Industry Committee on Oct. 10th, 2024

[Bernard Généreux, Conservative, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

Thank you, Mr. Chair. You're very kind.

[The Chair, Liberal, Joël Lightbound]

Mr. Badawey, the floor is yours.

[Vance Badawey, Liberal, Niagara Centre, ON]

Thank you, Mr. Chair.

My first question is for Mr. White.

The government recently introduced the revised code of conduct with respect to the payment card industry, which aims to protect more than one million businesses, small businesses in particular, when accepting credit and debit card payments.

Mr. White, the updated code, effective October 30, is expected to compare pricing from different payment processors more easily. The revisions will also shorten the complaint handling time from 100 days to 20 days. As well, starting October 19, reduced credit card transaction fees will take effect. The fee reductions have been negotiated with both Visa and Mastercard—I see you shaking your head, so you must know about this—and they are expected to save small businesses up to $1 billion over the next five years, with fee cuts of up to 27%.

Can you comment on that, especially with respect to how it's going to help not only the consumer, ultimately, but also the small businesses that are paying those fees?

[Geoff White]

To the extent that you can reduce the fees that the merchants are paying, it's a win for consumers; there's no question about that. The animating concern of consumers right now is the interest rates they're paying. I hate to sound like a broken record, but that really is our number one request.

[Vance Badawey, Liberal, Niagara Centre, ON]

On that note, what do you see as the current trends in credit card interest rates in Canada, and how do they compare internationally?

[Geoff White]

We haven't had the time, sir, to do the study on that. We can undertake that, though. The fact is that consumers are turning to borderline-criminal interest rate loans and “buy now, pay later” that have up to 30% APR, and—

[Vance Badawey, Liberal, Niagara Centre, ON]

Thank you, Mr. White.

On that issue, I want to pursue that with Ms. McWhinnie. Mr. Perkins was attempting to pursue it earlier.

I had a side conversation with Tony, who used to be in the business, and I asked him these simple questions: Why is that happening? Why are we seeing interest rates consistent through all the companies? It just seems very odd that your organization hasn't really gotten more granular on that. There has to be a reason. Business is business. You have your margins up above your expenses, and your net.... It just seems odd that everyone's the same. Business doesn't work that way. You have your ups and downs among businesses and between the expenditure levels that each business is undertaking within their business plans. It just seems very suspicious that the net among all these businesses is the same.

Therefore, my question for you is this: Have you—and if you haven't, why not—gotten a bit more into the weeds on that with respect to the consistency of that interest rate among all the different companies?

[Krista McWhinnie]

Within the law enforcement function that we have, as I was saying earlier, the questions that the act has us looking at are not whether prices are too high or whether they are consistent. We have to drill down on whether there is conduct that's prohibited by the Competition Act that's driving them higher than they otherwise would be. That could be an agreement among competitors. Certainly, if there was evidence of that, it would be something we would take extremely seriously. It can also be some other form of agreement or arrangement between competitors that falls short of a cartel. Again, that would be something we would look at under our law enforcement function.

It would really come down to the evidence and whether there is evidence suggesting that there is something going on, some kind of coordination among competitors, that falls within the conduct we're able to look at under the Competition Act.

[Vance Badawey, Liberal, Niagara Centre, ON]

With that said, are you bound—or I'll use the word “handcuffed”—under regulatory requirements to actually go that far?

[Krista McWhinnie]

There are two parts to what we do. Within the law enforcement function, yes, we need evidence of anti-competitive conduct to be able to move an investigation forward and then collect additional information to really find out what's going on.

[Vance Badawey, Liberal, Niagara Centre, ON]

Let's go down that rabbit hole. In follow-up to the tribunal, with respect to what they suggested in relation to issues related to credit card fees that should be addressed within a regulatory framework rather than through competition law alone, I'm wondering if you wish to comment on this. What exactly did the tribunal outline, and what expectations may you have with respect to those regulations?

