Industry Committee on Oct. 21st, 2024

[Michelle Rempel, Conservative, Calgary Nose Hill, AB]

That's fair. Thank you.

[The Chair, Liberal, Joël Lightbound]

Thank you for being so respectful of time, MP Rempel Garner. It's exactly six minutes.

MP Van Bynen, the floor is yours for six minutes.

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

Thank you, Mr. Chair.

I also appreciate the opportunity to ask questions of the witnesses here. I had a considerable amount of time in a career as a banker for about 30 years, so this is a topic that is of particular interest to me.

My first question is for Equifax.

I know that you don't provide recommendations. I know that you provide simply information.

Are there any ongoing or proposed regulatory changes that you believe will affect the way credit card data is reported? How might that impact the consumer credit scores?

[Julie Kuzmic]

Thank you for the question.

One big area where we're seeing some regulatory changes is around the ability for consumers in Canada to freeze or lock their credit reports so that the credit reports cannot be used for the purpose of applying for new credit accounts. That actually started fairly recently in the province of Quebec with the passage of the Credit Assessment Agents Act.

That is where we're seeing the majority of change in the regulatory environment. I'm not aware of any changes related to the data that is reported to Equifax, specifically relative to credit card products.

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

Thank you.

My next question then is for Fintechs.

What measures are in place to protect consumers from unfair credit card practices? How do fintechs contribute to those protections?

The reason I'm asking this is that you made a comment earlier that competition is great. However, if there's a captured market and more people are going after that market, it might lead to diluting the criteria for creditworthiness and what kind of impact that would have.

How do fintechs contribute to the protections that would lead to people becoming over-involved in high-cost credit?

[Alexander Vronces]

That's a great question. There are a few there.

First, on your question about how this stuff is overseen in Canada today and how consumers are protected today, there are a bunch of things.

There's the Bank Act, which has all sorts of requirements for banks, specifically the financial consumer protection framework. There's the debit and credit card code of conduct, which has a bunch of obligations on all parties in the chain that help merchants. We have the Payment Card Networks Act, and then the networks themselves have their own rules.

In terms of what the effect of more entry into the system would be, perhaps I can just share a personal anecdote.

My mortgage provider is a pretty big Canadian financial institution. It very subtly tried to get me to renew my mortgage before the last rate reduction. I obviously didn't do it, but I thought, just for kicks, why don't I call some fintech lenders and see how they're going to handle this situation? I didn't call many; I called a couple. All of them said to call back in November or December because there are going to be rate hikes.

I don't think the effect of letting more entrants into the system will dilute the protections. I think that right now consumers are being taken advantage of. They're being fleeced, to use the title of a book that was recently published on this. I think that by allowing more entrants into the system, people will compete by taking better care of their customers and advising them in a way that helps them meet their financial goals, rather than just pads their pockets.

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

I think mortgages, of course, are secured credit and certainly have a more competitive environment, but credit cards have a tendency to attract people where it's a last resort in terms of how they get funds and money to pay for the rent or food, etc. If there's a captured market in a number of people, then the only growth is going to be the amount of exposure that you have with each customer.

I understand that fintechs are innovating in credit-scoring models. What impact does that have on the credit card access to underserved populations? That's where our concern, or at least my concern, is.

[Alexander Vronces]

A lot of fintechs don't issue credit cards today. Some have plans to.

If you hear them talk about the sorts of cards they will eventually release, what they want to incentivize is good behaviour on the part of their customers. Rather than getting more points for spending, maybe you'll get more points for paying off your balance on time. Maybe they want to give you the ability to create a single-use card when you're shopping online, and you don't have a history with the merchant and you're worried that maybe that merchant is going to compromise your credit card credentials.

In a lot of the discussions I've been lucky enough to listen to, I think the motivation for a lot of fintechs is to do better than what banks are doing today, because there's so much low-hanging fruit that hasn't been picked because for the longest time there have been barriers to entry.

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

How do fintech companies ensure compliance with Canadian regulations regarding credit card lending and other transactions?

[Alexander Vronces]

It depends on what fintech vertical we're talking about. Right now a lot of fintechs in this country are going to be regulated under something called the Retail Payment Activities Act. Any fintech company that engages in any kind of retail payment activity will have to answer to the Bank of Canada. There will be requirements around how they safeguard end-user funds. There will be requirements on how they notify their customers of any breaches or anything like that. They'll have to meet a wide range of operational standards.

