Industry Committee on Oct. 7th, 2024

[Darren Hannah]

As I said, it's the nature of the product, as I just described.

However, again, the ultimate truth of it is that 71% of people are paying their balance off in full every month, so they're paying nothing.

For those who decide to carry a balance, there are low-rate cards available. Most issuers make one available. Some are multiple. In addition, as I mentioned, for customers who want to keep their existing card but still want to carry a balance—maybe they like the rewards they get from it, or it may have an association they want to maintain—there are innovative products like instalment loans and term loans that allow you to reduce the interest, make structured payments and, therefore, manage your debt.

[Tony Van Bynen, Liberal, Newmarket—Aurora, ON]

The credit card then becomes a feeder for the balance of your portfolio. Is that correct?

[Darren Hannah]

I'm sorry. Say that again. I didn't hear that properly.

[Tony Van Bynen, Liberal, Newmarket—Aurora, ON]

Credit card balances become the feeder for the balance of your portfolio for someone who is not—

[Darren Hannah]

I'm sorry. I don't understand what you mean by “feeder”.

[Tony Van Bynen, Liberal, Newmarket—Aurora, ON]

If someone is not paying their balances, you would encourage them to use instalment loans, then.

[Darren Hannah]

If you are a banker, you certainly want to work with your client to help them manage their finances in a way that works best for their family. If that's the option that works best, that's great. If it's another product, we'll work with them in that way as well.

[Tony Van Bynen, Liberal, Newmarket—Aurora, ON]

I want to come back to this risk-based pricing.

There are certain cards that belong to individuals who are exceptionally good risks. Do they pay the same prices as people who are not exceptionally good risks?

[Darren Hannah]

First off, you have to qualify. It is a credit product and it's absolutely true that you have to qualify.

All of the terms and conditions, though, are described clearly up front in the summary box you get at the time of application. It shows what the rate is, what the fee is and what the terms and conditions are, so you can decide which one makes the best sense for you.

[Tony Van Bynen, Liberal, Newmarket—Aurora, ON]

That's not my question.

Do you have a risk-based pricing model built into your product?

[Darren Hannah]

Ultimately, all bank credit is risk-based.

[Tony Van Bynen, Liberal, Newmarket—Aurora, ON]

No, I'm talking about the credit cards. That's our discussion today.

[Darren Hannah]

I can't speak to individual banks' risk-based pricing models, but I can say that, generally, as a prudent lender, you make risk-based decisions.

[Tony Van Bynen, Liberal, Newmarket—Aurora, ON]

If the losses are a concern and the transactions are concerns, have you thought about reducing your risk selection criteria to reduce the risk level so that you could reduce your pricing model?

[Darren Hannah]

Every bank makes its own decision. That's a product decision they'd have to make. Given the competitive nature of this marketplace, you are seeing low-rate products in the market to try to attract a certain set of clients for whom that makes sense.

[Tony Van Bynen, Liberal, Newmarket—Aurora, ON]

Okay. How does the CBA monitor member banks' compliance with consumer protection regulations related to credit cards, and what actions are taken in cases of non-compliance?

[Darren Hannah]

The CBA is not a regulator.

I will let my colleague, Mr. Docherty, speak to the regulatory environment.

[Charles Docherty]

The banks that are part of the association, and any bank, basically, in Canada, are subject to oversight by the Financial Consumer Agency of Canada. They can issue fines. They have a number of supervisory tools in their tool box to ensure compliance.

[The Chair, Liberal, Joël Lightbound]

Thank you, Mr. Van Bynen. Your time is up.

Mr. Garon, the floor is yours.

[Jean-Denis Garon, Bloc, Mirabel, QC]

Thank you, Mr. Chair.

Mr. Ahluwalia and Mr. Leman, I want to make sure I have a clear understanding of what you said.

You said that Canada's interchange rates rank in the middle of the pack globally?

[Martin Leman]

Yes, that's correct.

[Jean-Denis Garon, Bloc, Mirabel, QC]

If you're willing, would it be possible for you to file the documents pertaining to those rankings and related calculations with the committee clerk? I imagine those figures are available.

As we're conducting a study on credit card practices, that would help us get a clearer idea of the scope of this issue.

[Martin Leman]

Yes, we will submit them to the clerk.

[Jean-Denis Garon, Bloc, Mirabel, QC]

Thank you.

Mr. Littler, I'll go to you because that statement on interchange fees in Canada surprised me. We've obviously done some research, but we haven't reached the same result. As the saying goes, however, the devil is in the details.

Have you made the same observation, that Canada and Canadian businesses are duffers when it comes to interchange rates, that we're in the middle of the pack and that there ultimately aren't that many fees in Canada?

[Karl Littler]

First, for the members, there is a study by the Kansas City Fed that is updated every year. It's done by an economist by the name of Fumiko Hayashi, who is really well known in this space. She also worked with the Bank of Canada before on some studies. It actually does indicate, for a significant selection of countries, what their rates are. There are, indeed, some that are higher than Canada's, but for the bulk of them, they are lower, of course—significantly lower.

I'm going to go out on a bit of a limb if I have time. The reality is that where they've been lowered, they've been lowered by public authorities, let's say, like the Reserve Bank of Australia, which is obviously a central bank, and like the European Commission, which is a competition authority.

The settings where they've struggled to get lower rates tend to be in milieus where parliamentarians and legislatures of various kinds are the ones making the decision. Although, not invariably, in places like Israel and so forth, legislatures have stepped in. For the most part, legislatures lend themselves to some pretty assertive lobbying for those who have a significant interest in this space, and in consequence, it's usually where somebody is taking a more—