Finance Committee on May 28th, 2009

[Terry Campbell]

We can do that.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

As well, is personal debt on the increase or is it on the decrease?

I've also asked this question, and nobody has been able to give me the answer: what are the statistics on business expense for bad debts over the past 20 years? Where has that gone? Most businesses write off bad debts at the end of their fiscal year. Could you tell me if that has changed? Has it improved?

[Cathy Honor]

Just to clarify, are you asking how much of our credit card balances we've had to write off?

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

No, but I'm surprised that banks don't have this information if they're using credit cards or trying to advocate the use of credit cards. I want to know what has happened with businesses with bad debts. Traditionally businesses write off a certain amount or percentage of bad debt every year. Has that changed? Has it gotten better? Has it gotten worse since the advent of credit cards? How has it changed as credit card usage has increased? I think you should know where I'm going with this.

Also, do you have a breakdown of the credit card profit versus the percentage of profits in your banks, in each individual bank? I'd like to know just how important this part of the business is to your banking. I'd really like to have that answer too.

Finally--and this one might be a little bit tougher--you talked about the 17% interest rate. If people ask for a lower rate, how many of them don't qualify for the lower rate? Can you give me some...?

[Mike Kitchen]

In our case, there's no difference in qualification criteria for the standard rate or the low rate. There is the choice, and a fee for service.

[Terry Campbell]

It's the features you get from it. You can say you don't want these features, but you'd like those, so you'll pay a different rate. It's not that people are disqualified from the low-rate accounts. They can get them.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

If you had a balance of $5,000 and you paid off $4,900 by the due date, what would the interest apply to?

[Cathy Honor]

There are two types of customers. It would depend on whether you were using the card for payment and paying off your balance every month, in which case we're loaning money for 51 days, or whether you're a borrower. If you're a borrower, just as with any other credit product, you're going to pay interest on the entire amount as of the date that you borrow it. So if you made the purchase on the 15th of the month, you'd pay interest on that full amount until it was paid off.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

Okay. Thank you.

That's all, Mr. Chair.

[The Co-Chair, Conservative, James Rajotte]

Thank you very much, Mr. Van Kesteren.

We'll now go to the next five-minute round.

We'll go to Mr. McTeague, who is making his way back to the table as we speak.

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

Thank you, Chair.

I'm glad I got that opportunity, and I thank you for that wonderful introduction.

Ms. Hughes Anthony, thank you again. After 15 or 16 years, I'm still doing the same thing I've been doing. I haven't been able to shift gears, so I'm going to stick on something that works: competition.

You mentioned competition in the debit area and in the advance, down the road, the possibility of greater competition for consumers. I think most of the colleagues here from the banks have Visa as their issuer. I think every one of you does. Well, you might have one with MasterCard there. For the purposes of the question, let's say it's the majority here.

Visa has told us that they're interested in a flat fee or in perhaps going to a percentage fee, making it more expensive, obviously, for merchants. If the model is the same as the one used in the United States, where we know that debit fees are much higher than they are currently with the interchange, in the way you see it, and knowing how practical that proposal is and how it's implemented in the United States, how do higher prices constitute better competition? How do we sell that to consumers?

[Cathy Honor]

I can answer that. From a merchant's standpoint, there's more competition. Merchants right now have one choice, Interac, and we have concerns with it because we've been declining in market share. The ultimate control over the pricing is that merchants decide whether they're going to accept Visa debit, whether they're going to accept MasterCard debit, and whether they're going to accept Interac. When they're competing, you're going to make sure that the prices stay intact.

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

Let me ask you something. With Visa and MasterCard constituting 94% of all the action from a credit perspective, given the advent of chip technology, if you're able to offer the same inducements on debit that Visa and MasterCard are proposing to do with higher rates, as Visa is certainly proposing to do, what options do merchants actually have?

You're presenting this as if there's competition, when in reality there's very little competition to begin with. I think we're seeing this thing from a very different perspective, but I'm trying to get from all of you here an understanding of how you think there's going to be more competition when in fact the proposals that are going to be made on the side of debit will actually mean higher fees for merchants and, ostensibly, higher fees for consumers, who are simply going to be asked to have their bank accounts opened within a microsecond and closed. It doesn't cost very much to do this. Competition, in this case, looks like it's going to cost a lot more money, not less.

[Cathy Honor]

I think there are some issues that we're confusing here. One is--

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

I'm not confusing the issue at all--

[Cathy Honor]

One is competition and the other is interchange on debit. Canada is one of the only countries in the world without interchange on debit. I agree that any interchange is going to be higher, but the no-interchange model is not sustainable for Interac or any other competitor.

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

I come from a different school, which says, “If it ain't broke, don't fix it”--

[Cathy Honor]

It is broken; it is broken.

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

--and improve what you have.

Well, it's broken from the perspective of a consumer and a merchant. It's certainly broken, because higher prices are being proposed.

Let me ask you a simple question. Earlier you made a comment to my colleague, Siobhan Coady, about the question of fraud and how fraud was on the increase. The Canadian Bankers Association website, to my knowledge, suggests that in fact fraud from your bank, RBC, is down. Can you reconcile the discrepancy?

[Cathy Honor]

I can answer for credit card fraud. It is up. It has been growing every year.

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

And debit fraud?

[Cathy Honor]

I'm not sure on the debit card for RBC in Canada.

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

It seems to me that as a committee we have to be very careful to ensure that we're not asking for something that's going to cost some groups a lot more and volunteering someone else's money to pay for these wonderful new procedures that may be legitimate in some cases and somewhat dubious in others.

Let me shift to the issue that we began with, the question of debit. You're admitting that there will be an increase for consumers under the new guise of competition, which, Nancy, I think you mentioned a little earlier. If that is the case, let me go back to the beginning of this question. Without regulatory involvement, how do we justify to Canadians that the great new wonderful world means that they're going to have to pay more for your services? Other people may be able to get an advantage or certain rewards as a result of that, but how do we justify it to merchants and consumers? Are we supposed to stand here and say, that's the real world, that's the way it is outside Canada? I would rather think that we have a great system here, as Mr. Rota suggested.

[Cathy Honor]

Consumers aren't going to pay anything for it.

[The Co-Chair, Conservative, James Rajotte]

Go ahead, Mrs. Hughes Anthony.