The same will happen with open banking. Some fintechs are regulated quite heavily right now at the provincial level. This space is not a wild west. There is a lot of regulation. Fintechs invest a lot in compliance, and as these initiatives finally cross the finish line, I think we'll see more of that.

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

Do I still have some time, Mr. Chair?

[The Chair, Liberal, Joël Lightbound]

You're 30 seconds over.

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

Thank you.

[The Chair, Liberal, Joël Lightbound]

Thank you very much.

Mr. Garon, you have the floor.

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

Thank you, Mr. Chair.

Welcome to the witnesses.

As members from Quebec, we're in a unique situation when it comes to fintech. The federal government is proposing a framework, but in Quebec, the largest financial institution—Desjardins—is a credit union. It's also the largest employer in Quebec.

My understanding of the market in which you operate is this. Slowly, as fintech develops, you're going to offer a lot of customer services and analytical tools to consumers. Banks and financial institutions, such as Desjardins, will in a way become manufacturers of financial products, which could be marketed by the members of your association, among others. I think that's a good way to summarize the situation.

It seems to me that, in the framework it's proposing for open banking, the federal government is giving the Mouvement Desjardins in Quebec the following choice: either it enters into the federal framework, or it will be left out, which, on the one hand, would have harmful effects for Quebec consumers and, on the other, would be completely out of step with respect to Quebec's jurisdictions.

I would like to know how your members are doing in this regard. What can we do to ensure that Quebeckers are entitled to the same services as other Canadians without constantly encroaching, directly or indirectly, on Quebec's jurisdiction over the management of credit unions and credit contracts?

[Alexander Vronces]

That's a great question.

We have a few provincially regulated entities in our membership who have raised similar questions. Our answer to any question like that is, to the extent possible, let's not create duplicative requirements where there is an equivalent level of protection administered by a provincial regulator. Let's recognize that as equivalent, so we don't need to make these regulated entities jump through unnecessary hoops.

My understanding of the open banking framework is that it is voluntary, so no one is going to force any requirements onto any entity that doesn't want to abide by them. I know that policy-makers at the Department of Finance have been in lengthy conversations with policy-makers at the provincial level to work out where the requirements are net new and they do need to be administered and where there is equivalence so they can recognize it.

That said, I can't speak to any outcomes of those discussions. I just know that they're happening.

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

The way you present it is interesting. You say that the current framework proposed by the federal government is voluntary. Basically, Quebec institutions are being told to voluntarily integrate into the Canadian framework or isolate themselves. That's obviously what we're concerned about.

I agree with you that harmonization is necessary. These laws, regulations and frameworks must be comparable, I agree with you on that. However, there is one thing that worries me, within the federal framework. It must be said that Quebec is generally ahead in many aspects related to open banking. This is particularly the case when it comes to personal data, consumer protection, credit contracts and stress tests to test financial institutions' resistance.

In this context, how could Quebeckers agree to having a framework imposed on them that is, after all, quite weak and poorly regulated? Wouldn't you prefer to work directly with the Quebec government, so that Quebec, as it has done many times in the area of consumer protection or credit contracts, can propose a framework to the federal government that is more adapted to the Quebec situation?

[Alexander Vronces]

When it comes to open banking, in particular, when there is a requirement in Quebec that meets the minimum standard or exceeds it, I think the government should recognize that and not force an institution like Desjardins to go through the extra hoops.

In terms of what that standard is, we don't know yet. The second part of the legislation will be tabled later this year, so we can't speak about the specifics of those requirements right now.

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

Thank you.

I'll now turn to the Equifax Canada representative.

My question is a bit technical.

On the Liberal government side, the Prime Minister himself has suggested that people's credit ratings include rent payments by tenants to landlords. I think the Prime Minister's argument was based on the fact that a lot of people pay their credit card balances late because they use their money to pay their rent on time. The suggested measure would therefore have the effect of improving these people's credit rating.

However, I have the impression that it would be extremely complicated to do. Unlike the debt that people take on from banks or large credit companies, the housing market is very decentralized.

Technically, is this something that can be done in the short term?

[Julie Kuzmic]

Thank you for that question.

