Finance Committee on April 17th, 2007

[Mel Fruitman, Vice-President, Consumers Association of Canada]

Thank you, Mr. Chairman. I will be extremely brief. We are pleased to have this opportunity to appear here today.

The Consumers' Association of Canada is a 60-year-old independent, not-for-profit, volunteer-based organization with a national office in Ottawa and provincial-territorial representatives in every province. Our mandate is to inform and educate consumers on marketplace issues, advocate for consumers with government and industry, and work to solve marketplace problems in beneficial ways.

In general, we favour a competitive marketplace, with government intervention when it is clear that consumers are at risk or that there is a potential for consumers to be harmed.

With respect to electronic banking, our major concerns relate to privacy and security. We also see dangers for consumers when they conduct inter-jurisdictional transactions, where different laws may apply and enforcement of protective laws may not be feasible. Additionally, we seek assurances that those who cannot or who have difficulty functioning in an electronic environment will not be penalized.

Since we already hear the bells ringing, and we have heard from many others, we will stop at this point. We would be pleased to assist the committee in any way we can by responding to your questions.

[The Chair, Conservative, Brian Pallister]

Thank you very much, Mr. Fruitman.

I'm told that we have approximately seven minutes until the vote. So we've got time for six minutes of questions from Monsieur Thibault.

Please proceed.

[Robert Thibault, Liberal, West Nova, NS]

Did you want to start with one question first? You had one question.

[The Chair, Conservative, Brian Pallister]

Share your time as you wish.

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

I just want to go to Nadia Massoud. I didn't realize we'd be asking questions; otherwise, I would have been a little more prepared.

I thought you actually had a fairly interesting presentation. Basically, your argument is that the surcharge is above marginal cost. What we've been struggling with, as has Mr. Conacher, is what's the cost of the system here? Do you have any information to share with the committee on that?

[Dr. Nadia Massoud]

I was talking about a theory model, so it's not based on empirical data. It's a theory model, so it can be any marginal cost. The theory model shows that the ATM surcharge will be higher. But I don't have empirical data on the actual cost because this information is not clearly revealed.

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

Okay.

Robert.

[Robert Thibault, Liberal, West Nova, NS]

Thank you.

Again to Ms. Massoud, we ran out of time, but in your presentation do you have one recommendation for how this should be dealt with by the Government of Canada, what Parliament should be recommending?

[Dr. Nadia Massoud]

Thank you. That's a very interesting question.

My final recommendation? Those prices are determined based on competition. Banks are competing, but the main competition is not the ATM service; the main competition is in attracting customers to the bank. And I don't think the government should intervene. Just leave the market. We're a free market. Keep the free market to determine the prices.

[Robert Thibault, Liberal, West Nova, NS]

Thank you.

I think that brings it to an interesting point. As Mr. Trigg was saying, there is no free lunch. If we want the service out there, and we want these points of sale.... I don't think we necessarily want less. I don't think we want a lesser distribution. Maybe we want a better distribution in some instances.

I live in a rural area that's well served, I think quite well served, a lot better in terms of access to cash at any time than when we had to depend on banking hours. It's true that there is some cost, but the cost is less than before for having immediate access to ATM machines, debit machines, credit card transactions for small business. You have your guaranteed cash. You have your cash deposited in your account a lot better than with personal cheques...and some NSF cheques and all the other problems that were there.

If we're going to regulate, if we're going to legislate, the only thing I can think of that could solve some of the problems I'm hearing about here today is that Canada Post should do it and that every Canada Post outlet should have a free ATM machine. But then again, that would have some cost.

I was listening to Mr. Douglas, hearing about the changes that have been made with the credit unions and their attempts in that. I'm well served by credit unions. I find that their fees and services are similar. There's no big difference between what they're providing and what the other providers are--a little less better than the white labels, but the white labels are generally where the others don't want to service.

I was wondering, Mr. Douglas, what you would recommend. What recommendation would you give us that would give cheaper access to Canadians in all areas?

[Andrew Douglas]

The recommendation I would like considered would be recognizing the low-income communities, where there were at one time many banks. When those banks left the north end area, they didn't actually leave an ATM, so the customers, who were still Royal Bank or CIBC customers, didn't even have the ATM to go to. All they had was the white label ATM. Is there a way to look at an area so that if there's not a mainstream financial institution within a certain area, there is a way to provide easy access for individuals to get their money? When getting money out and putting money in, folks find that all they are left with are the fringe financials.

[The Chair, Conservative, Brian Pallister]

I'm sorry, Mr. Thibault, but we're cutting a little tight on the vote. We'll give you a minute and a half when we come back.

I have a quick housekeeping item, and this is very important for everyone to note, because I love my food. That food back there is for the committee members and the staff. I see some of you salivating back there, but salivate elsewhere, because that's not your food.

Witnesses, you're welcome to join in partaking of the lunch that's available.

We are going to recess until 12:30, whereupon we'll continue with questioning to our witnesses.

We are recessed.

[The Vice-Chair, Liberal, Massimo Pacetti]

Can we start? We have another vote in a couple of minutes, I think it's in about 20 minutes, and then by the time we finish voting we're going to have you guys hanging around for another 40 or 45 minutes. So perhaps we can get started.

I wasn't here during the last sequence of interventions from the witnesses, but I understand it's Monsieur Thibault. You have a minute and a half to two minutes remaining.

