Thank you, Mr. Chair.
My name is Duff Conacher. I am the coordinator of Democracy Watch and chairperson of the Canadian Community Reinvestment Coalition. Thank you for the invitation to appear today on this very important topic, which essentially amounts to corporate responsibility and effective accountability measures in this area of access to credit, fair pricing, and the fair treatment of consumers across Canada.
The Canadian Community Reinvestment Coalition is made up of 100 organizations from across Canada. They are citizen groups that have come together and have been together now for 13 years. During this time, we have been advocating measures to effectively increase the accountability of banks and other financial institutions.
I welcome this opportunity today. I will not repeat the very well-stated concerns and problems with the current marketplace that other witnesses have already set out. Instead, I will highlight a couple of other factors having to do with access to credit and the credit card market.
I agree with Mr. Scott that this access-to-credit system is essentially now a public utility and should be regulated as such. Other public utilities are required to prove that their prices are fair and are required to go through public reviews before they can hike any of their rates. We need to apply this practice to our systems of basic credit and overall banking services.
The banks and other credit card companies have marketed credit cards much like tobacco companies have marketed their products, trying to hook youth on these products with images of security, freedom, and all the wonderful things that will come with credit, with little information about the downside. The downside, of course, is not to physical health but to financial health. Being hooked on debt can be just as damaging in the long run as being hooked on tobacco.
We need to have measures in place to ensure that these companies are providing full information, and also that consumers are receiving full information from other sources, because they generally will not trust the information that is coming from sellers. They realize that the seller is always trying to sell them something and does not have an incentive to fully inform them about any product.
The coalition was here in February 1997 before the industry committee, which held the last hearings on credit cards. Those hearings were unfortunately cut short by the election call in the spring of 1997, but I'd urge all members of the committee to read through the transcripts of those hearings. They contain some very interesting information. Pretty much all the stakeholders appeared, but because of the election, the committee did not issue a report.
Here we are now, 12 years later. The problems haven't gone away and have actually become worse as the gap between the credit card interest rate and the Bank of Canada prime lending rate has increased. We have also seen unilateral increases over the past year. It is our position that the banks are essentially trying to recoup the $16 billion in losses they suffered mainly due to their own decisions to get involved in very risky lending.
Since then, there have been three rounds of reviews of the Bank Act and financial institutions legislation. None of the rounds has produced any measures that will protect consumers from gouging and ensure that banks and other financial institutions are serving everyone fairly, at fair prices.
We heard from John McCallum, when he was secretary of state for financial institutions and entering his first cabinet meeting in 2002, that credit card interest rates were “grotesquely high”. That's a direct quote. Yet nothing has been done about these grotesquely high credit card interest rates since then.
These proposals by Minister of Finance Flaherty were made just a week ago. You should have before you a news release that the coalition issued on May 22 responding to the proposals. If you don't have it, you will soon, as it is being translated. The proposals are too little, too late, to protect financial consumers from being gouged.
Three of the eight proposed regulations change only credit card disclosure requirements, and only in minor ways. Another proposal only addresses consumer consent for increasing the credit limit. Another only limits debt collection practices in one way. None of these five of the eight proposed regulations will do anything to prevent gouging, nor will the proposal to create a task force on financial literacy. It will largely be redundant, given the existence of the Financial Consumer Agency of Canada, which has been doing financial literacy work for the past eight years now.
While the proposed 21-day interest-free period and a restriction on one fee, and payment allocation requirements will protect a very few customers from a very few charges, none of the proposals would decrease the likely already excessive credit card interest rates. Nor will they affect the extra interest rate and fee hikes the banks and other companies have unilaterally imposed in the past year, nor their overcharging for various credit card services.
What will actually bring accountability to the banks? What will effectively require them to do something that will actually help consumers in return for the up to $200 billion in subsidies offered to the banks? What will balance the marketplace, especially to balance the fact that consumers pay for all financial institution advocacy simply because the financial institutions charge consumers--