Industry Committee on Oct. 10th, 2024

[The Chair, Liberal, Joël Lightbound]

Good afternoon, everyone. I call this meeting to order.

Welcome to meeting number 139 of the House of Commons Standing Committee on Industry and Technology.

Before we get started, I would ask everyone to read the cards on the table for guidelines for the use of earpieces and microphones. The purpose of these directives is to protect the health and safety of everyone, but especially of our interpreters, whom we thank for their work.

Pursuant to the motion adopted on Thursday, September 19, 2024, the committee is resuming its study of credit card practices and regulations in Canada.

I want to welcome and thank the witnesses who are taking part in today's meeting.

We have two representatives from the Competition Bureau Canada. First of all, we have Krista McWhinnie, who is the deputy commissioner of the monopolistic practices directorate. With her is Bradley Callaghan, who is the associate deputy commissioner of the policy, planning and advocacy directorate.

We also have two representatives from the Financial Consumer Agency of Canada. First, we have Frank Lofranco, deputy commissioner, supervision and enforcement branch. He is accompanied by Supriya Syal, deputy commissioner, research, policy and education branch.

Finally, we have two representatives from the Public Interest Advocacy Centre. First of all, we have Geoff White, executive director and general counsel. With him is Aya Alshahwany, who is an articling student.

Welcome.

As you know, you have five minutes for your opening remarks, and then we'll open the floor for a discussion.

Without further ado, I'll start with the Competition Bureau of Canada for five minutes.

[Krista McWhinnie, Deputy Commissioner, Monopolistic Practices Directorate, Competition Bureau Canada]

Good morning, Mr. Chair and members of the committee. Thank you for the invitation to appear before you today.

My name is Krista McWhinnie and I'm the deputy commissioner of the monopolistic practices directorate at the Competition Bureau. I'm joined today by my colleague Brad Callaghan, who's the associate deputy commissioner of the bureau's competition promotion branch.

The bureau is an independent law enforcement agency that protects and promotes competition for the benefit of Canadian consumers and businesses. We administer and enforce Canada's Competition Act, a law of general application that applies to every sector of the economy. We investigate and address abuses of market power, anti-competitive mergers, price-fixing and deceptive marketing practices. The bureau also advocates for pro-competitive government rules and regulations.

It’s important to recognize that we are enforcers of our legislation and advocates for more competitive markets. We are not adjudicators or regulators that set rules for companies. The Competition Act requires us to meet several thresholds and standards when we bring cases before the courts, such as proving that there has been a significant harm to competition.

In the context of your study, the issues most relevant to the bureau’s mandate relate to investigating and policing against monopolistic practices and guarding against deceptive practices.

The Competition Bureau has experience analyzing issues related to the Canadian payments sector. For example, in December 2010, the bureau filed an application with the Competition Tribunal under the price maintenance provision of the Competition Act alleging that Visa and Mastercard were imposing restrictive rules on merchants who accept their cards. In the bureau’s view, these rules reduced competition among credit card network services, including competition with respect to credit card acceptance fees.

Ultimately, the Competition Tribunal dismissed the application in 2013, finding that it did not meet certain requirements under the price maintenance provision of the Competition Act. That said, the tribunal also carried out an alternative analysis in the event that it was wrong in its legal interpretation, and under this analysis the tribunal found that these rules had raised prices and had an adverse effect on competition.

While the application was dismissed, the tribunal noted the importance of this issue for Canadians. Notably, the tribunal said that even if the bureau had proved its case, the tribunal would not have given an order to remedy the concerns raised by the commissioner’s application. Instead, it suggested the issues would be better addressed through regulation. Following that case, Visa and Mastercard submitted separate and voluntary proposals to the Minister of Finance in 2014 to reduce their credit card acceptance fees for a period of five years, and to date, the government has not regulated these fees.

The bureau does not play an active role in commitments from companies to lower fees. We also have no mandate to develop or implement industry codes of conduct. Our role is limited to enforcing the Competition Act should its provisions be engaged and, advocating that any government action be carried out in ways that encourage the most competition.

Before responding to your questions, I will note that the law requires the bureau to conduct its investigations in private and keep confidential the information we have. This obligation may prevent us from discussing certain details of our investigations.

