Finance Committee on May 12th, 2009

[Glenn Thibeault, NDP, Sudbury, ON]

Thank you, Mr. Chair.

I want to thank everyone for coming today because I think this is our opportunity to take that one step forward to stop the unfair practices that many of the credit card companies are implementing on merchants and on our consumers.

I'm going to jump into what my colleague Mr. Wallace was speaking to. He was talking about the opportunity for someone to come in and pay cash. But I thought I heard loud and clear from you earlier, and from some of my other colleagues, like CIPMA, who have mentioned that the price of interchange fees is included in the cost of most products. Did you not say that earlier?

[David Wilkes]

Yes, because we can't distinguish, and, as Brenda indicated, because at the end of the month you get a bill, there is no predictability in those aggregate costs. So you do have to make the assumption on costs that premium cards are going to influence the overall cost of goods.

[Glenn Thibeault, NDP, Sudbury, ON]

So as we see the costs--these interest rates for your interchange fees continue to rise--consumers will ultimately see these costs rise because it will be put onto the price of the products. Correct?

[David Wilkes]

The short answer is yes.

[Glenn Thibeault, NDP, Sudbury, ON]

Perfect. I like hearing short answers so that I can get through all of my questions.

Now specifically with CFIB, I had the opportunity of meeting with Doug Bruce last week. We did a one-hour talk show about credit card fees and merchant fees. He was saying, and correct me if I'm wrong, that in Canada there are 19 different interchange fees that all businesses will have to pay.

[Catherine Swift]

Yes, that's correct. There used to be three. Over the last year or so, that has proliferated to 19. By the way, because we're looking at the U.S.--they went to some of these places long before we had to deal with them--they have over 100 in the U.S. This gives you a bit of an idea of where this could go.

Yes, the notion of any retailer--notably a small one, but any retailer--being able to keep track of what it is they're supposedly paying for is becoming impossible.

[Glenn Thibeault, NDP, Sudbury, ON]

Looking at one of the documents you provided that was presented to me earlier today, of the 2.4 million businesses in Canada, I'd say about 97% of these 2.4 million are small or medium-sized. They have up to 49 employees. These fees are going to hurt our Main Streets. If we continue to see these fees going up, are we going to actually have small and medium-sized businesses where we can go in and use credit cards?

[Catherine Swift]

Well, there really isn't much choice. People mentioned earlier the notion that credit cards and debit cards have become an absolutely rock solid part of our payment system. You can't see ever going backwards, for all kinds of good reasons. And there are certainly benefits. Nobody denies that it's good not to have to handle cash. There are absolute benefits provided.

We have had some of our members protest. They wanted to do cash only sales. In some businesses that might be feasible, typically on small-ticket items and things like that. But it might be worth knowing that in the U.S. a number of years ago, when some of these trends first started happening there, Wal-Mart actually refused to accept MasterCard for a while as a protest. But even Wal-Mart , the most humongous retailer on the planet, had to go back and accept MasterCard. So what chance is some little guy on Main Street going to have?

[Glenn Thibeault, NDP, Sudbury, ON]

Fair enough.

Sir, go ahead.

[Pierre-Alexandre Blouin, Public Affairs Director , Association des détaillants en alimentation du Québec, Coalition québécoise sur les hausses de frais de transaction de carte de crédit et de débit]

We surveyed our members to gather various types of information, in particular on rates and percentages of payments made using each of the payment options. Of our members operating small establishments, both convenience stores and specialized food stores, 31% refused to accept payment by credit. I believe that that in itself is quite eloquent. For them, there is simply no way to do business with credit; it's not profitable.

[Glenn Thibeault, NDP, Sudbury, ON]

That's a perfect segue to my next question. More and more small and medium-sized businesses--I've been talking with them--want to stop taking the premium cards because of the costs. However, if they start saying they can't take premium cards, do they have an option of getting out of the contract they signed?

[Diane Brisebois]

Well, no, because here are two problems for a small business, or any kind of business. Number one, the moment you sign a contract with your processor to accept Visa cards, you must accept all their cards, including MasterCard. They have an “honour all cards” rule. In fact, MasterCard is now going to be introducing a super-premium card. God knows what that means. So that's the number one issue.

Number two, if I'm a business, there is no way I can tell which card you're giving me anymore. They all look gold now, or silver, and no one knows. Personally, as a consumer, why should I? With the exception that I may have a few loyalty points or I may have lots of loyalty points, I have no idea. The merchant doesn't know either, and the customer can't say and the merchant doesn't identify it. It will get even worse next year as we go to the chip. While the chip is good for security reasons, most of the devices will be hand-held by the consumer. The consumer will do the transaction on his or her own, so there will be no interaction. Even if there were a way of identifying them, you won't be able to identify them at all, because you won't even come into contact with the card.

[Glenn Thibeault, NDP, Sudbury, ON]

What are the costs? If I were a small business and said, “You know what, I've had enough of credit cards”--even though it's 71% of your business and there are fees, what is it to get out of that?

[Diane Brisebois]

I think we would all agree--both our Quebec coalition and the national coalition, and certainly the CFIB--that for most small businesses it would be disastrous if they just walked away from their credit card business. At the end of the day, as consumers, we all find credit and debit very useful. If I go to a merchant who is not using a method of payment I like, I'm going to go to another merchant, thus the competition in the retail marketplace.

