Finance Committee on April 19th, 2007

[The Chair, Conservative, Brian Pallister]

Thank you, sir.

From VisionCraft Development, we have Susan Ransom.

Welcome. Over to you.

[Susan Ransom, Chief Operating Officer, Cheque Security Specialist, VisionCraft Development Corporation]

Mr. Chair, thank you for the opportunity to address you. I'm the COO of VisionCraft Development.

Nationally VisonCraft supports corporations large and small with a cheque system, EFTs, positive pay, and fraud audits. Today I am speaking with respect to the cheque-scanning portion of Bill C-37 and the Canadian Payments Association 006 standard.

There is a great deal of material, so forgive me if I don't go in depth with each item.

First of all, I should mention that we are non-partisan and we are revenue-neutral with respect to Bill C-37, so we may even be in a position to reap windfall profits with this legislation. I am speaking from my daily experience of implementing the CPA 006 and from my experience as a cheque designer.

Overall, we are not against the concept of imaging cheques except that there appears to be little benefit to consumers, be they individuals or corporations, or to those currently employed in moving the cheques across the country, who we expect may face job losses as the physical flow of cheques stops.

As the CPA 006 standard is currently implemented, consumers are being subjected to excessive cost and risk, and we see these increasing in the future. The portion that dealt with cheque scanning in Bill C-37 is one page. The equivalent U.S. legislation, which is generally called Check 21, is 18 pages plus a 144-page final rule, which provides recourse to consumers in the face of mistakes and losses caused by scanning. Check 21 does not require scanning or truncation of cheques. It is voluntary.

Substitute cheques in the U.S. have two warranties and an indemnity that they carry with them. This warranty is that the cheque is properly prepared and not to be paid twice, and the indemnity continues for one full year from the date the injured party learns of the loss. Bill C-37 on this topic provides no equivalent indemnity.

We also believe that the new physical cheque layout needlessly exposes individuals and corporations to a future of rampant fraud. The CPA 006 standard requires the removal of about 17 out of 34 of the most effective fraud features from cheques, exposing individual consumers, but more particularly businesses of all sizes, to highly increased fraud.

The banks are acting as a cartel in this matter, and no one is being given a choice. This is directly in contravention to what's happening in the U.S., where the universal commercial code requires that all cheque issuers put as many fraud features as possible on their cheques or they risk liability should a fraudulent cheque be passed.

It doesn't take a rocket scientist to understand that if there is increased fraud, there is increased liability. The banks are responding to this by attempting to reduce their liability for fraudulent cheques by not accepting responsibility for checking any feature on a cheque not detailed in their contract with their clients.

This was expressly discussed on the CPA site in early December 2006. For example, regarding double signatures, say a company has a rule that any cheque they issue over $10,000 must have two signatures and the cheques even say on them, “must have two signatures”. The cheque arrives at your bank, and it has only one signature and it is over $10,000, and thus obviously fraudulent. The bank would not accept any responsibility for cashing the fraudulent cheque unless the rule was detailed in the client's contract with the bank. This also extends to warning bans where, if it says on your cheque, “the background of this document is blue” and the cheque comes in and it's grey, obviously it's a fraudulent cheque. But if the background of this document is blue, and it is not in your contract with the bank, the bank is going to disavow any responsibility for cashing the fraudulent cheque.

The problem with this is that individuals and small entities will not be able to renegotiate their contracts with the banks, and they have no recourse. They cannot change the banks. All banks have the same rules for CPA 006.

So what happens if your company experiences increased fraud? If you are a company, your options are limited to buying new services from the banks. There is no recourse if you are an individual consumer.

So EFTs and positive pay are two options that a corporation could purchase, but neither is cheap. In addition, if fraud liability substantially increases the risk to the bank and costs them money, then we expect to see liability limits in the bank contracts. In other words, you have a $30,000 per cheque per occurrence for fraud in your account. When—

[The Chair, Conservative, Brian Pallister]

I'm going to have to stop you there. There will be time for an exchange and questions from members.

From the Retail Council of Canada, Peter Woolford is here. Welcome, again, sir, and over to you.

[Peter Woolford, Vice-President, Policy Development and Research, Retail Council of Canada]

Thank you, Mr. Chairman. It's a pleasure to be back, and thank you to the committee for inviting us to appear today.

We've appeared many times before the committee, but I might take just a moment to introduce Retail Council again to the committee.

Retail Council is the voice of retail in Canada. We represent, from coast to coast, all the various different formats, specialties, and types of retailers in the trade. Our members sell almost $400 billion a year, they employ almost two million people, and they operate their businesses out of almost a quarter of a million establishments. So we're a big business marked primarily by small individual enterprises. So it's kind of a conundrum: a large business with a lot of small businesses within it.

Mr. Chairman, I would like to point out that you have received our brief in advance. I also want to mention that my remarks will focus on three key points: why an ABM is installed in a store; our views on ABM user fees; and finally, the need to review the entire payment system in Canada.

