Finance Committee on May 14th, 2009

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

Thank you, Mr. Chair.

Good morning to all of our witnesses.

Last Tuesday, at a joint meeting, the Standing Committee on Finance and the Standing Committee on Industry, Science and Technology heard from witnesses who represent an array of retailers and merchants' associations from across Canada and Quebec, including the Retail Council of Canada, and several coalitions of merchants and various groups.

These groups made presentations to the committee. They also made three recommendations, one of which was the importance of legislating in the credit card industry; it is important for the government to start regulating the credit card system. A second recommendation dealt with regulating for greater transparency among the various stakeholders that make up the credit card system.

I asked these associations and coalitions if they themselves had approached banks, Visa, MasterCard, issuers, and others concerned, directly to call for greater transparency. They replied that, indeed, requests had been made. Yet, when we asked them what you replied to them, they told us that you had not. In fact, the representative from the Retail Council of Canada told us that they were quite taken aback. Each year, the Retail Council of Canada holds three meetings, to which you are invited. When the last meeting occurred in September, MasterCard decided not to attend. This is what the representative told us.

Apparently, you had told them that there were problems with software that prevented you from answering their questions. Yet, in a letter sent to the chair of this committee, you claim that you are willing to discuss issues of common interest at least once a year. Since there currently are issues of common interest, why did you not attend the meeting?

On the one hand, there are associations that represent some 250,000 merchants; on the other hand, there is you. Who should we believe? You and your document, or the people who speak on behalf of 250,000 merchants and even more employees?

What degree of transparency are you willing to demonstrate, when merchants are claiming that they are totally unaware of why they are paying higher interchange fees and other fees they are forced to assume?

[Kevin Stanton]

Thank you for your questions.

It actually gives me an opportunity to make a couple of statements about the testimony from earlier this week.

I think there's no doubt that if you live through this experience that we've lived through, you have to ask yourself if there has been a breakdown in a system that we're very proud of. I think the breakdown happens to be in the notion of transparency and access to information about the system.

I actually don't think that's a problem that relates to large merchants as much as it relates to small merchants. One of the focuses that we want to take on, with the CFIB in particular, is making sure that...because large merchants know how to take care of themselves, and they do. They negotiate interchange rates with us and they understand the system quite well. Small merchants, in our view, should be empowered to operate on a level playing field against the larger competitors to our system, and that hasn't happened. We're taking specific measures to make sure they understand the transparency mechanisms we have in place, such as our website.

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

Perhaps you have taken measures. But if they were taken between Tuesday and today, there has not been enough time for them to take hold.

Nevertheless, that is not what these merchants told us. All of the coalitions said that they are having a hard time receiving information to help them better understand the fees.

This ties in to what Mr. McCallum was saying earlier. At the end of the day, there were increases because of the increase in premium cards issued. Everyone knows that for now, merchants are paying for the increases, but they will undoubtedly be passed on to the consumer later on.

Within this process, consumers also need transparency. So will they be better informed than merchants? To date, as regards the information you provide to merchants, I think your batting average has been dismal.

[Kevin Stanton]

Let me clarify something. We had our interchange rates on the web, in the open, for three years prior to last September. We refined the system prior to last September as well, because we knew we were adopting a more complicated regime and that too much information was as bad as not providing any. So we decided to go to a customized report regime.

As it relates to the meeting last September.... We've had a long-standing relationship with the RCC. Prior to September, they didn't pick up the phone on this matter. When we were invited in September, I received a call from a person associated with the RCC saying that we shouldn't go, that it was meant to be an ambush. So as it relates to that particular meeting, that's why the decision was made that it wouldn't be constructive to go.

But we've made ourselves available and we've invited the RCC on every occasion to discuss this issue.

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

Those representatives would be pleased to hear that, rather than think an ambush was laid for them.

I would like to ask you one last question.

The Australian example was also raised: the Australian government introduced legislation and began regulating the credit card system. My question to the representatives was, following regulation to set the interchange rate at 0.5%, rather than the 1.5% we see here, whether the banks, Visa, or MasterCard went bankrupt. I was told that this was not the case.

I would like to hear what you think about this.

[The Co-Chair, Conservative, James Rajotte]

Briefly, Mr. Stanton, please.

