Industry Committee on Nov. 25th, 2024

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

No, but how can you be a consumer protection agency if you don't look at those policy areas?

[Shereen Benzvy Miller]

Mr. Chair, can I answer?

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

You claim to be “the authoritative source of...financial consumer protection information”. I don't think you are, if you're not looking at these issues.

[The Chair, Liberal, Joël Lightbound]

Mr. Perkins, I appreciate that you've made your point. You are out of time.

I'll let the witness answer. Then we'll move on to MP Van Bynen.

[Shereen Benzvy Miller]

Thank you.

The role of the Financial Consumer Agency is threefold. We ensure that consumers are well informed about the services and the costs of services that they are consuming. We are responsible for supervising the entities that actually provide those services to ensure they are respectful of their obligations, and when they are not, we have options to enforce and make sure they comply and make the consumer whole. We also provide what I would call integrity in the system so that actors like the Department of Finance or even the Competition Bureau are aware of information around consumer protection that we become aware of or that we have researched and have findings on.

[The Chair, Liberal, Joël Lightbound]

Thank you very much.

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

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

Thank you, Mr. Chair.

I have in front of me a letter that's addressed to you, the chair of the standing committee, and it's from Stripe, so I'm assuming this is a matter of public information. There are some excerpts from this letter that I find very interesting, because I think it was the activities of Stripe that intensified our interest in the fees and the transactions.

Stripe Inc. is incorporated in the United States and dual-headquartered in San Francisco, California, and Dublin, Ireland. The other part is that, while the authority of the House of Commons and its committee does not extend to companies or individuals outside of Canada, we wish to be as helpful as possible. The concern that we had raised and that brought us into these discussions was that Stripe was only passing the interchange reductions through to small businesses on their interchange plus pricing. There were two categories of pricing, and they were only going to make that available to one category. They've indicated to us that they have over 900,000 merchants as clients, so the effect or the role that Stripe has in the interchange of payments, in my view, is substantial.

My question for you is this: Given that we're facing a global marketplace, how does FCAC monitor whether fees charged by Interac align with the values and the costs of the service provided?

[Frank Lofranco]

I appreciate the question. I think we were last at committee when the Stripe issue surfaced. Since that time, we have investigated the issue by way of the decision Stripe had made.

As a participant in the network, they are obligated to abide by the obligations in the code, so the obligation with regard to notifying merchants in relation to that change and the time period of notification, which is 90 days, is something we looked at.

There were two aspects of the code that were in question here. When considering the decision on the part of Stripe and the obligation to inform merchants 90 days in advance, and then protecting the right of merchants to opt out of receiving services from Stripe, we found at the time that they were compliant with the code. The code in effect at that time was the one previous to the current code that recently came into effect, but we did look at the issue and we did speak with the market and with the payment card network operator in question.

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

Coming back to that, how does FCAC ensure compliance with the code of conduct? What type of monitoring activities do you undertake, and how do you do that in a global environment?

[Frank Lofranco]

I can tell you that with respect to the code, there are several things we do, ranging from promoting compliance with the code to enforcing any penalties for non-compliance with the code. In between those two bookends is our role in reviewing all the policies and procedures that are to cascade throughout the network to ensure they're compliant with the obligations. We also require mandatory reporting. For example, we receive all complaints that merchants have made to participants within the network. Those complaints can trigger conversations with payment card network operators to understand their materiality and severity, and they can also trigger an investigation on the part of FCAC.

[Shereen Benzvy Miller]

Maybe you could give an example, like decision 126.

[Frank Lofranco]

On our website, there is a decision in relation to a breach as it related to the code, which we subsequently conveyed in a bulletin of expectations for code participants. Essentially, it requires payment card network operators to be proactive in ensuring compliance with the code and to report to us on a timely basis any issues in relation to potential non-compliance. It also requires them to document and maintain evidence to demonstrate actions taken to ensure compliance with the code.

That would be an example where our supervision translated into an enforcement action, which we call a notice of decision, on the part of the commissioner, and then translated into requirements to ensure that non-compliance does not occur again.

