Debates of June 7th, 1994

Credit Card Interest Calculation Act

[Pierre De Savoye, Bloc, Portneuf, QC]

Madam Speaker, just to clarify the situation, what is the alternative?

[The Acting Speaker (Mrs. Maheu)]

The alternative is that the time provided for consideration of this bill will expire and the bill will disappear.

Does the hon. parliamentary secretary have the unanimous consent of the House to move the amendment?

[Peter Adams, Liberal, Peterborough, ON]

On a point of order, Madam Speaker. If we proceed by unanimous consent, would members who are interested in speaking not only to the motion but the substance of it have an opportunity to speak?

[The Acting Speaker (Mrs. Maheu)]

The bill would be sent to committee where I would assume members are allowed to speak, but for this evening the law would disappear.

What we can do, since several members have indicated an interest, is to put the motion and also agree unanimously to terminate debate, if you wish.

In any event, you have heard the terms of the amendment. Is it the pleasure of the House to adopt the amendment?

[Some hon. members]

Agreed.

(Amendment agreed to.)

[The Acting Speaker (Mrs. Maheu)]

Accordingly, the order is discharged, the bill withdrawn and the subject matter thereof referred to a committee.

(Order discharged and bill withdrawn).

[The Acting Speaker (Mrs. Maheu)]

Do we now have the unanimous agreement to terminate the debate tonight, or for the speakers who were on the list to continue the debate until the hour is over?

[Don Boudria, Liberal, Glengarry—Prescott—Russell, ON]

Madam Speaker, perhaps I could assist the chair and propose that for the time remaining for debate that we proceed by unanimous consent to continue debating the issue that was on the Order Paper until we removed it a moment ago, thereby enabling colleagues to address the topic, notwithstanding the fact that it technically disappeared from the Order Paper as of a moment ago.

I would like to seek unanimous consent to achieve that.

[The Acting Speaker (Mrs. Maheu)]

That is what I was asking and I thank you. Do we have unanimous consent?

[Some hon. members]

Agreed.

[The Acting Speaker (Mrs. Maheu)]

Does the hon. member for Broadview-Greenwood wish to speak?

[Dennis Mills, Liberal, Broadview—Greenwood, ON]

I will pass, Madam Speaker.

[Ken Epp, Reform, Elk Island, AB]

Madam Speaker, it is with great delight that I stand to speak to this motion. I am one who has long felt that the banks are very important to our society, not only for financing business but also for financing short term interim money people need in order to keep our economy rolling.

As has already been mentioned, many people pay their credit card balances off monthly and in most instances incur no costs at all. Then there are some who do not pay and that is where the problem comes in.

We must first ask ourselves what the object is of having this type of legislation. Probably a very loose term would be that we want fairness. We want those people who use this bank service not to be unjustly charged, not to be charged exorbitant rates. At the same time the banks should have sufficient reason to stay in that business thereby providing the economy with the necessary little oiling to keep it going.

Once the purpose is decided the next question is how to achieve it and this is where we would come to a parting of the ways. A lot of members on the other side are given to that first hypothesis that unless the government taxes it, subsidizes it, controls it, funds it, regulates it, unless all that is done, it will not happen. I humbly submit that is not true.

The opening of this country was done quite magically before there was any substantial government involvement with respect to the operation of individual businesses and the financing of homeowners.

I reject the idea that we need to regulate this. I really believe that the marketplace can determine a good balance. If we allow the free enterprise system and fair competition to take place, then the rates will be kept down. If there is a lot of money to be made there will be new organizations entering the field. They will compete and bring their service in at a little better rate. Consequently the other ones, those that are in there higher, would have to come down. However it would reach a lower level where it could not go any further because they would no longer be making any money.

The best solution would be for us to not have legislation that would cap the rates, cap the fees, but rather that we would observe. We should have laws that simply monitor the fair disclosure of what the charges are.

This is one of the greatest areas of error in this whole scene. There are irregular ways of reporting interest rates. There is not a good comparison. We must recognize, and I have this on good authority since I have been in the mathematics field for years, that approximately 85 per cent of our population does not feel comfortable with mathematical calculations. It is surprising how many people have trouble with simple things like conversion to metric. When we talk about interest rates and their implications most of them are lost.

If financial institutions will not voluntarily adopt a method of uniform reporting of rates and charges, then there would be a role for legislation.

