Finance Committee on May 28th, 2009

[Ted Menzies, Conservative, Macleod, AB]

I was suggesting leadership.

[Nancy Hughes Anthony]

But, Mr. Menzies—

[Ted Menzies, Conservative, Macleod, AB]

Leadership may have solved a lot of these problems. If leadership had been shown to make it competitive and fair for everyone involved in the system, we may not have been meeting here today—not that we're not enjoying it.

[Nancy Hughes Anthony]

I know. I think it's extremely competitive, but just to clarify, I don't think all the banks could get together and suggest how Visa and MasterCard could do their business. I think there'd be a lawsuit in my in-basket in the morning.

[Terry Campbell]

If I could make another comment regarding your point about the concerns that are out there and whether competitors could get together to at least deal with it, I would say that a lot of these issues are commercial matters between commercial entities. I think what you're hearing from some of the players—I can't put words in their mouths, but we've heard their commentary, from the card companies, and so on—is they'd be interested in exploring commercial solutions to these issues.

I think the messages have been received loud and clear. As Ms. Hughes Anthony said in her opening comments, we've heard the messages loud and clear, too, and we're exploring ways...such as maybe having some better disclosure and some better clarity.

So I think there are different components to this game, and each of them in their own areas of responsibility is saying, “Hmm, what can we do here?” So I think some of that messaging is getting through.

[Nancy Hughes Anthony]

Very much so.

[Ted Menzies, Conservative, Macleod, AB]

Would anybody else like to comment on that, without appearing to be colluding with each other?

[The Co-Chair, Conservative, James Rajotte]

We have about one minute.

[Ted Menzies, Conservative, Macleod, AB]

Quickly then, let me just go back to one of the changes we did make, this minimum 21-day interest-free grace period.

Ms. Hughes Anthony, you had suggested that some of these changes that we've already put in place are quite costly, but let's look at the other side. What is the benefit of this 21-day grace period to consumers?

In our consultations we heard that this was a particular issue with many customers—constituents of ours. What benefit has that been to them?

[Nancy Hughes Anthony]

For starters, Mr. Menzies, I would just remind you that we are digesting these regulations. There is a public comment period, and all parties will be commenting before June 13.

Clearly, I think there are some great improvements for consumers in terms of some of the points in these regulations. We already have in Canada, contrary to other parts of the world, quite robust disclosure regulations, the cost of borrowing regulations, and these certainly enhance and build upon those.

Some of the, shall we say, standardization of grace periods will probably make it very much easier for consumers to understand their statements. I think the challenge the industry will have is that there's a heavy burden in these regulations to explain this and change this, which will very definitely be costly for the industry to implement. We're in the middle of assessing exactly what those costs are.

There's a good idea in there about putting a personalized calculator on everybody's statement. There are 68 million cardholders. I would just say that some of the operationalizing of this is very difficult.

[The Co-Chair, Conservative, James Rajotte]

Thank you very much.

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

[Glenn Thibeault, NDP, Sudbury, ON]

Thank you, Mr. Chair, and thank you to everyone for coming today. It's kind of interesting to look straight down the line and have this conversation with you.

Where I'm going to start is with some of the specific questions relating to the consumer side of credit cards. Of course, the merchant and the exchange fees ultimately come back to the consumer as well.

I had a figure of 50 million, but you're saying there are 68 million cards out there. You're saying that about 70% of them are paying their bills on time and never really have to worry about the interest rate.

You're the bankers, and I'm sure you can calculate the number a lot quicker in your head than I could, but 30% of 68 million is still a significant number of people across the country who are being affected in this economic downturn.

We understand that you have unsecured risks and you need to cover those costs, and you need to ensure you're still making a profit. I understand that.

When I started asking the questions in the House six months ago, we started to get inundated with phone calls and people showing us examples on their bills, saying, “I've always made my payment. Unfortunately, right now I'm watching every nickel and every dime, so I'm having to make the minimum payment this time. But I made the minimum payment two days late, and because I was two days late, my interest rate went from 18% to 24%.”

I have examples like this: a 17-year-old who has a credit card, and now the parents are being forced to pay the credit card. This was an unsolicited mailing, and the 17-year-old submitted it and got the credit card.

The concerns we have relate to the interest rates that are being charged. You're talking about there being 60 low-rate cards right now. Well, if there are 60 low-rate cards, why aren't you, as the issuers of the card, automatically giving someone a low-rate card when they start off, and then, if they so choose, they can move up, if they demonstrate good history, rather than handing out the premium cards?

