Industry Committee on Nov. 7th, 2024

[The Chair, Liberal, Joël Lightbound]

Good morning, everyone. Welcome to meeting number 145 of the House of Commons Standing Committee on Industry and Technology.

Before we begin the meeting, I would like to remind all the in‑person participants in the room to read the instructions on the small card in front of them concerning the use of earpieces and microphones. This affects the health and safety of everyone, especially the interpreters, whom we want to thank for their work and assistance.

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

We're pleased to welcome today, from the Canada Revenue Agency, Luisa Rizzo, director general of the GST/HST rulings directorate.

We're also joined by a number of officials from the Department of Finance. These officials are Judith Hamel, director general, financial services division; Nicolas Marion, senior director, payments policy; Amanda Riddell, director, real property and financial institutions, sales tax division; and Warren Light, expert advisor, sales tax division.

From Statistics Canada, we're joined by Matthew MacDonald, director, consumer prices division; Matthew Hoffarth, assistant director, national economic accounts division; and Jennifer Withington, assistant chief statistician, economic statistics.

I would like to welcome you all to the Standing Committee on Industry and Technology and thank you for taking part in this process.

Without further ado, I'll give the floor to Ms. Rizzo for her five‑minute opening remarks.

[Luisa Rizzo, Director General, GST/HST Rulings Directorate, Canada Revenue Agency]

Thank you, Mr. Chair.

My name is Luisa Rizzo, and I am the director general of the GST/HST rulings directorate in the legislative policy and regulatory affairs branch at the Canada Revenue Agency.

I want to thank you for inviting me to attend your meeting.

To set a helpful context for the discussions today, I would like to briefly describe the role of the Canada Revenue Agency in the administration of the Excise Tax Act relative to that of other federal organizations.

As you are aware, the Department of Finance is responsible for developing and evaluating federal tax policy and the legislation through which policy becomes law.

As administrator, the Canada Revenue Agency is responsible for functions that implement these laws, including providing information to the public and stakeholders, establishing processes through which individuals and businesses may meet their tax obligations and receive benefits and, of course, carrying out our compliance activities to help ensure that everyone respects the law as it was intended by Parliament. The role of the Canada Revenue Agency is to interpret the Excise Tax Act as it is worded. I can thus speak about the application of legislation.

Additionally, please note that the CRA has no role in financial sector policy and no role in credit card regulations.

Chair, this concludes my opening remarks.

Thank you.

[The Chair, Liberal, Joël Lightbound]

Thank you.

I'll now give the floor to Ms. Hamel from the Department of Finance.

[Judith Hamel, Director General, Financial Services Division, Department of Finance]

Thank you, Mr. Chair.

Good morning. My name is Judith Hamel. I'm the director general of the financial services division at the Department of Finance Canada.

I'm joined today by Nicolas Marion, senior director of payments policy, who is part of my team. We're also joined by our colleagues from the tax policy branch.

The role of the financial services division is to provide advice and analysis to the Minister of Finance on policies relating to payments and the protection of consumers of financial services and basic payments. Our work is closely aligned with that of the Financial Consumer Agency of Canada, which is responsible for monitoring federally regulated financial institutions' compliance with applicable market conduct obligations. The agency is also responsible for educating consumers of financial products, notably on their rights and responsibilities.

Before I hand it over to Nicolas to talk about our role in payments policy, I'd like to give you a brief overview of the market conduct obligations set out in the Bank Act respecting credit cards. These obligations fall into three categories: disclosure obligations, restrictions on business practices and maximum consumer liability.

Information and disclosure requirements seek to ensure that consumers are well informed, that they understand their credit card agreement and that they receive key ongoing information. For example, banks must provide certain upfront information to consumers when they apply for credit cards, including a summary box that prominently displays the key interest rates and fees associated with the credit card.

Business practice obligations are intended to protect consumers by promoting fair lending terms. For example, under the Bank Act, banks must give credit cardholders a minimum of 21 days to make a minimum payment on their outstanding balance. As another example, banks must obtain the consent of a consumer prior to any credit limit increase.

Liability requirements protect consumers when fraud has occurred. Should an unauthorized credit card transaction occur, the Bank Act sets a maximum customer liability of $50. However, in practice, Visa, Mastercard and American Express have committed to not impose any financial liability on consumers who fall victim to unauthorized credit card transactions.