I would like to briefly indicate three areas where we need to have truth in advertising. First we need some sort of uniformity in declaring the cost of fees. Fees for different cards range all the way from zero dollars per year to the highest one I saw at $30 per year. Depending on the balance that is carried this can either be a negligible portion of the interest or it can be a fairly high portion and it would be incumbent on the financial institutions to indicate the actual costs very clearly up front.

Second is the use of nominal versus effective interest rates. This is an area a lot of consumers do not understand. We ought to

be requiring financial institutions to declare their interest rates as effective annual rates. The use of nominal rates is widely used and is very misleading.

It does not make too great a difference at lower interest rates. I did not find any banks that charged these rates but there are some retailers' cards that charge, they say, 2.4 per cent per month. Then in brackets they say 28.8 per cent per annum. Of course that is simply not true. The interest calculations are always done monthly. Hence this is compounded monthly and the effective rate of 28.8 per cent per annum compounded monthly in fact turns out to be 32.9 per cent per annum.

If they were required to actually express the rate as the effective rate, then they could not play these games with the consumers where there is a lack of understanding when it comes to effective versus nominal rates.

The third area that I would like to address is a bit of a bombshell because I have never heard anybody talk about it. Several financial institutions that I am aware of which I have checked personally actually land up computing their interest on a time error as well as a rate error. Most of us know that interest equals principal times rate times time as a simple formula. I have talked about the rate and the way they fudge that and now they fudge on the time.

They do something that is very intriguing. Whenever there is a transaction, whether it is the computation of the interest to date based on the statement date or whether there was a payment made, they compute the interest up to and including that day.

If I borrowed from my credit card a thousand dollars in the morning and paid it in the afternoon I think there would be a case that said I should pay for one day's interest.

However, if I borrow a thousand dollars at noon today and repay it tomorrow at noon I do not believe they are justified in charging me two days of interest and yet they do if you check this out. I think if this goes to the committee I would really like to see the committee address that question because that is a very costly one to Canadian consumers and as far as I know it is not widely known.

I did an actual experiment on this and found that if I made a payment and my interest was calculated from the previous statement to the payment date including that date and then at the next statement it was made again including that date, in essence my financial agency got from me 24 extra days of interest in the year. I did not carry on the experiment that long. I did it long enough to ascertain that in fact that is what they were doing.

Using 18 per cent per annum and with the $11 billion I used as the amount that these institutions have outstanding, this yields to them an additional $141 million per year which I think is a substantial amount of money to be taking from the consumers.

I have other things to say but my time has expired and so I really congratulate the member on this bill. I look forward to seeing it go into committee for real study, including these issues I have raised.

[Wayne Easter, Liberal, Malpeque, PE]

Madam Speaker, I want to congratulate my hon. colleague for Simcoe North for bringing forward this bill which has now become a motion and giving me the opportunity to second it. It has been needed for much too long.

In response to the previous speaker it is quite obvious to me that allowing the market out there to set interest rates just has not worked. The financial institutions have been shown for years to have been gouging the public in terms of interest rates on credit cards.

I believe it is the responsibility of the government to ensure that the Canadian consumer is protected against unfair and at times out of control profiteering by large financial institutions. I know from business experience how heavy those interest costs can be and how great a burden they can be and how quickly they can get out of control and cause extreme financial difficulty.

Of course there will be criticism from the affected financial institutions but the government should not be interfering with setting interest rates for the banks. That is to be expected. In fact, that makes for healthy debate.

The facts and terms of this debate are on this side of the argument that interest rates should be restricted.

We as members of Parliament do have a right and a responsibility to ensure that the people of Canada are protected from unfair banking practices, and excessive credit card interest rates are in fact unfair.

This bill, or this motion now, should not be seen as an attack on the banks. I think it is an attempt to have fair play on the part of the relationship between the banks and the consumer. We know it is the government's responsibility to make sure there is stability in the financial market for the banking and lending institutions to flourish.

We do this under the Canadian bank act and through the use of the Bank of Canada. The same financial institutions charging Canadians an exorbitant amount of interest as well as calculating interest charges in very creative ways have the ability to borrow money from the federal government's Bank of Canada's discount rate at very low rates for the banks when they are borrowing.

Yet these same institutions do not pass on that advantage to the Canadian consumer. They instead use the difference between their borrowing rate and the rate they charged credit card users for huge profits.

Those who carry this burden of excessive bank profits in the end are the Canadian consumers. They pay the bills. It is they that we as a government hope through consumer spending will spur economic growth. That, my colleagues, is what the hon. member for Simcoe North is putting forward today. It is a bill to

help economic growth by creating greater spending at the consumer level through fair credit card interest rate practices.