I'd like to again thank the committee for the opportunity to appear today and we look forward to your questions.

[The Chair, Liberal, Joël Lightbound]

Thank you very much, Madam McWhinnie.

We will now turn to the Financial Consumer Agency of Canada for five minutes.

[Dr. Supriya Syal]

Thank you, Mr. Chair.

Thank you to the members of the committee for inviting us to testify before you today.

My name is Supriya Syal. I am deputy commissioner of research, policy and education at the Financial Consumer Agency of Canada. I am joined today by Frank Lofranco, deputy commissioner of supervision and enforcement.

We welcome this opportunity to contribute to the committee's study of credit card practices and regulations in Canada.

The FCAC is an independent federal agency that protects the rights and interests of consumers of financial products and services. We carry out our mandate in two principle ways. First, as a strong and effective regulator, we supervise the compliance of federally regulated financial entities, such as banks, with consumer protection measures set out in legislation, public commitments and codes of conduct. Second, the FCAC is responsible for the national financial literacy strategy and works with stakeholders across the county to strengthen the financial literacy of Canadians and to build their financial resilience.

Our work in financial literacy includes collaborating with researchers and academics on behavioural science interventions that support positive financial outcomes, such as saving, budgeting, building financial confidence and managing debt, including from credit cards. It includes educating Canadians about their rights when dealing with financial institutions and providing consumers with unbiased and authoritative information about financial products and services, including credit cards. It also includes providing free and easy-to-use online tools and calculators that help Canadians make informed decisions, such as a credit card comparison tool and a credit payment calculator.

We conduct research on financial well-being and monitor trends and emerging issues that affect financial consumers. For example, since August 2020, we have been conducting a monthly financial well-being survey to study how Canadians manage their finances, which allows us to track changes in their financial behaviours over time. From this work, we know that in 2019, 27% of Canadians reported that they had to borrow money to pay for day-to-day expenses, and this had increased to 37% in May 2024. We make this information available on an online dashboard at Canada.ca.

The FCAC's policy research and evidence-based analysis on financial consumer protection also supports the Department of Finance's role in developing financial sector policy and legislation.

As to our supervisory role regarding some of the questions on the credit regulations in the committee's study, the FCAC oversees the compliance of federally regulated financial entities with regulations and codes of conduct for issuing and processing credit cards. It is important to note that companies regulated by the provinces and territories also offer credit cards, and these are subject to requirements in those jurisdictions.

By law, federally regulated institutions, such as banks, must provide consumers with information in a manner and using language that is clear, simple and not misleading. This applies to disclosure documents such as application forms and agreements for credit cards. These regulations also stipulate that certain information must be included in monthly credit card statements.

In 2022, the federal government introduced the financial consumer protection framework, which was a milestone for financial consumer protection in Canada. This framework holds banks to a higher standard and requires them to take greater responsibility for consumer outcomes. The framework introduced more than 60 new and enhanced consumer protection measures. Under the framework, banks must provide more information to their customers so they can make informed and timely decisions about their finances, and banks must assess consumers' financial circumstances and offer products and services that are appropriate to consumers' needs.

For credit cards, financial institutions must send electronic alerts automatically when the credit available falls below $100 or an amount that can be set by the consumer. They must obtain express consent for credit limit increases, and they must assess whether a credit card is appropriate for a given customer's circumstance, including their financial needs. For example, many premium credit cards include a variety of benefits for a higher annual fee, but that may not be appropriate for some consumers.

Finally, the committee should also be aware that the revised code of conduct for the payment card industry was announced last week and will take effect on October 30. As part of its consumer protection mandate, the FCAC will supervise the implementation of this code by major payment card network operators, including Visa Canada, Mastercard Canada and Interac.

Before I conclude, I will mention that November is Financial Literacy Month in Canada, and the FCAC leads this important initiative. Throughout November, as part of a national campaign, we will be sharing information and resources with Canadians and working with organizations from private, public and non-profit sectors to advance financial literacy in Canada.

That concludes my opening remarks, and I look forward to the committee's questions.

[The Chair, Liberal, Joël Lightbound]

Thank you very much.