[Krista McWhinnie]

The tribunal didn't provide, in the decision, very much detail in terms of what type of regulatory solution they would suggest. It was really just a comment that competition law would be a blunt instrument to try to deal with this type of problem because it's something that requires ongoing oversight. They viewed the problem as not well suited to a competition law remedy.

[Vance Badawey, Liberal, Niagara Centre, ON]

That could be a benefit to you. That can be a door wide open for you to actually suggest and/or to make a recommendation about what that law might suggest.

[Krista McWhinnie]

On the conduct at issue in that case, one of the main things we were challenging there was the no surcharge rule, because we view that as really taking away a very important competitive constraint that merchants have in negotiating these card acceptance fees. We understand that surcharging is now an option, following the class action lawsuit, I believe. My understanding is that it's quite recent, so I think it remains to be seen how the market evolves based on that now being allowed. That was a key thing we were seeking in our case.

[Vance Badawey, Liberal, Niagara Centre, ON]

Ms. Syal, I'm coming to you next, so if you can give some thought to some of these questions, that would be great.

The last question for you, Ms. McWhinnie, is this: What do you find from your analysis in terms of...? I'm sure this is a constant analysis that you're taking on within your organization. This goes to the analysts, because they're the ones we're speaking to here. They're the ones who are going to come back with the report and the possible recommendations that we're going to move forward with.

Besides the tools that you have available to you currently, what tools do you need to get that far and to then look at why this is happening with the consistency of those rates across the companies?

[Krista McWhinnie]

I was mentioning earlier that we have just received very significant, meaningful amendments to the Competition Act that really strengthen our ability to protect competition across all markets, including with respect to the issues we're looking at here. Our focus right now is on implementing those recent changes, so I don't think it's a question of additional tools.

[Vance Badawey, Liberal, Niagara Centre, ON]

Ms. Syal.

[Dr. Supriya Syal]

I'm going to turn to my colleague, Frank Lofranco.

[Frank Lofranco]

I appreciate the question. I think it's a useful question.

I would echo some of the sentiments I just heard from our colleagues in the Competition Bureau.

From a supervisory perspective, we are relatively well equipped to deal with consumer protections expressed in legislation, codes of conduct and public commitments.

There's always room for improvement, and those policy discussions and decisions rest with the Department of Finance. Obviously, we look to contribute in terms of insights we see on the ground or insights we generate from our research, but it really is a policy conversation. I would kindly ask that you engage our colleagues at the Department of Finance on potential improvements in this space.

[Vance Badawey, Liberal, Niagara Centre, ON]

Let's dig into that a bit deeper.

How would you assess the effectiveness of current federal regulations in governing credit card practices in Canada? Are there any gaps in the framework? You said you had the instruments, and that's great, but are there any gaps? Are there any gaps in the framework that need addressing?

[Frank Lofranco]

That's an interesting question. I would say, on two fronts, the enhanced standards under the financial consumer protection framework have been in place for two years, and we're about to receive a new code of conduct with respect to payment networks. I think it's early days, but those strengthened.... We were very critical in bringing forward the recommendations to support those enhanced standards.

Around credit cards, it's disclosure, express consent and complaints handling by way of example.

With respect to the code, there's increased transparency for merchants. When they're securing a quote from a potential payment service provider, they're now entitled to understand the cost per transaction and the fees and so on.

[Vance Badawey, Liberal, Niagara Centre, ON]

That's a great point.

On that point, do you think the federal government can play a role in setting caps for credit card interest rates and fees? Should there be a uniform national standard for credit card issuers?

[Frank Lofranco]

I can only speak to the mandate of FCAC.

These are policy decisions that rest within the purview and carriage of the Department of Finance. I can share with you that through our research and our supervisory work, any insights we generate we do share to contribute, some of which come in the form of complaints. In the case of the code, we heard merchants complaining about fees and transparency—

[Vance Badawey, Liberal, Niagara Centre, ON]

—which we just dealt with.

[Frank Lofranco]

We have a role to play, but it would be unfair to speak to the policy considerations at play here.