Industry Committee on June 2nd, 2009

[Mike Wallace, Conservative, Burlington, ON]

Here's my thinking about this. Do we even need more players or do we just keep Interac the way it is? Do you think there's an advantage to having more players?

[John Scott]

The way to go is to keep Interac the way it is. It's non-profit. I know that Interac has been here and they've talked about going into a profit mode and that kind of thing. They don't have the buying power. They're in the same situation we're in.

If you leave the system the way it is, it's not a bad system right now. We've all learned how to work within it. We can deal with that.

[Mike Wallace, Conservative, Burlington, ON]

Okay. Well, there are some arguments that the world is changing in terms of buying stuff over the Internet and things that you can't do with a debit card, but that's another argument they're using.

Mr. Conacher, you've talked about Visa and MasterCard as individuals. There aren't a lot of them left, I don't think, but there are the Canadian Tires of the world, and the Bays, those that have their own credit card systems. They tend to have really high interest rates. People treat them as a credit card, but they're specific to their stores. Do you include those in the issue? Do you think we should be seeing them at this table alongside the other credit card issuers that we've seen?

[Duff Conacher]

Although those retail companies represent a much smaller proportion of the market than the bank-issued cards, no business has a right to gouge. Government, in this area of access to credit, has a particular role to play in terms of ensuring that everyone is treating everyone fairly and well at fair prices and fair interest rates.

So send in the auditors to the divisions of those companies as well, and require them to prove that they are making a reasonable profit from their credit card divisions.

[Mike Wallace, Conservative, Burlington, ON]

I appreciate that. I have one more question for you. I just want to clarify something.

We have heard at this committee about premium cards, and I was as ignorant as the next guy about this. I have two cards in my wallet. One's a plain old Visa, with nothing on it, and then I have a Visa that collects air miles. Neither one of them is what the banks and the Visa companies call premium cards. Premium cards, like an Infinite card, have no credit limit. These others actually do have credit limits; I'm not at them, but they do have credit limits.

So there's a regular card, a premium card that would collect points, and then an Infinite card, which really.... When they say 12%, that's what they're talking about. They're competing against Amex and those guys, who have no limits on their credit, and they are charging more for that.

Mr. Conacher, you've compared the banks to a public utility. I don't necessarily agree with you on that, but that's okay. To me, a public utility is the gas company. One gas line comes into my house. The hydro comes into my house. They're public utilities and they are regulated based on ROI, return on investment.

You keep talking about gouging profits and reasonable profits, so it sounds like you believe in profit, which is nice to hear. What's your definition of “reasonable profit”? What's your return on investment?

[Duff Conacher]

Well, according to those who are much more knowledgeable in this area than I am, an average corporate profit margin is somewhere around 10%. When you're talking about the provision of access to credit in particular--

[Mike Wallace, Conservative, Burlington, ON]

Is that before tax or after tax?

[Duff Conacher]

That is an after-tax profit.

When you're talking about this area, you don't want banks and other financial institutions providing access to credit to be profiting excessively, because they are increasing the cost of capital, the cost of money that runs through the entire economic system, and the entire economic system can be damaged by that increase.

It's not that we call them a public utility' Just place them on the spectrum, from a sole entrepreneur private company to the other end of the spectrum, a monopoly public utility, but they're closer to that because they are providing this essential service. If the consumers are right, and according to everyone's ideology, the consumers are always right, 90% of consumers believe that access to basic banking services and credit is an essential service. Therefore, they're right, so treat it like an essential service and regulate it like an essential service.

[The Co-Chair, Conservative, James Rajotte]

Thank you, Mr. Wallace.

We'll go to Mr. McTeague, please.

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

My question is for Option consommateurs.

You seem to have some faith in the Competition Bureau and its ability to conduct and make public its current investigation into the breadth and size of possible profits made by at least two of the credit card companies, which constitute, as we have heard many times before, 94% of the market. Are you actually convinced that, with the interpretive guidelines and the track record of the Competition Bureau, they are going to be able to find what you seek?

Let's be very blunt about this. MasterCard and Visa didn't just start out last evening. They've been around for a few years. And there have been other six-person reports on this issue that have triggered investigations.

Are you convinced that these people are able to identify problems, given the state of the Competition Act which was drafted by the large companies in 1986?

[Geneviève Reed]

That is an excellent question Mr. McTeague.

We feel that this study on Visa's and MasterCard's practices, which are probably anti-competitive, is a first step. We hope and we recommend that the Competition Bureau use the necessary resources to conduct a study of the kind undertaken in England and Australia on all the fees charged by credit card issuers. We think that this information is necessary in order to understand what the situation is for all stakeholders and in order to identify an appropriate framework for this issue, or appropriate legislation.

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

I don't think that that organization has the necessary resources. Regardless, we could discuss this further.

