Finance Committee on May 12th, 2009

[James Rajotte, Conservative, Edmonton—Leduc, AB]

In terms of what the actual effect is of the interchange rate or the merchant discount rate, we have here a note of Visa's interchange fee schedule, and they have rates on their website from 1.21% to 2%.

On page 14, Madam Brisebois, you have figures here of examples of fees charged to the merchant. You have electronic and standard. For electronic, for premium credit cards, which would be in person, where I swipe my card, that would be 2.12%, whereas for standard, which I understand would be for phoning or online, it would 2.25%. Can you indicate to us where these figures are from?

[Diane Brisebois]

In fact, they are from one of our colleagues. It's from their numbers, so I'll let Madam Chayer respond, if you don't mind.

[Danielle Chayer]

This MasterCard rate structure is almost exactly the same as the one currently in effect for Visa. It's really very, very close to it.

An electronic transaction takes place in the client's presence, whereas a standard transaction is done over the telephone or via the Internet and then, depending on the type of card—individual, corporate, premium or worldwide... This Visa structure came out a year ago and the Visa card structure less than six months ago. We were informed of the new rate structure two months in advance. It's they who determine the types of cards and the transaction fees.

Does that answer your question, Mr. Rajotte?

[James Rajotte, Conservative, Edmonton—Leduc, AB]

Yes. Thank you very much for that.

Madam Brisebois, you mentioned the assessment fee, the foreign card fee. Are there any other fees this committee should be aware of when looking at this issue?

[Diane Brisebois]

I'm sure there are, Mr. Rajotte. The problem is we are not clear on what all the fees are or what is charged in that bundle of fees. I think the best way to do that is to provide you with statements.

We have been asking the processors to unbundle the statements so that people know what they're paying for. That has been challenging.

[James Rajotte, Conservative, Edmonton—Leduc, AB]

To differentiate between the different fees in the statements.

I don't want to speak for the witnesses to come, but my sense is that what they will say is a higher rate is charged for premium cards, and the reasons for that--there are probably many reasons, but two of the reasons would be that there are higher benefits for consumers, in terms of points or whatever, but there are also benefits with respect to the security. Added security measures are provided, and these are a good thing for merchants; they know the transaction is more secure.

Would Madam Brisebois or anyone else want to respond to that?

[Diane Brisebois]

I'll respond to the security issue. That is misleading because the security facet of the card exists regardless of the type of card. So it could be a regular card or a premium card. As we all go toward chip cards, all the different credit cards as well as the debit cards will have the chip card as the security feature. So there's no reason why it would be more expensive, because with chip, as we've seen in the U.K., fraud has decreased substantially, bringing costs out of the system. So the security features are embedded in all the cards, not just the premium cards.

[James Rajotte, Conservative, Edmonton—Leduc, AB]

My time is up, but if you want to respond, Mr. Taylor and Ms. Chayer, just briefly, if you have anything to add....

[Justin Taylor]

Another interesting thing about the chip card is there's going to be a shift in liability. Whereas the credit card processors and companies used to take on liability for a number of different types of fraudulent transactions, with the introduction of the chip they're now moving that liability back onto the merchant. So somehow the costs are increasing and the liabilities they're taking on are decreasing, because chip is more secure and because they're transferring the liability for what they can't bring out of the system back to the merchant. So it's very concerning for us.

[The Co-Chair, Conservative, Michael Chong]

Thank you.

Mr. Carrier, are you going to share your time with Mr. Bouchard?

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

Will there be another round?

[The Co-Chair, Conservative, Michael Chong]

There may be another round for the Bloc Québécois, but I'm not sure.

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

All right. I'll try to go quickly. Thank you, Mr. Co-Chair.

Good afternoon, ladies and gentlemen.

Listening to you, I think we were right to ask that some special meetings of our committee be devoted to the study of this problem. Unlike my colleague opposite, Mr. Bernier, I believe that you are here because you need regulation. Otherwise, we wouldn't be talking about it, and everyone would be happy.

At some point, I think we have to establish some order. I find it unacceptable that you are at the mercy of third parties who determine the rate they charge, in addition to offering promotional aspects, to make more profits for themselves. If we want to retain our small businesses, which are so effective, I think the government has to shoulder its responsibilities.

The Retail Council of Canada people presented a document to us in which they referred us to the Australian model. I see that as a benchmark. However, I wonder about that. An interchange rate topped out at 0.5% seems very low to me relative to the rate we previously had, which was predictable. Earlier Ms. O'Reilly mentioned that a rate of 1.5% might perhaps be acceptable. But I think that, in your recommendations, you asked us to analyze the matter and to determine the rate. If I understand correctly, your objective is to establish a fixed rate based on the actual costs upon analysis. Is that correct?