Let me start first of all with the business case for ABMs in stores.

They were initially offered by retailers when the opportunity became available after the 1996 decision. What we have found is that today for most store formats and for most product categories, there simply is no business case for installing an ABM in the store. The reasons for this are laid out in the submission that we provided in advance.

What we do see is that cash-dispensing automatic bank machines are most commonly found in a few types of specialized locations—

[The Chair, Conservative, Brian Pallister]

Excuse me, Mr. Woolford.

Mr. Pacetti, you had a point of order?

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

Yes, the witness keeps referring to a submission that he submitted, but we don't have it here, and I'd like to either know what happened to it, or just allow the witness to know that we don't have it.

[The Chair, Conservative, Brian Pallister]

We have just the speaking points, I believe, in both official languages.

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

Could we at least inform the witness that we don't have the submission? Because he keeps referring to it.

[The Chair, Conservative, Brian Pallister]

It needs to be translated at this point, Mr. Woolford, so we will get it. It is in both official languages, but not each phrase is in both official languages, if you follow me.

[Peter Woolford]

I understand, Mr. Chair. I thought that by getting it to you in advance, it would be available to the committee in both languages in advance as well.

[The Chair, Conservative, Brian Pallister]

No, there is a bit of a delay.

[Peter Woolford]

Understood. My apologies to the committee.

[The Chair, Conservative, Brian Pallister]

No, not at all, and I certainly will allow you a little more time here because of the interruption.

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

Thank you.

[Peter Woolford]

I'm almost done anyway. I know you're a stickler.

[Some hon. members]

Oh, oh!

[Peter Woolford]

And that doesn't count on my time, please.

[The Chair, Conservative, Brian Pallister]

I am, but in a good way.

[Peter Woolford]

Anyway, when members get our submission, they will see that we've laid out a series of reasons why there is simply no business case for most retailers to put a cash-dispensing ABM in their store. Typically these are found in a few specialized types of locations that meet one of two criteria. Either there's a high flow of traffic for an extended period of time, typically 24 hours a day, 7 days a week, the kinds of places you were talking about with the last panel, or in situations where the customer will pay a convenience fee for the opportunity to use the machine in that area.

One of my colleagues, I think in his zeal to help me with this, provided me with the information that strip clubs are where you find the highest convenience fees. This was news to me.

[A voice]

But not to your wife.

[Peter Woolford]

I knew I shouldn't have said anything.

When we look at the market today, we do not expect to see any significant change in this into the future. This is a mature market now. We do not expect to see ABMs gravitating back into retail stores at any point in the future, as far as we can tell.

Under those circumstances, essentially we have a neutral position on the question of convenience fees. We think it's not something that really affects our members or their business models or their operations in any significant way.

We would observe, as I think the previous panel did, that as we look at the economics of this and as a business that has gone into it and left it, if you put some constraints on fees you will see fewer ABMs offered to the public. I think that's just an outcome of what we've looked at, from our experiences as people who have offered it in the past.

Let me take a last minute to address the wider issue of electronic payments. We're delighted that this committee has cast the debate in that wider framework. We believe Canada has a good payment system, but our members are increasingly unhappy with the cost and the quality of the service they are receiving in some areas of the payment system, and they know ultimately it is the consumer who pays those costs, whether it's directly in the fee or whether it's hidden as a cost of doing business for the operations that have to use the payment system.

As well, we're seeing that the payment system is evolving and changing rapidly. There are new technologies, new players, new services. All of this is happening very quickly, and yet it's taking place without any public oversight or without any public consultation on that process. We're a little surprised, frankly, that Canada has been so passive in this area in contrast to what we've seen in other countries. We've seen other countries act. We've seen other countries really look at their payment systems in a very careful way.

In conclusion, my principal recommendation to the committee is that we believe Canada really needs a thorough review of the payment system with all the stakeholders at the table and a really thorough examination of the various costs and benefits to all the players.

Thank you, Mr. Chair.

[The Chair, Conservative, Brian Pallister]

Thank you, sir, and thank you all for your presentations.

We'll move immediately to questions. Given the time, they will be four-minute rounds.

Mr. McCallum.

[John McCallum, Liberal, Markham—Unionville, ON]

No, Mr. McKay.

[The Chair, Conservative, Brian Pallister]

Okay. Mr. McKay.

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

Now it's three minutes, is it? Thank you.

I want to focus on Mr. Iuso and just understand the system that you are no longer able to provide.

I'm a consumer, and I have Visa, or MasterCard, or American Express, or whatever. I want to pay my bill on time. What I don't understand is how you inform Visa, MasterCard, American Express, or whatever, that my bill is paid on time and the banks can't. How do you do it? Do you do it by way of electronic coding? Does my bank account, in effect, notify you, and you in turn tell Visa that McKay paid? Is that how it works? I want to know how it works, step by step.