Finance Committee on May 28th, 2009

[Mike Wallace, Conservative, Burlington, ON]

No, my question was what have you estimated are the savings to consumers, the people who hold your cards?

[Nancy Hughes Anthony]

It is the same thing. In other words, the change in that calculation that previously would have cost consumers in the tens of millions will not be there.

[Mike Wallace, Conservative, Burlington, ON]

My final point--and it doesn't really need a response--is that this has been a very complicated area. First, when people on my street say TD or MasterCard, they think it's Toronto Dominion Bank or Bank of Montreal, and you are the issuer. They don't think of Visa or MasterCard as separate companies, and they definitely don't know about the spinoff you guys have done on these individual companies that administer: middlemen, the payment guys, or whatever you want to call them. In my view, my constituents are your consumers. They are the consumers of the card. In my view, the banks are the consumers from MasterCard and Visa. I don't understand how they come from three levels of different interchange fees--

[The Co-Chair, Conservative, James Rajotte]

Thank you, Mr. Wallace.

[Mike Wallace, Conservative, Burlington, ON]

--to 19%, without any pushback. I don't get that.

You can think about that. It wasn't a question.

[The Co-Chair, Conservative, James Rajotte]

Okay. They will think about your question, Mr. Wallace.

We'll go now to Mr. Rota, please.

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

Thank you very much, Mr. Chair.

Thank you for coming out this afternoon.

I'm going to ask a question and request some homework. I don't expect an answer right now.

There's talk of preferred clients and the ones who are asked for premium cards. Could each and every one of you submit in writing what constitutes a premium or a preferred client? I'm sure that would take up the five minutes and then some. If your answers are submitted in writing, we can all look at them and study them. It's just to clarify the way the system works.

I keep hearing that competition is a good thing for any system. What happens is we have four basic players: we have the credit card company, we have the banks, we have the merchants, and we have the cardholders. The idea is that each and every one of those has a component, but the credit card company is trying to get banks as customers and the credit card company is also trying to get the cardholders as customers. The merchants are customers as well, but they're using the system.

The competition is really to get the banks and the cardholders onside. What ends up happening is the cost to the merchants goes up, which helps the bankers. It's increasing the costs to the merchants, and in the end the cost to the merchants eventually makes its way back to the cardholder. It sounds like a pretty good system: when you raise your prices, the credit card issuers make the money, the banks make the money, and the two people paying for it are actually the losers.

I've got two questions. I'll ask all my questions, and then you can go on so that there's no back-and-forth. We'll hopefully cheat a little bit more and get an extra few minutes while you're answering.

What controls are in place to stop banks and credit card companies--I'm putting them both in the same place, and I know you're going to tell me they're different--from changing their rates to the merchants? As the competition gets more fierce, what's stopping the interchange rate from continually rising so that we can get higher fees for the customer, the customer really being the banks of the credit card companies?

I'm going to refer to the “Householder Information for Constituents“, which you passed out. It's an excellent document. I'm going to read a little bit, and I'll ask you to comment on that as well. I'll quote:

The differences between our system and some others (notably the US) boil down to a few key features--a national system that is well-regulated, well-managed and well-capitalized....

Then on the next one it says:

Canada's banks are well-regulated by the Office of the Superintendent of Financial Institutions and the Financial Consumer Agency of Canada.

Here is my question: what kind of regulatory system do you suggest for the credit card companies and banks so that we can have something reasonable for Canadians, merchants, and banks and credit cards, so that everybody works well together?

[The Co-Chair, Conservative, James Rajotte]

There's about a minute and a half left.

Mr. Campbell, do you want to start?

[Terry Campbell]

I'll start with the first question, and maybe some of my bank colleagues will wish to step in.

Your first question, sir, was on the question of interchange and how it's set and all that. Again, you're absolutely right: you predicted that we will say that the banks do not set that rate. That is the card companies.

I think it's broadly known that.... What is their product? The product of the card companies is the network. They're interested in trying to drive as much traffic through that network as they can. Their mechanism for that is the interchange. What they try to do, as we understand it, is set the interchange to balance it. They have to make it attractive enough for issuers to say, “Yes, we'll take that card”, but they also have to make it attractive enough for merchants to say, “Yes, we'll accept that card”. It's that balance between the two.

The question is, have they set it right? That's a matter for the card companies, but they do try to achieve that balance so that they get flow-through on their network.

Would any of my colleagues like to elaborate on that, or do we want to move on to the second question?

[The Co-Chair, Conservative, James Rajotte]

We've got about 30 seconds, so why don't we do the second question?

[Terry Campbell]

Nancy, do you want to take the second one?

[Nancy Hughes Anthony]

On the second question, Mr. Rota, I think you were asking about the type of regulatory system. We would clearly endorse the fact that the best regulation is fierce competition and very good information and disclosure, and also a lot better financial literacy among Canadians. We already have cost-of-borrowing disclosure regulations. They are very extensive. We have new regulations that the government is just in the process of consulting on. We have the FCAC, which monitors all kinds of consumer-side complaints and problems, should there be any, and provides additional information, which is very useful.

Our feeling is that regulation is not necessary in this context.

[Cathy Honor]

We mean more regulation than what's out there.

[The Co-Chair, Conservative, James Rajotte]

Thank you.

If we could have the information on the two issues you wanted addressed on paper submitted to the clerk, we will ensure all members of the committee get it.

[Nancy Hughes Anthony]

You wanted a definition of qualifications for premium cards....

[The Co-Chair, Conservative, James Rajotte]

It was a definition of preferred clients who qualify for premium cards.

[Nancy Hughes Anthony]

Fine. We're happy to do that.

[The Co-Chair, Conservative, James Rajotte]

Thank you.

We'll go to Mr. Van Kesteren, please.

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

Thank you, Mr. Chair, and thank you all for attending. I have a number of questions I want to ask, and you may not have the answers to them. Maybe you can get those for me later. I think, though, that if we're going to complete this loop, if we're really going to understand what's happening in credit card usage today, we need the answers to these questions.

How much cash is in circulation in Canada today? Does anybody know that? Can you get me that information? How much money would be needed in circulation if credit cards were eliminated?

I also want the numbers of credit cards over the past years. Over the last 20 years, let's say, how many credit cards have entered into the system? How many more credit cards are we using? Maybe if you have some of those answers, Ms. Hughes Anthony, you can answer those questions.

Do you have statistics on sales revenue in the marketplace? I've asked that question before and nobody has given me the answer in regard to the increase of credit card usage. In other words, can we see a reflection of what's happened in the marketplace as credit cards accelerate?

There's also personal debt. How much is personal debt? You mentioned personal debt; what is personal debt today in Canada? Do you know what the figure is? You said it was a percentage, but what percentage is credit card? What is personal debt today? Do you know the figure?

[Terry Campbell]

I don't have that figure right off the top of my head, but we'll get it, and credit card debt is about 3% of it.

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

You said it's 3%.

[Terry Campbell]

That's for households.

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

In relation to, or in comparison to, say, the U.S. or Germany, do you have those figures? Do you know what the U.S. credit card debt is?

[Terry Campbell]

I would say.... We can look at the specific figures, but I can tell you that in Canada the household balance sheet, household indebtedness, ability to repay, and debt servicing ratios are considerably better than in the United States. Delinquency on mortgages is less than 1%. It's 0.3% in Canada and considerably higher in the United States. We have a much better system in this country.

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

Can you give us some statistics? It's fine to say we have a better system, but I'd like to see a comparison to, say, the U.S., Germany, and possibly Japan.