We were quite pleased to hear that this issue is getting such good attention across the country because of the fact that there are so many people in Canada who are renting their accommodation, rather than owning their accommodation. According to our numbers, close to one-third of Canadians have a limited or non-existent credit history, which then impacts their ability to access mainstream credit products and services. Just—

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

I don't mean to be rude, but time is running out. I know the chair is patient, but I don't want to test his patience too much.

I want to know whether this is something that can be done in the short term within the infrastructure currently managed by Equifax.

[Julie Kuzmic]

The reporting of rental data is already happening. Equifax has been working on that for the last few years, trying to find ways to help underserved populations get into mainstream credit—as appropriate—more quickly.

Yes, it certainly is possible, and it's under way.

[The Chair, Liberal, Joël Lightbound]

Thank you very much, Mr. Garon.

Mr. Masse, you have the floor.

[Brian Masse, NDP, Windsor West, ON]

Thank you, Mr. Chair.

Thank you to the witnesses for being here.

One of the reasons I've requested this study—and I'm pleased that we're in it—is that we seem to forget the strain on Canadians and the banks. We also seem to forget that during the financial crisis, it was Canadians who actually supported the banks, through no fault of their own.

Some good examples are the $125 billion of insured mortgage pools that were to free up capital. The Bank of Canada helped to implement liquidity measures. The Bank of Canada lowered the overnight interest rate. A total of $41 billion was provided in liquidity support. There were a number of different resale agreements to help term loan facilities. Also, because of the global market on credit, they helped the Canadian lenders assurance facility to extend supports for them there. Then, finally, the expansion of the facility of deposit insurance helped as well.

There was a series of things that took place that Canadians had to backstop the banks for.

It would seem that my first question would be to our fintechs. If competition is what you're suggesting as the solution perhaps for the long term, what can we do in the short term to level the playing field to some degree?

Again, some of the loans that Canadians are getting.... If you look at your mortgage rates—and I'm glad that Mr. Van Bynen referenced this—Canadians are actually putting groceries, power for their homes and other essentials on their credit cards right now, at 20% to 30%. It seems horrible that, as legislators here, we would allow that when mortgage rates, which are essential, are put down to lower rates.

I know that the Bank of Canada is considering lowering the prime rate again, but credit cards and banks are going to continue at 20% to 30% with shyster loans, different types of interest rates and pyramid schemes that people have a hard time figuring out.

Can you elaborate on the competition and what we can do in the meantime? I believe strongly that there should be some regulatory improvements. I think the Stripe example gives the issue a little bit of an attention spot. If we don't do it right, then the real benefactor won't be the consumer or the business.

[Alexander Vronces]

Thank you for the question.

What are some things that we can do in the short term? There are a few things. As an association, we have been coming out and saying that we want to be regulated more. We are supporters of the Retail Payment Activities Act. That regime being implemented—it's still not totally implemented yet—will raise the bar for all payment service providers. It will also make it easier for payment networks to bring these new entrants into their system so that they can start competing with banks.

I can give a completely hypothetical example. I don't want this to be interpreted as statements on behalf of the networks that they're going to do these things, because that's not what this is. I can imagine a world where payment service providers are better regulated. Maybe credit card networks get more comfortable with them issuing credit cards. Those fintech companies enter that ecosystem and, all of a sudden, start thinking about how they can better compete with a bank.

There are so many things they can do, ranging from rewards to interest rates. Regulating the players from the get-go is important, but so is not relinquishing control of these initiatives to the big banks.

Payments modernization is a great example. We're supposed to build this system that would allow fintechs to offer all sorts of new payment methods to Canadians that would compete with the old ways to pay. Over the years, what that system is going to be has been totally eroded by the fact that the big five banks control the institution that is building the system.

We were going to get this real-time, data-rich system that would be a bedrock of innovation. It looks like what we're going to end up getting is a duplicate of what's already in the market today when it comes to peer-to-peer payments.

We can say no to the banks who want to stop progress. We can regulate the new players in the system and then make progress on things like real-time payments and open banking. I think those are the bits of low-hanging fruit because they've been done by other jurisdictions. They were done many years ago, and no jurisdiction that's implemented these things has pared them back because they've resulted in all sorts of harm for consumers. In fact, the opposite has happened. They've tried to expand the scope of these initiatives, to double down on these initiatives.