Finance Committee on May 12th, 2009

[Diane Brisebois]

Yes, retailers pay the interchange. The Visa people say that the retailer doesn't pay the interchange because it is determined by Visa and MasterCard and, depending on the processor you use, it's through it that you are billed. At the end of the day, the interchange is billed directly to the merchant, including the other fees that, I think, the research attachés mentioned.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

Thank you.

Go ahead, Mr. Carrier.

[Robert Carrier, Bloc, Alfred-Pellan, QC]

Good afternoon once again.

I had a question for the Canadian Federation of Independent Business. I don't see in your recommendations the idea of establishing a fixed rate for the interchange, as proposed by the Canadian coalition. In your first recommendation, you state: “Appoint an agency responsible to oversee credit card and debit card fees and activities [...]” I think that's like passing a hot potato to an agency that will have to deal with it properly.

Would you be in favour of a solution under which the interchange rate, following a study, could be set by an act that at least would determine a reference point for all credit card companies?

[The Co-Chair, Conservative, Michael Chong]

Thank you, Mr. Carrier.

Go ahead, Madam Swift, very briefly.

[Catherine Swift]

As we discussed earlier, there's no one perfect interchange rate. I think perhaps oversight of a process and regular monitoring of this industy is really what we're looking for. As we mentioned earlier, in Australia it happens to be the central bank. If that were the case in Canada, it would be the Bank of Canada. They haven't stepped up to the plate in seeming to want to do this, but there are other agencies that exist. The FCAC is a possible example. One could have oversight by a parliamentary committee or by the Department of Finance.

[The Co-Chair, Conservative, Michael Chong]

Thank you very much, Madam Swift.

Mr. Rota.

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

Thank you, Mr. Chair.

I'd like to go back to the debit card system again. We've been dealing a lot with the credit cards, but the debit cards really started this all off, with the possible changes coming to Interac.

One of the areas discussed in your deck is staying away from the ad valorem system. Some of the banks state they are taking some risk when they transfer money, so the ad valorem system would basically protect them in the transfer. I can understand that in the credit card system because there is a little more risk, but am I missing something in the debit card system? Can you maybe explain to me where there would be risk in dealing with a debit card as opposed to a credit card?

[Diane Brisebois]

There's absolutely no risk. It's a real-time transfer of someone's money out of his or her bank account to pay for the purchase. All the people involved in the transaction are paid immediately. If the money is not available in the customer's bank account, the transaction is declined. The moment it's approved, that money is out of your bank account travelling to whomever is to be paid for the transaction. So there's actually no risk. You cannot compare it to a credit card transaction at all.

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

Very good. Thank you.

My other concern is that if Visa and MasterCard are permitted to come in, they'll be working with an American system as opposed to a Canadian one. There are some barriers to information going back and forth. As far as the small merchant goes, that information is not something that worries you. But how would foreign companies coming in and having access to that information affect merchants as far as customer bases?

[Catherine Swift]

Are you talking about privacy concerns or...?

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

Exactly.

[Catherine Swift]

We have a lot of foreign companies operating here now, and as long as they're obeying the laws of the land, I don't see that being a really worrisome issue.

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

It's not an issue. Very good.

I'll be sharing my time with Mr. Garneau. Thank you.

[Marc Garneau, Liberal, Westmount—Ville-Marie, QC]

Thank you. My question is for Ms. Brisebois and Ms. Swift. You mentioned that a solution for credit card costs, among other things, could be to establish eligible costs directly related to the actual processing cost, plus reasonable margins for card issuers. Currently, if I use the figure you're advancing, it costs the consumer roughly 1.86%.

What would be a reasonable margin these days? I'm asking for your opinion and that of Ms. Swift as well.

[Diane Brisebois]

I'd really like to answer your question by giving you a specific figure, and that's why we are suggesting the Australian model. In fact, authorities have studied the experiment over the past five years. There has been some transparency because the credit card companies are required to inform the Australian bank of operating costs and transaction costs, and that's how authorities have come up with a figure of 0.50%, or 50 basis points, that would be considered as reasonable. However, we don't have the information in Canada concerning transaction costs and profit margins. That's why we're suggesting an extensive study be conducted.

[The Co-Chair, Conservative, Michael Chong]

Thank you, Madam Brisebois.

Mr. Thibeault.

[Glenn Thibeault, NDP, Sudbury, ON]

Thank you.

There are a lot of advertising campaigns on television, radio, in newspapers, you name it. Credit card companies are out there pushing their premium cards. Most of the people I know cringe every time they see a television ad, because I'm going to give them a lecture on who's actually paying for the points the person uses when they're flying--but that's a good thing.

When we're talking about pushing usage, people never really used their credit cards before at grocery stores. How is that going to have an impact on grocery stores or organizations like that?

[David Wilkes]

Thank you for the question.

Some of the advertising I referred to does target our members. They target grocery stores, gasoline, and pharmacies with a variety of incentives. I think we've seen the increase in card usage, upwards of 10%. Within that, we've seen almost half of that being the premium cards. So there is a definite impact. The impact is the one we've been talking about during these committee hearings. There are increased costs and an inability to absorb those costs. If you can't absorb them in a thin-margin business, they get passed along. Even if that person is getting more points, a $2 discount--there's that one ad we're all familiar with--everybody is paying for that. There is no way of escaping the benefits in the cost of the products.

[The Co-Chair, Conservative, Michael Chong]

Thank you, Mr. Wilkes.

We'll go to Monsieur Blouin.

[Pierre-Alexandre Blouin]

The impact on food retailers can be summed up very simply. The increase in credit transaction costs has been 37.2% in two years.

[The Co-Chair, Conservative, Michael Chong]

Mr. Lafleur.

[Gaston Lafleur]

Thank you, Mr. Chairman.

I'd like to supplement my colleague's answer to Mr. Garneau's question. It's a very important question. The factors that should be used to establish a reasonable profit should be determined. Your question is very relevant and is related to the need to establish a regulatory framework that will establish standards. It's not up to us to answer that.

[The Co-Chair, Conservative, Michael Chong]

Thank you, Mr. Lafleur.

Mr. Thibeault.

[Glenn Thibeault, NDP, Sudbury, ON]

I'll jump back to what I was talking about in relation to the premium cards. I guess I would like your best guess on this. Did the problem start--and I'm sure there are more than a few--when we started to see an influx of premium cards in the market? There are unsolicited campaigns out there to get these premium cards to people all over, and they can't even return them. If you have a Visa Classic, for example, and they give you the Infinite, but you want to go back to your Classic, you don't get a credit card. So people take them. Is that when this problem started? Did we start to see the increase in interchange fees--use Giant Tiger as an example--when they started bringing out these premium cards?

[Catherine Swift]

That was definitely one main factor. I also believe, though, that both Visa and MasterCard became publicly traded companies back a couple of years ago. I believe there's just more of an appetite for more revenue, which is also driving this. There were increases in a lot of these interchange fees even before the premium cards, and then the premium cards added to that.

There are a couple of quick statistics I want to cite. There was a U.S. study done in 2006 that showed that only 13% of interchange fees went towards the cost of processing. About half went towards all these perks. It just speaks to the fact that somebody has to be paying for this. That's the real issue.

One thing we'd like to direct to government is that the government uses a lot of premium cards too. How much is it costing government? I mentioned earlier that academic institutions are stopping accepting them. Governments also use them a lot.