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

We heard earlier that there were something like 27,000 complaints that were received. I also heard that you have the banks report to you the complaints they get. To what extent do you authenticate or audit the reporting processes of the banks? Your operating costs are covered by the banks, and you're receiving information provided to you by the banks. It's almost like leaving Nero in charge of the gas pumps. I'm just wondering how you audit and authenticate the information you're getting.

[Frank Lofranco]

That's a very good question. I can say to you that we do have mandatory reporting requirements for financial institutions. One type is complaints-related reporting. The complaints we receive are one piece of intelligence that informs our risk assessment of where risks might lie within the financial institutions themselves.

Where we feel that the risks are significant or material, we may engage in multiple activities that correspond to that risk assessment. We have the authority to undertake examinations to ensure compliance. We have the authority to undertake reviews of multiple organizations if we feel there's a system-wide issue. In some cases, the issue may be so acute that we move through to an investigation to inform an enforcement decision.

This information informs the supervisory actions we may take across a suite of instruments, of which I just offered a few examples.

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

Can you talk to us about the complaints?

[The Chair, Liberal, Joël Lightbound]

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

Mr. Savard‑Tremblay, you have five minutes.

[Simon-Pierre Savard-Tremblay, Bloc, Saint-Hyacinthe—Bagot, QC]

Thank you.

Since we were talking about fintechs, I want to ask you whether, to your knowledge, fintechs can offer financing options to more vulnerable consumers that credit card companies don't offer.

[Shereen Benzvy Miller]

Are you talking about what they can do under banking regulations?

[Simon-Pierre Savard-Tremblay, Bloc, Saint-Hyacinthe—Bagot, QC]

For example, these kinds of financing options are sometimes recommended on social media, thanks to our friendly neighbourhood algorithms. There must be a lot of ill-informed consumers who will figure it's a fantastic deal and get taken for a ride.

[Frank Lofranco]

I'll speak to the supervisory perspective on this. My colleagues may want to add something by way of policy and research.

Insofar as fintechs develop a relationship with a regulated financial institution, the obligations that rest with that financial institution are extended to that contractual relationship with the fintech. Fintechs are generally not regulated federally. Therefore, our mandate, as it relates to federally regulated financial institutions, would not capture fintechs operating outside that perimeter, but again, when they do engage in a relationship with a regulated entity, the market consumer protections extend to the consumers of those fintechs.

[Simon-Pierre Savard-Tremblay, Bloc, Saint-Hyacinthe—Bagot, QC]

Given that your mandate is essentially to do prevention and put information out, could you not stick purely to putting out relevant information and avoid exercising any enforcement powers when an institution is not technically subject to federal regulation?

[Frank Lofranco]

That's a fair point. For clarity, our supervisory work is set by the parameters of federally regulated institutions, but our work in relation to financial literacy and consumer education can go beyond those parameters.

With your permission, perhaps my colleagues can speak to some of the examples where we've done consumer education or research in the area that goes beyond federally regulated financial institutions.

[Shereen Benzvy Miller]

I will just add that the expectation of consumer-driven banking will be a corrective measure in that space as well, because it will open up the information sharing for consumers to control.

Supriya, would you like to give an example?

[Dr. Supriya Syal]

Thank you very much.

To your point about our mandate in terms of the supervision being limited to the entities that are currently federally regulated, this is correct. In terms of the consumer information we provide, the consumer education we do and the consumer interventions we do, none of those are limited, and those do, in fact, extend.... We do provide, on our website and through our programming, information to consumers about some of the dangers of using fintechs in the current unregulated environment. That's part one.

Part two is that, yes, consumer-driven banking will create a system where the large banks will be mandated to participate in the framework, and then fintechs, credit unions or other banks can opt in. Once we have that within our purview, we will be able to regulate aspects of that framework that will expand our regulatory powers and our supervisory powers.

[Simon-Pierre Savard-Tremblay, Bloc, Saint-Hyacinthe—Bagot, QC]

In the course of your work, do you investigate types of financial products that are strongly recommended by financial institutions but do not meet the needs of the public?