[Glenn Thibeault, NDP, Sudbury, ON]

The idea of being told to shop around or not use your card in this day and age really doesn't make any sense.

[Diane Brisebois]

No, it's impossible.

[The Co-Chair, Conservative, Michael Chong]

Go ahead, Mr. Taylor.

[Justin Taylor]

It especially doesn't make sense in tourism-based industries. Consumers might not necessarily have the cash on hand to afford a full-course meal in a restaurant. They're travelling to Newfoundland on vacation and they only have the credit cards to pay for it.

So for some very small operations, this might be viable, but for the vast majority of our members it's absolutely not viable.

[The Co-Chair, Conservative, Michael Chong]

Thank you very much, Mr. Taylor and Mr. Thibeault.

We'll go to Mr. Rota.

[Anthony Rota, Liberal, Nipissing—Timiskaming, ON]

Thank you, Mr. Chair. I want to thank all the witnesses for coming out today.

Having been in the retail business, I can understand what it is. You set your cost with a fixed rate and you want to know what you're going to. As soon as that rate starts being variable, it really affects what you're going to charge and you pretty well have to raise your prices, which eventually does affect the consumer in the end. When it's variable by as many as Ms. Swift mentioned, a hundred different rates, you really don't know where to set yourself. That was one of the big concerns when this issue came up.

One of the things I find very interesting is that you talk about transparency and disclaimers. You talk about consulting. As a former president of the local chamber of commerce, when I have business coming up asking for regulation, I start to ask questions and wonder.

This is a topic that has been around for some time, and you're bringing up terms such as consulting, transparency, disclosure. Obviously, as organizations, you have dealt with the Bankers Association, the Visa and the MasterCard. What has been the major hurdle to reaching some agreement up until now? Why has there been nothing there? We try to leave it on its own, and you want to make sure that business takes care of itself, but why are you here today, and what results have you had from talks or attempts at talks to deal with issuers?

[Catherine Swift]

I'll just echo what Diane said earlier. We also met, and without political pressure by somebody who could inflict some pain on these companies.... There wasn't movement; there was some disclosure, but again, if you get handed a monstrosity of a handbook with all kinds of fine print and so on--and often the contracts our constituencies are signing look like this. They're very difficult to get. So you can say the information is there, but it's presented, to my mind, in a deliberately confusing way. They've only really been forthcoming since the Senate and now this committee agreed to have hearings.

On those contracts we were talking about earlier, conditions can change. It's the acquirers who are the meat in the sandwich, the middlemen. Fees can change on those contracts the merchants have signed, and if the merchants don't like it, there's usually a big fat exit fee to get out of them. This market, really, because it has no oversight--and it does have oversight in just about every country around the world, by the way--has basically had it all to themselves. There hasn't been any push-back. And you're right. We don't typically call for regulation at all, but this isn't a competitive market. We effectively have a duopoly, and they're also foreign-based multinationals, where Canada is never going to be their top priority.

We have a banking system that's very concentrated, but I think it's advantageous that those are Canadian banks because at least they do have some stake in what happens in the Canadian economy.

So I think for all of those reasons, yes, it's atypical, perhaps, for us to be calling for...whether it's regulation, whether it's better oversight. We're recommending maybe an agency somewhere. In Australia it happens to be the central bank that is tasked with overseeing. It could be the Bank of Canada. They've already done some research on this issue. So it could be the FCAC, potentially, as well, but in any event, some regular reporting is required on these companies.

[Anthony Rota, Liberal, Nipissing—Timiskaming, ON]

So with the regulation that you're requesting, what you're telling me now is that they have been transparent over the last little while or the last couple of months, since we started these inquiries. Now you really have no faith that you will come to an agreement or that an agreement will be maintained, once an agreement is achieved, should it come about.

[The Co-Chair, Conservative, Michael Chong]

Ms. Chayer.

[Danielle Chayer]

Thank you.

In our sector, since credit cards are really the way we operate, we tried to meet with the Visa people, but through our acquirer. We wanted to explain to them that, in the current situation, our entire operating method was affected and that this represented thousands of dollars in costs. Those people were very polite, but it was very brief. The whole thing led to a dead end. The message boils down to this: there are costs, increases, and we have to bear them. No discussion was possible.

In our sector, a number of associations or brands have agreements. We can't determine how one establishment whose sales are higher than those of another can have higher costs. We're trying to link that to the type of transaction, but we can't really establish a framework that enables us to understand the principle. We also find it hard to understand why, for a $150 hotel transaction, it can cost as much as 60¢ more for a premium card than an individual card. There's no loan. It's the same amount and the same type of transaction. There's no more handling. You don't swipe the card twice. However, there are fees, and these people have no explanation for us on that subject. We can only accept the situation. It's hard for us to pass the cost onto consumers. Indeed, as a result of the economic crisis, tight competition among hotels is making us lower prices. This summer, the situation will be tough for the tourism industry. We won't be able to increase rates indefinitely.

[Anthony Rota, Liberal, Nipissing—Timiskaming, ON]

So there wasn't really any discussion: the situation was simply imposed on you.

Thank you very much.