Finance Committee on June 2nd, 2009

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

What if you were given that authority?

[Doug Kreviazuk]

Our board of directors is broadly composed of our member financial institutions. Our composition is 16. The chair is a representative from the Bank of Canada. Six members of our board are from banks. Six are from the non-bank constituent members. There are three ministerial appointees from the Minister of Finance for independent purposes.

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

Thank you.

Ms. Reed and Ms. Bose, I have two short questions for you. Has your organization seen an increase in the inflation rate as a result of these interchange fees?

[Geneviève Reed]

To this point, we have not looked at that issue.

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

Do credit card interchange fees have an impact on small- and medium-sized businesses?

[Geneviève Reed]

That does not come under our mandate. Unfortunately, we have not examined that issue.

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

Merci.

Mr. Scott, you and I have done a lot of work in the past, and I wish that previous committees had listened to the concern of small independent grocers in this country when there was the attenuation of competition.

You mentioned the Competition Bureau being involved to some extent. I'm not so sure, given the way it's currently constructed, that it would provide solace, given how they perceive and consider thresholds within the markets.

Regarding these fee increases on the credit and on the debit side, which you've said is 60% or 70% of your global purchases, I want to ask you or Monsieur Bouchard if you can categorize for us what impact you will see in the next two or three years for the bottom line of independent grocers, and not just in surcharges to consumers. How many will actually go out of business?

[John Scott]

Mr. McTeague, I can't forecast how many will go out of business, but just on the enhanced fee, we've seen the financial statements of several retailers in the last two weeks--and I'm quite prepared to provide them to you on a confidential basis--and you can see the dramatic change on the enhanced credit card.

Look, folks, you have no idea of the significance of this thing. We're talking about something like up 50% overall, because these cards are ubiquitous. When you look at the ads on TV and say “oh, I get 2% for groceries”, no grocer has agreed to that. That's not a deal.

François, do you want to comment?

[The Co-Chair, Conservative, James Rajotte]

Just very briefly, Mr. Bouchard.

[François Bouchard, Treasurer, Canadian Federation of Independent Grocers]

I can only speak for myself, but if I look at my small business here in Ottawa, with 30 employees, in the last year on the credit cards alone, my fees have gone up 25%. I can't control what cards come in. My statements used to be one page long. Now there are about 10 or 15 pages of fees of different cards, such as Infinite and all these little changes.

If they change the debit structure, it's going to have a horrible impact on my business. Right now, we pay a fee per transaction. If I go on a transaction basis on a percentage basis, I have no way of passing it on to the consumer. I can't go back to the consumer and say, “Please, I'd like to charge you 2% or 3% more.” I can't do that. I don't have the power to negotiate with the Visas and MasterCards. I have one store with 30 employees. A lot of members have the same thing.

[The Co-Chair, Conservative, James Rajotte]

Thank you.

Thank you, Mr. McTeague.

Monsieur Bouchard, vous avez sept minutes, s'il vous plaît.

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

I would first like to say thank you, Mr. Chairman.

I would also like to thank the witnesses for being here this morning to talk to us about this complex matter of credit cards and debit cards. My first question is for the representative from the Canadian Payments Association.

You said that credit cards have never come under your mandate and that this is still the case. Do you think that you should have a role to play regarding interchange fees. and if so, what would that role be?

[Doug Kreviazuk]

Under our legislation, we are to provide the framework for rules and standards with regard to the clearing and settlement of payment items. It does not, at this point, extend to the creation or maintenance of any fees. That is a proprietary matter between the financial institutions and the payment schemes like Interac and Visa, in which they participate.

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

My next question is for Option consommateurs. You mentioned that consumers pay the interchange fees without, I assume, even being aware of them. That means that a business's costs are divided among everyone. Do you believe that consumers would change their habits if the fees appeared on the bill, if they saw the cost to them of using their credit card? Would that cause a change in buying habits? I would like your comments on that. What might that change?

[Geneviève Reed]

Thank you for your question, Mr. Bouchard.

At present, consumers generally find it hard to understand their own statements, so if more financial information were added, it might confuse consumers more rather than helping them. That is one point.

Moreover, we believe that these fees should not be paid for only by consumers. The interchange fees come on top of all the other fees imposed on consumers, whether we are talking about over-limit fees, minimum-payment rate changes or other fees.

The problem seems to be very complex, as do the impacts. The repercussions for merchants are very significant, as they have explained. There is no doubt that in sectors like the grocery industry, merchants cannot pass along the costs to consumers because that would increase the price of the food, which is an essential commodity. In other areas, however, there might well be an increase in product prices, which worries us for the medium term. These costs cannot be absorbed by the system, but only by consumers in the long run.

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

You also talk about having clearly established rules for consumers. Could you elaborate a bit on that? What do you mean by clear rules for consumers?

