large sums of money, we operate a system called the “large value transfer system”, which is available to our membership. They make that service available to consumers and businesses, and in many cases it's taken up by businesses. What it assures is same-day, real-time funds, and it cannot be revoked.

For example, if you were closing a house deal and you needed to ensure that the vendor received those funds today, you could go in and do a wire payment to ensure that it is made. So there are some options available.

[Dean Del Mastro, Conservative, Peterborough, ON]

That's at the discretion of the bank?

[The Chair, Conservative, Brian Pallister]

Thank you very much, gentlemen.

We'll conclude with a very quick question from Mr. McKay.

[John McKay, Liberal, Scarborough—Guildwood, ON]

We are going to have a witness come before this committee, and what he is going to say is that his business is the notification that the money has been taken out of Mr. St-Cyr's account and that Mr. St-Cyr's bill has been paid. He electronically notifies the creditor that Mr. St-Cyr's bill has been paid before you guys do.

It seems awfully strange that there is a service that is entirely software-driven that can do this and you can't.