I know I'm talking a lot and there are quite a few questions in there. So I'll leave those and we'll go back from there. Does anyone want to start with that?

[Mike Kitchen]

I can begin on the low rate. I think you raise a very good point. Should customers be able to start with a low rate?

One of the things we've done for many years, and it's something we're proud of, is that customers can select, in our case, their rewards first, and then go on to pick whether they want to have the standard interest rate—in other words, they probably won't carry a balance regularly—or a lower interest rate, and they pay us a fee for that, but they don't have to give up their rewards in order to get an interest rate.

We know consumers love to have rewards but also want to have an attractive rate. So we declare right up front with our consumers, on our applications on our Internet site, that they can have an 11.9% rate on their card. We even go as far on the Internet and in the branch to give them a calculator and say, if you carried this amount every month you would be better off at the lower rate than the higher rate, paying the $35 fee.

The market does react, and I think sometimes we just look at what is advertised, but there are programs out there that can help consumers lower their cost of borrowing.

[Glenn Thibeault, NDP, Sudbury, ON]

Does anyone else want to jump in, or do you want me to go to my next question?

[The Co-Chair, Conservative, James Rajotte]

Is there anyone else?

[Cheryl Longo]

I would like to jump in on that one.

Much like Mr. Kitchen said, we offer low-rate cards as well, including as low as single-digit interest rates. Choice is a big issue that the consumers want. Issuers provide anything from single-digit cards up to 19.5%. We've had low-rate cards in the marketplace for a dozen years, and much of our acquisition of new customers is from low-rate cards.

We deal with our customers to meet their individual needs all the time. You mentioned customers who are maybe living a little more hand to mouth, and we counsel them to move to low-rate cards, that is, to our 11.5% card. We will actively move our customers. We will actively put customers on something we call pre-authorized payment to make sure they have paid their bills from their account on a monthly basis to keep their credit bureau record in good standing, and we help the customers and advocate for them on those.

In the case of CIBC as well, whether you're on a low-rate card or a high-rate card, we provide what we call our credit smart features, where you can set your budget and we will send you alerts, so you can be your own money manager, your own smart money manager. If you say, “I don't want to spend more than x amount”, we will send you an alert when you hit that amount. But consumers have a choice, and they need to take accountability for the choices they make.

[Glenn Thibeault, NDP, Sudbury, ON]

I agree that every consumer has personal responsibility. We're not saying that once you get credit, there is no responsibility. Unfortunately, what we're hearing loud and clear from these card holders is that they're not being counselled back. I'm sure that's happening, but from the people I'm hearing from, it's the opposite. We're hearing the complete opposite, that their cards were at 18% and are now going up to a punitive 24% to 25%, because they've been late or they've missed a payment, even though they've been communicating with whatever the institution it is.

To comment on something Mr. Menzies was mentioning, I think it's important to recognize that if you want to police yourselves, so to speak...and yet we're hearing these stories and are getting constant examples of this; it's starting to tie the hands of government from having to say, “We're going to have to get in there and do something.”

What do you recommend we do? You're talking about the counselling side of it, and I'm sure everyone else can give me some examples of that, but we can give you stacks and stacks and stacks from the opposite side, of e-mails and letters of people saying, “How is this fair and how is this right?”

[Cathy Honor]

What I would recommend is if we can get those back...because we're not seeing this. We monitor our top client concerns. Yes, we go to the FCAC and ask them for their concerns. They're not seeing this.

So I think for transparency and communication's sake, get those back to us. We're not saying we are perfect; there could be exceptions. But I would echo the comments here that the general practices are exactly as we said, that most people carrying balances are on low-rate cards.

[The Co-Chair, Conservative, James Rajotte]

There are 30 seconds.

[Glenn Thibeault, NDP, Sudbury, ON]

Just to clarify this, you said your “top clients”. I'm assuming—

[Cathy Honor]

No, no, I meant that we monitor all of the complaints, all of them.

[A voice]

The top concerns.

[Glenn Thibeault, NDP, Sudbury, ON]

The top concerns—

[Cathy Honor]

Because this is not among the top concerns.

[Glenn Thibeault, NDP, Sudbury, ON]

I'm not trying to be specific about anyone, but I literally have e-mails from people who are talking about this, so I'd be more than happy to send them to you.