[Kevin Stanton]

Yes, there are several...[Technical Difficulty--Editor]

[The Co-Chair, Conservative, James Rajotte]

I'm sorry, Mr. Stanton. Would you begin your answer again?

[Kevin Stanton]

There are two pivotal works on this. One was done by the government accounting office in the United States. There was another work by the CRA. We provided copies to members of Parliament, but we will resubmit them to this committee, if you'd like. Both of them show that prices didn't come down but that benefits/rewards did go down. Interest rates went up. Fees went up. And there was reduced competition in the market.

[The Co-Chair, Conservative, James Rajotte]

Merci.

Mr. Stanton, before I go to Mr. Wallace, can we get the website address? Perhaps someone on your staff could provide it to the clerk. Our understanding was that MasterCard's fees were not on the Internet. But if they are, we'd be happy to distribute that to all members.

[Kevin Stanton]

Absolutely. It's mastercard.ca. But it's a little more complicated. You have to type “/merchants”. We'll get it to you, absolutely.

[The Co-Chair, Conservative, James Rajotte]

Okay. If you can provide it, we'd appreciate that.

Mr. Wallace, please, for seven minutes.

[Mike Wallace, Conservative, Burlington, ON]

Thank you, Mr. Chair.

And I thank our guests for coming today. You may have avoided another meeting, but you couldn't avoid this one. So I appreciate your coming.

In terms of clarification for me, are your customers the banks, or are your customers the people who hold the cards?

[Kevin Stanton]

They're banks, both merchant banks and cardholder banks.

[Mike Wallace, Conservative, Burlington, ON]

The structure of this business is something new to me and it's something to get used to. We have you at the top of the food chain, in a sense--the actual card companies, whether it's MasterCard or Visa in this case. Then there are the banks, then the processors or acquirers, then the retailers, and then the consumers. Would you say that's an accurate statement?

[Kevin Stanton]

It's a two-sided equation. You have a cardholder, an issuing bank, and MasterCard on one side. Then on the other side you have a merchant, an acquirer, and MasterCard.

[Mike Wallace, Conservative, Burlington, ON]

Okay. The reason I'm asking that question is that I'm going to ask a few questions about those I consider to be our consumers, those who actually hold the cards at the end of the day.

I look at...I guess it's the Bank of Montreal's MasterCard. I don't know who else carries MasterCard, but I know the Bank of Montreal does. As a consumer, I look at the writing on these applications, which is so small that.... Well, I'm 45 and I can't read it.

So for those who are older or younger, whose decision is it, in terms of information to the actual person who will be paying the bill, that this information is here? Do you require the bank to provide certain information on these documents, or is that completely the bank? And what input do you have on this when somebody is trying to decide whether they should be a MasterCard holder or a Visa cardholder?

[Kevin Stanton]

To answer your technical question, it's the bank that's in control of that document and they have to comply with the law. However, we do play a role. We recently worked with the FCAC to come up with a model disclosure, because we thought the typical practice could be improved.

[Mike Wallace, Conservative, Burlington, ON]

As a consumer, can I expect improvements on the information provided to me and the application process for these cards?

[Kevin Stanton]

I think you can. I think this process has produced that.

[Mike Wallace, Conservative, Burlington, ON]

I have another question for you as a consumer. I distinctly recall that if my card was going to go up in value in terms of what I could borrow—because it is borrowing—and what my limit would be, I used to get a call from the card company or the bank saying that they were thinking of raising my limit to $6,000, or whatever the number is, and I'm at $500.

Now, you guys just send out—I want to know if it's you or the banks—just send me the card in the mail and tell me that my risk has gone up. I can handle more risk. I can go to $10,000 or whatever. That's without actually asking. It automatically happens. Is that your decision or the bank's decision?

[Kevin Stanton]

That would be the bank's decision.

[Mike Wallace, Conservative, Burlington, ON]

So you have no say. They're the issuer of the card. You're the network supplier. At the end of the day, MasterCard and Visa are the network suppliers, and you look for customers who will sell your card in the marketplace to their customers. Is that an accurate statement?

[Kevin Stanton]

Yes.

[Mike Wallace, Conservative, Burlington, ON]

So when my daughter, who's 18, gets her $500 and it goes up to $2,000 or $5,000 without her doing anything different, the bank is making that decision. You're happier because of the chance of their spending more. Do you make more money as we spend more?