At last I'll yield the floor to the Public Interest Advocacy Centre.

Mr. White, go ahead.

[Geoff White, Executive Director and General Counsel, Public Interest Advocacy Centre]

Good morning.

Thank you for having us.

I'm sorry, but our opening statement today will be in English. However, we will be able to answer your questions in French.

You know who we are, but I'll tell you quickly about our organization, the Public Interest Advocacy Centre. We're an advocacy group that for decades has fought for better outcomes for consumers and in particular the underdogs in sectors like telecom, energy, transportation and banking.

I take it that this committee received good notice and evidence in your work as parliamentarians about the cost of living and affordability crises that Canadians are in the midst of. When everything gets more expensive and wages don't keep up, debt is one of the drugs that many turn to, and it becomes a vicious never-ending cycle. Credit card debt and credit-card-like debt are the quick hits but have long-lasting consequences.

Earlier this year, a report from the Ivey Business School said that the three pillars of well-being are mental health, physical health and financial well-being. It's good that this committee is looking at a small piece of financial well-being because debt is crushing Canadians. The amount of household debt is getting close to our annual GDP. While this debt problem seems to cut across many demographics, we're concerned that this is a serious problem for gen Z and Canadians who are more prone, historically, to discrimination. Again, it's good to see this committee taking a serious look at credit cards, and I would like you to focus today on three particular issues.

Our first main point is that credit card consumer protection is a tangled web across the country, and it's not clear—to us, anyway—whether that regime is doing anything to make it better for consumers. While credit cards issued by federally regulated banks are operated under federal regulations—like the financial consumer protection framework, which lives within the Bank Act—credit cards and credit issued by non-federally regulated banks don't afford consumers the same level of protection and rights across the country, as they're subject to various provincial consumer protection acts of varying quality.

We strongly believe there should be a one-stop shop for Canadians when it comes to issues with credit cards or credit-related products, leveraging best practices from the provinces that have found better ways to protect consumers. A good example here is Quebec, where there's a debt-level test for people taking on new debt and there are enhanced disclosure requirements. We think the federal government plays an important role in bringing those standards together and in harmonizing them at the best level.

[Aya Alshahwany, Articling Student, Public Interest Advocacy Centre]

Our second main point is that consumers need to know a lot more information about their debt and any new debt that they take on. Our fellow panellist, the FCAC, has outlined in their financial literacy strategy key building blocks for empowering consumers in making financial decisions, which include having the skills to navigate the financial marketplace, being knowledgeable and confident, and knowing how to manage expenses, debt and savings.

We simply do not have clear data on how well—or not well—Canadians understand the various credit products and services available to them and the costs and risks associated with the ones they are recommended. The same goes for how well Canadians understand the related rewards programs with their credit cards. At minimum, consumers need to know the risks, costs, hidden costs and cumulative effect of each new debt product they take on and how it will affect their credit score. This is especially important for younger Canadians and newcomers to Canada who are navigating the credit score system for the first time. We do not believe disclosure of this information will solve the problem, but we do believe in making sure consumers have their eyes wide open each time they take on new credit or change their credit services.

Our third point is about credit-card-like products operating outside of credit card consumer protection regulations at the federal level. The biggest example of this is the “buy now, pay later” services offered through online providers or through the major banks. While our neighbours to the south have already begun expanding credit card consumer protections to include these credit-card-like products, the FCAC has done only one small study on the use of these services and how they impact consumers. PIAC would like to see more proactive approaches to expanding regulations to these types of products as well, which are mostly used by and targeted at young and financially vulnerable people.

Another example would be the credit cards and credit products offered by non-federally regulated banks, including those from fintech companies. This is called open banking or consumer-driven banking and is slowly being implemented in Canada with budget 2024's planned consumer-driven banking framework. It is important that the people who use these open banking services are protected. We recommend implementing consistent consumer protection regulations for these products across the country. “Open” should not become a synonym for “unregulated”, because this will only worsen the current credit landscape for Canadians.

Thank you. We welcome your questions.

[The Chair, Liberal, Joël Lightbound]

Thank you to all three organizations.

To start the discussion, I give the floor to Mr. Perkins for six minutes.