[Pierre-Alexandre Blouin]

I'd like to make a brief comment. It's possible that, for some players, a rate of 1.5% is good. In our case, some merchants have rates of 1.39% in total, that is including the established interchange rate and the other fees.

I think you have to do an in-depth analysis. That's what was very well explained by my colleague from the CCGD. I believe the cost analysis will give us a better idea of our situation, which we don't really know right now.

[The Co-Chair, Conservative, Michael Chong]

Madam O'Reilly, would you like to add a comment?

[Brenda O'Reilly]

I just want to clarify what I said earlier. That may work in my particular business model, because right now I'm paying 2.21%, so 1.5% would be good. But I agree that the costs need to be determined. Of course, it's a business, so I respect that they want to make some money, but it seems right now that what they're doing is dipping in everywhere and gouging all over the place.

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

Thank you.

I'll let my colleague continue.

[The Co-Chair, Conservative, Michael Chong]

Mr. Bouchard.

[Robert Bouchard, Bloc, Chicoutimi—Le Fjord, QC]

Thank you, Mr. Chairman.

Thanks as well for being here this afternoon.

Unless I'm mistaken, you're presenting a problem that affects a lot of businesses and also concerns consumers.

Like my colleague, I'm open to government regulation. I understand that regulation could be quantitative. Consequently, there would be a transaction cost, an interchange rate and a form of regulation respecting increases, which would provide some transparency.

Am I mistaken or would you prefer a general framework? When we have to develop regulations, an act has to be passed, and that act sets either the “quantity”, if I may use that term, or a general framework.

I'd like to hear what you have to say on either of those cases. What should that legislation include?

[Gaston Lafleur]

Thank you for the question, Mr. Bouchard.

Mr. Chairman, the important thing here is the objective, and that is to ensure that we have a framework, whether it be by regulatory or legislative means or through a specific agency that would monitor the establishment and charging of costs.

We're talking about regulating. So we would like to ensure that some kind of agency establishing the eligible costs that will in fact determine what are called the interchange rates.

In that sense, I refer you to page 15 of our brief, where we put forward a proposal which is in fact being implemented in Australia. It concerns the determination of eligible costs in developing the process. On page 15 of the brief that you received from the Coalition québécoise, we provide a description of section 13. That's the section that in fact talks about the costs of credit card issuers, mainly the costs associated with the transaction processes, the costs associated with all aspects relating to fraud and fraud prevention, costs mainly associated with credit card transaction authorizations and, lastly, costs incurred in funding the interest-free period between the transaction and payment by the consumer.

We find this element very acceptable, although it's not necessarily the final solution. Nevertheless, the model should help to further your thinking.

[The Co-Chair, Conservative, Michael Chong]

Thank you, Mr. Bouchard.

Thank you, Mr. Lafleur.

Mr. Garneau.

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

Thank you, Mr. Chair.

Thank you all for coming this afternoon. It's certainly a very important topic these days. I mention this because President Obama, last Friday, in his radio address, spoke about credit cards. He said:

Americans know that they have a responsibility to live within their means and pay what they owe. But they also have a right to not get ripped off by the sudden rate hikes, unfair penalties, and hidden fees that have become all too common in our credit card industry.

You quote somebody from the Mouvement des caisses Desjardins who says that consumers always end up on the hook for all costs associated with the payment service. At the same time, you're here because I think it's affecting your industry.

What I'm trying to do is get an understanding of how much it is affecting you and how much it's actually the consumer. I think the consumer may not be aware that part of it is passed on. At least one of you has talked about it being passed on. Perhaps different retail parts of the industry are affected differently, but I'd like to have your views on that.

[David Wilkes]

Thank you very much.

Mr. Chair, I'll answer the question this way. I don't think there's an awareness among the consumers our members collectively serve of the different costs associated with the various payment methods, and I certainly don't think they recognize the increase in costs.

I think there is nowhere for all of these costs to go but into the cost of the products. They are definitely affecting the merchant community, but from a grocery perspective, if I can use the example of our industry, there is no doubt, given the margins we have—and I think it would be similar in restaurants and in many small business—that they go directly to the shelf and into the cost of the products.

So there's no awareness, and there's nowhere for them to go but into the cost of the products.

[The Co-Chair, Conservative, Michael Chong]

Madam Swift, I think, has a point to add.

[Catherine Swift]

I'd just like to add that it depends on the industry. Different sectors are going to have different margins and are going to behave differently. Their competitive environment is probably going to be somewhat different, and in tough times a merchant doesn't want to lose any business. So I would say, even though definitely some portion flows through to the consumer—and they have done some studies in the U.S. in which they quantified this, while we haven't done so yet here and perhaps need to—that the merchant often will eat some of it, simply because they want to keep that customer.

It's tough to come up with a nice, easy number; I don't think it's easy to do. But there's no doubt some gets passed on, and I would not be at all surprised if a considerable amount were being absorbed by the merchants because they don't want to lose the business.