Additionally, in 2022, enhanced principles were introduced in the Bank Act that set a higher standard for bank sales practices when it comes to all products and services, including credit cards. Under these rules, banks must now have policies and procedures in place to ensure the products they offer and sell are appropriate for the financial needs of the consumer.

I'll now give the floor to Nicolas Marion.

[Nicolas Marion, Senior Director, Payments Policy, Financial Services Division, Department of Finance]

Thank you, Ms. Hamel.

Mr. Chair and committee members, my name is Nicolas Marion. I head the payments policy section at the Department of Finance. Our section plays an important role in supporting a secure, efficient and well‑functioning payments ecosystem that serves the needs of consumers, merchants and businesses. We give the Minister of Finance strategic advice and analyses on issues related to payment cards, payments clearing and settlement systems and the regulation of payment service providers.

With respect to credit and debit cards, I'll highlight two policy instruments. The first is the code of conduct for the payment card industry in Canada. This code was established in 2010 and has been revised twice, in 2015 and this year, as announced by the government on October 1.

The code of conduct for the payment card industry in Canada provides greater transparency and disclosure to merchants on the fees they pay. It establishes merchant rights regarding fee changes, it allows merchants to freely choose which payment options to accept, and it provides a complaint handling process for merchants. The code has been agreed to by all major payment card network operators and is incorporated into their network rules. The FCAC—the Financial Consumer Agency of Canada—supervises adherence to the code.

The second instrument is the agreed upon commitments by Mastercard and Visa that have materially reduced the interchange rates paid by merchants. There have now been three succeeding sets of agreements, taking effect respectively in 2015, 2020 and, most recently, on October 19.

Our section also supports initiatives related to the payments modernization effort, which aims to improve the security, efficiency and utility of the payments system to better meet the needs of consumers and businesses, particularly in a digital economy.

These initiatives include expanding the financial sector regulatory perimeter by establishing a supervisory regime for payment service providers, administered by the Bank of Canada under the Retail Payment Activities Act; broadening core payment system access by expanding membership eligibility in Payments Canada to other regulated entities, such as payment service providers supervised by the Bank of Canada; and then, finally, supporting Payments Canada's development of a fast payment system called the “Real-Time Rail”.

Thank you for your attention. We look forward to answering your questions.

[The Chair, Liberal, Joël Lightbound]

Thank you, Ms. Hamel and Mr. Marion.

I'll now give the floor to Ms. Withington from Statistics Canada.

[Jennifer Withington, Assistant Chief Statistician, Economic Statistics, Statistics Canada]

Thank you, Chair, for inviting me. I'm Jennifer Withington. I'm the acting assistant chief statistician responsible for economic statistics.

I have two Matthews with me today: Matthew MacDonald, who is responsible for consumer prices, and Matthew Hoffarth, who is responsible for financial accounts.

At Statistics Canada, we're dedicated to delivering accurate and timely information on the economic indicators that reflect Canadians' realities. From the consumer price index, GDP and labour market indicators to our national balance sheet accounts, we provide a clear view of Canada's economic landscape to help inform decisions by policy-makers, businesses and the public.

Today I am here to share recent trends on household debt and credit card usage as tracked through our credit aggregate statistics. We trust this will complement the insights provided to you by previous witnesses, offering the committee further data on the current financial landscape and its impact on household spending and inflation.

Statistics Canada's credit aggregate programs reveal Canadians' financial habits and debt burden, capturing data on credit card and other loan balances, leverage and debt servicing costs, and other borrowing trends. For example, at the end of 2019, Canadian households held nearly $2.4 trillion in outstanding debt, or $1.81 in debt for every dollar of disposable income. Credit card debt accounted for one-fifth of all borrowing from banks, with lines of credit, including home equity lines of credit, making up nearly half. By August 2024, household debt had reached nearly $3 trillion, though the relative debt levels slightly decreased to $1.76 for every dollar of disposable income, reflecting higher income growth.

Amid rising inflation in 2021-22, credit card balances surpassed 2019 levels, reaching $104 billion by the end of 2023. Given the fungible nature of money, we cannot directly attribute rising credit card balances to specific pressures from more expensive purchases or to a greater volume of purchases. However, both factors are likely to be at play, particularly more expensive purchases, given recent inflation.