[Rick Perkins, Conservative, South Shore—St. Margarets, NS]

Thank you, Mr. Chair.

Thank you, witnesses.

Thank you, MP Masse, for initiating this study.

My first question is for the Competition Bureau. Have you ever done a study on what appears to be the anti-competitive nature of the interest rates charged by credit cards? Most credit card companies are somewhere around 18% to 19% for a standard credit card. The retailers are all about 28%. It looks like price-fixing to me. Has the Competition Bureau ever looked at that?

[Krista McWhinnie]

Under the enforcement role we have, the act doesn't ask us to look at whether prices are too high but at whether conduct like price-fixing, as you said, is driving higher prices and whether that is an abuse of dominance or some other form of anti-competitive agreement other than a cartel. We have done advocacy work in the financial sector space, but not specifically looking at the question of high interest rates charged to Canadians.

[Rick Perkins, Conservative, South Shore—St. Margarets, NS]

It's not so much the high interest rates, although they appear to be usury. From my time working at a bank, I have a pretty good idea of what the return on equity of the credit card business is. It's massive. The loan losses, as the Bankers Association admitted here, are modest, at 1.6%, so their claim that they need high rates to cover their loan losses is, frankly, false.

When I see every competitor charging the same rate, it strikes me that somebody should be investigating it to see why we don't have more competitive rate pricing since, to the decimal point, it's the same interest rate.

[Krista McWhinnie]

Given the importance of this issue, if there was any evidence that it was being driven by agreements between competitors or other conduct captured under the act, that would be a real concern for us. We would be doing an in-depth investigation into it.

We do have strengthened abilities to conduct market studies now as a result of the recent amendments. Going forward, when we do studies looking at the overall level of competition in a market, we will be empowered with better tools to do that.

[Rick Perkins, Conservative, South Shore—St. Margarets, NS]

There's a reason it's such a concern, contrary to what the Bankers Association has said. Its self-serving internal survey said that 71% of people pay off their balances, but the Bank of Canada, which has done many studies on this, has shown that it's about 46%. According to its most recent study, the per cent of people who carry a balance is growing. When you're charging almost 30%, as most retailers are—and that's another issue that needs to be looked at, because 30% interest is loansharking, in my view—you're preying on the most vulnerable people, who get trapped in a loop.

Bankers bragged at committee that there are other debt alternatives, that you could move your debt over to a lower rate line of credit. I will ask the Public Interest Advocacy Centre about that issue, because it looks to me like credit cards are a great business development tool for banks to move people to lines of credit while not pulling away their credit card. They'll zero-balance their credit card and move it over to a line of credit, and now they have free room to grow their credit again. Is that what's happening?

[Geoff White]

Thank you for the opportunity to speak to this briefly.

That is our understanding of what's happening. When we think about competition—and the test is always whether competition is sufficient to protect the best interests of users—it's clearly not working right now because consumers are taking on layer upon layer of debt. The bureau has the power to study it. I think the question is, are they studying it? I'd love an answer to that question.

To counter some of the Canadian Bankers Association data, I'm going to quote from an Ivey Business School report from earlier this year. This is Ivey, with a foreword by former Bank of Canada governor Stephen Poloz. These aren't his words but the report's words:

Amid national economic headwinds, recent reports suggest that consumer debt and credit card spending is at an all-time high. One report—

This is from the CEIC, which does macroeconomic data around the world.

—suggests that over half of Canadians were $200 (or less) away from being insolvent, despite Canada's distinction of having some of the most financially literate consumers in the world.

That brings out the issue of literacy and disclosure. You can have many pieces of paper attached to a credit card loan, but if you're a University of Ottawa student walking through campus, where credit card companies are loading students up with debt—which, by the way, is going to be illegal in the U.S.—it is piling on. There is a revolving door of going from one credit product to the next to try to pay off one with the other. There's no real “know your client” rule being enforced to make sure that a student at the University of Ottawa can actually handle the debt and that it's not one of four different instruments this poor student is taking on.

[Rick Perkins, Conservative, South Shore—St. Margarets, NS]

The banks said they'd like to know their customers—except when it comes to credit cards.