[Geneviève Reed]

Right now, the various types of electronic payment, such as credit, debit and pre-authorized payments, are regulated differently. As I mentioned, there is a voluntary code governing debit payments, which applies to debit cards, and there are the CPA rules that apply to pre-authorized payments by debit card, for example. There are all sorts of rules that no one has a comprehensive handle on.

In our view, there is a need for clear rules, in particular concerning transparency of the costs, responsibility and risk allocation. In the case of credit card advances, consumers currently bear the responsibility if there is fraud involving their card. Why are they not responsible when the fraud involves a debit card instead of a credit card?

There is also the issue of how to settle disputes. It would be important to know how many days a company has to settle a dispute, if a dispute arises, and how it is to be settled.

Finally, there is the matter of regulating solicitation. As you know, solicitation for credit, both by mail and in stores, is very widespread, and we feel that it is inappropriate.

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

I would like to put one last question to the Canadian Federation of Independent Grocers.

You seem to be saying that the fees are prohibitive for a small grocer or small merchant because their business volume is not high enough. On the other hand, a larger company has a higher business volume and is favoured by credit card owners.

Does that mean that the solution lies in regulations standardizing interchange fees? What do we need to do so that small companies can use credit cards as much as larger companies can? What has to be done or regulated?

[François Bouchard]

Ideally it should be what you are saying. Approximately 70% of all transactions are done by credit or debit cards and that is increasing on a daily basis. My business is not a bank and I can only negotiate with two people. Obviously, therefore, I am at a disadvantage from the outset compared to larger businesses.

With regulations, there would be a level playing field and consumers would be able to shop anywhere. My costs would be controlled just like others and I would be able to compete with them.

[The Co-Chair, Conservative, James Rajotte]

Merci.

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

[Chris Warkentin, Conservative, Peace River, AB]

Thank you, Mr. Chair.

Mr. Conacher, I have just a couple of questions for you. On May 22, you were asked by CBC News about your perspective as it pertains to hard caps for interest rates on credit cards. I know that many people have been calling for hard caps to be placed on credit card fees. I'm wondering what your perspective is and if it has changed at all since May 22.

[Duff Conacher]

No. I believe I was actually speaking about caps overall, whether they're floating caps or hard caps. It's possible to set a cap, but first you need to know what the profit levels are of the companies involved.

That's why we're calling--not just for that reason but overall--for the government to mandate one of the federal financial agencies, whether it's OSFI, the Office of the Superintendent of Financial Institutions,the Competition Bureau, or the Financial Consumer Agency of Canada, to conduct an independent audit of these companies to find out what their credit card divisions' profit levels are and whether they are excessively profitable or reasonably profitable.

[Chris Warkentin, Conservative, Peace River, AB]

I appreciate that. I think you made that point a little earlier.

Here's what I'm wondering about specifically. From your perspective, what impact would a cap have as it relates to consumers? I think we're looking at two different things here. As a committee, I think we generally want to ensure that, number one, consumers are well served by the industry. Number two, we also want to ensure that small businesses and the businesses that rely on this mechanism for transactions are well served. In your opinion, what specifically would be the effect on consumers if in fact a mandate was put forward as it pertains to a hard cap?

[Duff Conacher]

On a cap, whether floating or hard, we don't know what the effect would be. I can tell you that if the government moved close to doing it, I believe the banks and the other credit card issuers would say they're going to cut off half the customers who have credit cards currently because they wouldn't be making enough money under a restricted, regulated interest rate. But they could easily be making it up, because right now they hold all the numbers. They know what their profit levels are and what all their costs and revenue streams are.

That's why you need to do the audit first. Anyway, it should be an annual audit looking at increases they may propose in the future and also looking backwards at least 10 years to find out the extent of gouging in the past. Then you could set a cap that would be workable.

[Chris Warkentin, Conservative, Peace River, AB]

I'm just trying to get through a number of questions here, so I appreciate the answer as it pertains to customers and the folks who use credit cards.

In your testimony, Mr. Scott, you talked about the ever-changing and uncontrollable external cost structures that are inflicted on small business or businesses in general as it pertains to the interchange and transaction fees charged to your businesses and the businesses you represent. This is something that I think came as a surprise to many consumers as these hearings have unfolded. There is a different interchange fee that the small business or the business owner has to pay depending on which credit card or Visa they pull out of their wallet.

In fact, if they pull out one Visa, it might be one fee for the business, and if they pull out the other Visa, it might be a different fee for the small business. It's made me a lot more aware of what I'm using when I pull out a credit card at the grocery store.

As it pertains to these uncontrolled and ever-changing fees, do you have a suggestion as to what we should come up with in terms of a recommendation? Is it so much the fact that it's ever-changing and that it fluctuates from one card to another or is it just that fees for certain cards are higher than for others?

I guess my question would be this: should we recommend that there be an across-the-board levelling of those fees so that at least, even if they're higher, small businesses would have an understanding of the cost structure they're working with?