I am going to come back to you, Mr. Scott, because I've raised a couple of very important questions and I'm wondering what your reaction might be. Ms. Coady referred to a document that was from CIBC Aeroplan and that was actually to me. As one of its Infinite gold promotions, it offers 50% more aeroplan miles at “grocery, gas and drug stores”.

Given where it is being targeted and who it is targeting, is it your experience that with premium cards people are actually spending more money at your stores?

[François Bouchard]

I don't think they're spending any more. They're just changing the method of payments. We have seen the cash business decrease. We are seeing the debit card increase, obviously, and the credit card. People's shopping habits have changed, but the credit card doesn't necessarily allow them to buy more. They're coming in to buy what they want. I haven't seen an increase because they're getting more aeroplan miles. They're just changing their method of payment, as far as I can see.

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

I just opened that envelope this morning, so I was glad to see groceries and gas, two areas that I am rather familiar with, as part of the target of the new Infinite cards.

Mr. Bouchard, you said something very interesting, which some of us who have worked on this in the past may not have picked up on.

Mr. Scott, you suggested that in the case of your industry, when you have an increase, it has a devastating impact on the bottom line.

Perhaps you could explain to us whether the 30 people you have working for you or had working for you have been affected.

The Canadian grocery association came to us and said that when they see an increase, they pass it on to consumers, the practical effect being that the poor guy who happens to walk in to get a bag of milk for his family actually winds up having to pay for this increase to grocery stores.

In your case, however, you can't pass it on. You have to absorb it. So I want to know, from your perspective, how many people may wind up on the employment insurance lines as a result, if they can qualify.

[François Bouchard]

I have 30 employees who work for me. Obviously, if I go out of business, they're all out of business. I could probably fill this room with retailers just like me, all across Canada, in your ridings, who are going through the same thing. We're looking at it every month.

I get my statement. My statement shows up and I say, okay, now it's increased again, so where else can I cut? Where else do I adjust?

[John Scott]

This is the number one issue of concern from independent grocers across Canada and has been for many months. It has exacerbated the cost issue in the stores. It has made things extremely difficult.

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

Would it help if you could add surcharges? You obviously can't add surcharges, but could you at least not honour some of the cards if these abuses continue?

[John Scott]

We have to find some way to get some transparency, some constant, in there somewhere, Dan, I think.

[The Co-Chair, Conservative, James Rajotte]

Thank you, Mr. McTeague.

We'll go to Mr. Lake, please.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

Thank you, Mr. Chair.

Thank you to all the witnesses.

I have a question for Mr. Conacher.

Just taking a look at the statement you made, much of what you said in your statement we hear regularly from the NDP in question period, and some of the stuff almost word for word. You make a claim here that the Conservatives' economic action plan offers “public-funded subsidies to the big banks of more than $200 billion”.

Now, we have a budget in this country of $230 billion or $240 billion. You're saying that $200 billion of that goes to the banks. Can you quantify that in terms of a breakdown?

[Duff Conacher]

Sure. The subsidies I'm talking about are the offers to buy back mortgages through the Canada Mortgage and Housing Corporation, the more than $40 billion in capital the Bank of Canada has injected into the financial markets, and the other programs being provided to various financing streams in which the banks and other large financial institutions all participate. If it were all drawn down on by the banks, it would add up to a subsidy of more $200 billion.

We're saying that the government should require the banks to do something meaningful in return. The best thing to do is to ensure that they're serving everyone fairly and well at fair prices and interest rates. One of the main ways to empower consumers and give them a subsidy in the same way is to require the banks and other financial institutions to send out this one-page pamphlet in the envelopes they mail out to customers every month.

In case you're wondering whether this idea comes out of left field, it was endorsed by the MacKay task force on financial services and also by the House and Senate committees in 1998. It just hasn't been acted on by any finance minister since. It's about time, because there would be no cost to the government and no cost to the industry. It would give customers a place to call their own and would balance the marketplace in many key ways.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

I want to move on for a second, but I will point out that the money you're talking about in terms of the Canada Mortgage and Housing Corporation was money set aside so that consumers could afford to take out mortgages and buy houses. Those consumers, represented by all of us, are our constituents. I think it's hardly fair to call that a $200-billion subsidy.

I want to move on to Mr. Bouchard, if I may.

I have a couple of questions for you. A fellow from Visa came before us and talked a little about the Infinite card. He was talking about customers who use the Infinite card. He said that these are the highest-value customers to merchants. We've heard a lot about the value these consumers offer to merchants.

I would assume that someone who's using an Infinite card doesn't choose The Country Grocer simply because he or she has a Visa Infinite card. Is that fair to say?

[François Bouchard]

That's fair to say.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

Do you take Visa and MasterCard?

[François Bouchard]

Yes.