Mr. White, maybe I can ask the Competition Bureau that question. Are you going to do a study on what appears to be the fixed pricing of credit cards? Banks seem to be colluding on anti-competitive behaviour, setting the same price for their basic credit cards. It's the same for retailers.

[Krista McWhinnie]

My colleague Mr. Callaghan can respond to that question.

[Bradley Callaghan, Associate Deputy Commissioner, Policy, Planning and Advocacy Directorate, Competition Bureau Canada]

There are two aspects to the question. One is about the enforcement track of what the bureau does, and then there's what we do on a competition promotion track. What we do in market studies is under our competition promotion mandate. That looks at how competition is working in industries as a whole, and the goal there is to make recommendations to government about how we can try to improve competition. If the question is about whether there may be anti-competitive conduct happening on the part of businesses, that falls more under our enforcement mandate. As my colleague said, that always turns on the facts of the situation.

In terms of allegations about collusion, it really boils down to whether there are agreements among the companies that are leading to those outcomes, not necessarily that there is the same price. It always depends on the facts.

[The Chair, Liberal, Joël Lightbound]

Thank you.

Mr. Gaheer, the floor is yours.

[Iqwinder Gaheer, Liberal, Mississauga—Malton, ON]

Thank you, Chair.

Thank you, witnesses, for your valuable testimony.

My questions are largely for the Competition Bureau.

In the last meeting, we discussed that in the EU, interchange rates are capped at 0.3% for consumer credit cards. In Australia, it's 0.5% of the transaction value—it's a weighted average. The U.S. does not regulate credit card interchange fees. Our government was able to negotiate a reduction in interchange fees for small businesses that have a credit card volume of less than $300,000 for Visa, for example.

Why do we in North America do it differently from Australia or the EU? Why can't we just regulate across the board? Is there something in place that prevents that?

[Bradley Callaghan]

I apologize, Mr. Gaheer. There were some interruptions in the connection, but if I understand the gist of the question, it's about why Canada may approach interchange fees from a certain perspective when regulating or not, compared to other countries that regulate.

What I can say is about the mandate of the bureau. We enforce the Competition Act. That is the enforcement part of our mandate—how companies are behaving in the marketplace—and we try to promote competition.

We are not a policy-maker that would make decisions about whether regulation is appropriate. We do have a general perspective on that matter, which is that, wherever possible, market forces should be allowed to work, because we think that is how competition can work to its fullest. That's not to say there are never opportunities where regulation may be required. Markets do fail, and in those situations, what we always recommend is that it be minimally intrusive and address the policy problem at hand but still allow competition to work as much as possible.

I recognize that there are other approaches taken in other countries. It's just not something the bureau leads on from our mandate.

[Iqwinder Gaheer, Liberal, Mississauga—Malton, ON]

I'm wondering if the bureau has any line of sight on why interchange fees in Australia are capped at 0.5%, with an individual average of 0.8%, and why in Canada the average is 1.4%. Do you have a line of sight as to why that difference is there?

[Bradley Callaghan]

We don't have a direct line of sight as to the decision-making of another government. We are aware that Australia has taken a different approach to regulating interchange fees, but we're not best placed to say why they would have chosen that perspective as opposed to leaving it open to a more free market competition.

[Iqwinder Gaheer, Liberal, Mississauga—Malton, ON]

What action has the bureau taken to foster competition in this market for credit card services? Obviously it's a very limited market. Not just in Canada but internationally, there are only a few big players in this space. What can the bureau do in its capacity to regulate, and what has the bureau done?

[Krista McWhinnie]

The key thing we have done is take a case all the way to the Competition Tribunal to try to deal with the rules in place with merchants that we viewed as driving these prices higher and having an adverse effect on competition in the market.

As I said in my opening, unfortunately we were not successful before the Competition Tribunal in that case, but they did recognize the problem. They did recognize that some of the merchant rules at issue in that case had an upward influence on interchange fees and other card acceptance fees, but importantly, in their decision, they said that even if we had won the case, they would not have issued an order. They would not have decided to remedy the issue under the Competition Act because the Competition Tribunal viewed regulation as the more appropriate fix to the issue.

[Iqwinder Gaheer, Liberal, Mississauga—Malton, ON]

Is that why the bureau did not appeal the tribunal's decision?