We also track service fees on financial products, such as credit and debit card fees, mortgage fees and other fees for investment management and custodial services. In the second quarter of 2024, households paid $6.8 billion in these fees, a 35% increase since 2019, though these charges only represent approximately 1.7% of household consumption.

Going forward, elevated interest rates and higher costs of goods and services are likely to further challenge vulnerable households.

Statistics Canada remains committed to monitoring these trends closely to provide a clear and comprehensive picture of Canadians' financial resilience in the face of economic pressures, particularly when it comes to essential expenses.

On that note, we know that inflation has been a major concern for all Canadians, affecting nearly every aspect of daily life. At Statistics Canada, we capture these price changes, including essential categories like food, through our consumer price index, or CPI.

Allow me to take a moment to explain our approach and the measures we have in place to ensure Canadians have a precise and reliable understanding of inflation.

The CPI measures the change in prices by tracking a fixed basket of goods and services that Canadians regularly purchase. We publish the CPI monthly, adhering to rigorous internationally accepted standards, and we are considered a global leader in this area, as we update our basket every year to reflect Canadians' real spending habits.

Food prices, a major component of the CPI basket, make up 16.7%, with grocery items representing nearly 11%. We capture the actual prices paid by Canadians by using scanner data or point-of-sale data received directly from grocery retailers. These data include discounts, sales and quantities, providing us with tens of thousands of price data points each month from millions of transactions. This approach ensures that we are measuring inflation as Canadians truly experience it.

We also account for shrinkflation, a term recently coined for the practice of reducing a product's quantity while keeping the price the same. For example, laundry detergent has reduced in size from 2.47 litres to as low as 1.85 litres, depending on the brand. Processed cheese slices have gone from 450 grams to 410 grams. Boxed macaroni and cheese has gone from 230 grams to 220 grams or 200 grams, depending on the brand. While the term “shrinkflation” is new, Statistics Canada has been accounting for this in the CPI for decades.

These changes are documented and adjusted monthly to ensure the CPI reflects these quantity changes.

We've also seen the opposite phenomenon: Some things become larger over time, such as televisions and cellphone data plans, which now offer more data for the same price.

Statistics Canada understands the importance of reliable data, especially during challenging economic times. We are here to answer further questions from the committee members.

Thak you.

[The Chair, Liberal, Joël Lightbound]

Thank you very much.

Now, to start the discussion, I'll turn it over to MP Rempel Garner for six minutes.

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

Thank you.

Mr. Marion, there's a news story this morning talking about how the Toronto-Dominion Bank had to pay a $6.5-million fine for cheating—that's the word the article uses—thousands of credit card customers for decades. The article talks about the Financial Consumer Agency of Canada and that it might be a little weak.

Has your department undertaken any sort of review or provided any advice to the government about strengthening regulatory oversight in these areas, particularly through mandate reviews at the Bank of Canada, OSFI or the FCAC?

[Judith Hamel]

If it's okay, I will answer that question.

As you know, as public servants, we won't talk about the advice we provide to the government. However, the department is always looking at ways to strengthen the financial sector's stability and security, and—

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

Have you undertaken any sort of landscape review of the adequacy of the regulatory framework?

[Judith Hamel]

In the summer, a legislative review of the financial sector was launched. The consultation period just ended in September. The department is currently reviewing the submissions.

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

Would you be able to provide the committee with interim documents or a summary of this, given the nature of the study we're looking at right now?

[Judith Hamel]

We can't at the moment. As I said, the consultation period closed fairly recently, and the department is still in the process of reviewing the submissions.

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

Could you provide us with a summary?

[Judith Hamel]

It's—

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

There are many of you at the table.

Are you saying your department can't provide a parliamentary committee with the undertakings of a legislative review?

[Judith Hamel]

We could share the documents for the legislative review.

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

That's perfect.

Will you table any of the findings with this committee?

[Judith Hamel]

We're still in the process of—

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

I just want the documents so that I can read them as a legislator and provide recommendations to the government.

[Judith Hamel]

We need to go through the documents. Some of them—

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

Okay, this is ridiculous.

[Judith Hamel]

We cannot share some of them, because consultation documents—

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

We'll do a production of documents, because this is ridiculous.

Mr. Marion, the European Union has regulation that limits interchange fees to 0.3% for consumer credit cards and 0.2% for consumer debit cards.

Did you provide advice to the government that Canada should undertake similar regulations?