Thank you.

[Robert Thibault, Liberal, West Nova, NS]

Merci, monsieur le président.

Thank you to the witnesses for waiting so patiently. Now we're going to be cut short again, I understand.

My final question would be to Mr. O'Connell.

One of the things we do here repeatedly, which speaks to competition, is the question of protected territory, whether it's university campuses, as we heard, or airports, or areas where there are lots of people who are pretty well forced to access the ATM machines in that locale—and it can be very large populations—and where that territory is contracted off or auctioned off to one ATM operator.

I don't know, and I don't believe, there's any federal mechanism we could use in that instance, in many cases, but the Interac network certainly would have ways to do it within their policies and guidelines. Would it not be possible to ensure that there is always competition within those protected territories, rather than bargaining it out to one carrier?

[Mark O'Connell]

As I think you know from the previous day's testimony, that is solely in the power of the institution or merchant, whether it be an airport or university, that controls those premises. That is not controlled by the ABM operator; it's usually an RFP process that goes out. Many of them have strategies of wanting multiple ABMs within their premises, and some negotiate more for a single provider.

So I don't think we would have purview to that, given that it's a free market or merchant responsibility.

[The Vice-Chair, Liberal, Massimo Pacetti]

Thank you.

Merci, monsieur Thibault.

We're going to try to keep this to the six minutes.

Monsieur Crête is next, and then I have Ms. Ablonczy, and then we're going to try to get to Judy.

Monsieur Crête.

[Paul Crête, Bloc, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

Thank you, Mr. Chairman.

Thank you for being here. This is actually my first opportunity to speak as the Bloc Québécois finance critic.

I find all of this to be extremely relevant, because our society is concerned about the creation and perpetuation of poverty, which are linked to an issue such as this. Mr. Buckland clearly illustrated that fact. We intend to study this matter so as to assure ourselves that people all across the country have equal access to services. That is very important, in my opinion.

Mr. O'Connell, I would like you to outline how the Interac Association is funded. You said that you are a not-for-profit organization with capital inflows. But there must also be capital outflows that are not business profits under the Act, but rather, operating surpluses. What kind of amounts are we talking about? Do your members ultimately come out ahead? Do they make a net profit?

[Mark O'Connell]

That's correct. We're a not-for-profit association, so we only recoup our operating profits in any given year for the activities that we provide within the network. And those activities are, number one, as I said, we operate the systems that link the various members' systems together in the network, but we do not, obviously, have purview or operate the large systems that sit within our direct connector nodes.

It's very important to understand that the Interac network is a decentralized network, and the benefit of that obviously is that there's no single point of failure, so it's virtually impossible for the network ever to go down for Canadians, and hence its reliability. And then we provide, as I said, all of the administration of the payment rules and policies and so forth, plus the marketing services and the varied security services.

We recoup those costs in charging a member fee per year. For example, the interchange fee I mentioned--and this is in our guidelines and mandated--that flows from the cardholder's financial institution, or the issuer, if you will, and flows to the ABM operator or acquirer is not collected by Interac. We merely recoup our costs, from an operating basis, for those four main services that we provide annually.

[Paul Crête, Bloc, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

Do you generally have the same type of contact with what I call the independent ATMs — in other words, the ones that are not located in a banking institution? Does Interac also service those ATM operators and do you have the same type of economic relationship with them? Are they banks? Are some of those owners or operators of these ATMs members like all the others?

[Mark O'Connell]

They are among our members, the white label providers. They do connect to us in various ways, but the same premise would apply in that we do not partake in the funds and the different costs.

[Paul Crête, Bloc, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

They apply a surcharge. For example, we are asked whether we agree to pay 1,50 $ or 2 $ more for the service, and we can answer either yes or no. Do they make their profit from that 1,50 $ and do they remit an identifiable portion of that amount for the use of the Interac network? If they only had the machine and the money, those operators would not survive for long, would they? Surely it is thanks to the Interac system or one like it that they are able to operate outside the banking institutions. Do they have to pay an amount that corresponds to a percentage of the cost the consumer is charged at the time?

[Mark O'Connell]

Again, because Interac is not involved with setting or regulating prices or with the economics of our members, I can't speak to the profits or fees that are levied by those members. We have no purview there, so I can't comment on a marginal cost basis.

[Paul Crête, Bloc, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

I have a question for either Mr. Buckland or Mr. Lawford. Let's say someone receiving a 600 $ monthly social assistance cheque happens to live in an area where no banking services are available and does not have access to an independent distributor to get the money. What amount or proportion of their monthly income would they have to pay out as a result of that? Is my question clear?

[Jerry Buckland]

Yes, that's clear. For instance, if a single person receiving social assistance in Manitoba was getting about $250, they would be then looking at a white label ATM fee plus their bank fee. It could amount to maybe $5 to do a transaction. It depends on exactly how they do that transaction. More likely, they'll go to a cheque casher, in which case they'll be looking at more like $7 to $10 to pay for the cheque-cashing fee, and that's a pretty big chunk off the top of that limited income.

[The Chair, Conservative, Brian Pallister]

Merci beaucoup, monsieur.

We'll have one more round of questioning from Madam Ablonczy, and then we apologize to our witnesses for this democratic disruption that is occurring today.

Madam Ablonczy, over to you now.