What this proposed legislation does is create fair and reasonable regulations for those lending and credit institutions to follow while at the same time making reasonable profits from those services.

I should also point out the positive effects this legislation will have on our economy. It will create a more positive atmosphere for the general public who use credit for purchasing merchandise and services to increase spending since they wil not be allocating a large part of their cash flow to the bank's interest charges.

No hon. member should argue against more capital being injected into our retail sector. It has been mentioned that the credit card institutions have shown stability in that they have not raised their rates with the fluctuation of the Bank of Canada rate over the past few months.

No wonder. This country has been enjoying its lowest interest rates in 30 years and the financial institutions have not reacted to the massive drop at any point by lowering the interest rates charged to these clients in recent days. That is the reality in times of nationally high interest rates. Banks keep credit rates higher and in times of low interest rates they keep the same rates in order to reap from users even more cash.

This is no small potato. In today's retail market credit cards account for some $50 billion in purchases in Canada. There is little wonder why banks and other financial institutions are so reluctant to control and lower their interest rates for the Canadian consumer.

When the average interest rate is anywhere between 11.5 per cent and 19 per cent, there is a lot of profit to be gained from interest rates by the banks.

I know some will argue: "What's wrong with profits". However, we must ask ourselves what is reasonable in terms of profit. If the credit card suppliers, the banks, are not carrying on their responsibilities in a reasonable way then Parliament has a responsibility to act in the people's interest. That is what I believe we are trying to do with this bill today.

I have watched previous governments and previous administrations show concern over credit card interest rates, indeed at times even on lending rates themselves in the past, but when the pressure came to bear and push came to shove those previous administrations failed to act.

This bill gives us as a government the opportunity to act. Action speaks louder than words. We were elected as a government of action. Let us show we are true to form and act on the intent of this bill when it gets to the industry committee.

That is why I am asking all my fellow members of Parliament to consider the intent of the member's bill, to put in place fair regulations to control banks and other financial institutions, to prevent massive profiteering at the expense of the average Canadian consumer. After all, it is the consumer that is very much affected by recessions which stats show is then passed on to the retail sector.

The banking industry has not felt the same impact in hard times. It is time that legislation was passed to protect the average Canadian from the excessive interest rate charges by the big financial institutions.

As I stated earlier, we do everything we can to ensure stability and security for the lending institutions under the Canadian Bank Act and special measures through the Bank of Canada in terms of borrowing rates for those lending institutions.

We can do no less for Canadian consumers than ensure that there is fair play and a reasonable spread in interest rates. I encourage the industry committee to ensure that the intent of this bill is acted upon and that we as a government show that we mean action and we mean business.

[Pierre De Savoye, Bloc, Portneuf, QC]

Madam Speaker, I welcome the opportunity this evening to add my comments to those made by my colleagues on Bill C-233.

Since we already know this bill will be referred to committee, I will not dwell on its merits which would otherwise have been ample reason for me to warmly recommend this legislation. Nevertheless, I would like to add to the remarks of the previous speaker by providing some further emphasis, to be absolutely sure the committee realizes that this bill enjoys strong support in this House.

I may recall that since the early eighties, three parliamentary committees have examined the credit card industry in Canada. In 1989, the Standing Committee on Consumer and Corporate Affairs focused on the importance of disclosure, while in 1992, the committee considered the possibility of restricting entry fees. In 1987, the Standing Committee on Finance looked at the size of the competition.

Although the themes were different, the three studies all focused on the high rates of interest applied to credit cards and the fact that these levels were maintained while all other types of interest went down.

In 1989, the committee recommended that the maximum rate for cards issued by financial institutions should be set at 8 percentage points above the bank rate, while in 1992, the committee recommended against setting limits.

During the last Parliament, three members, including two Conservative members, Don Blenkarn and Louise Feltham and one NDP member, John Rodriguez, tabled private members' bills on credit cards, which shows that the issue is not new to Parliament and that there has been a constant expression of concerns which today has finally found its way to committee through this motion.

I would like to add that not long ago, on March 21, I myself tabled two bills on this subject. I am referring to Bill C-227 and C-228, which deal substantially with the same concerns, in more or less the same terms, as Bill C-233.

I am therefore delighted to express my support this evening for what was said by the hon. member for Simcoe North. It must be recognized that the interest rates charged to consumers using a credit card do not at all reflect the actual cost of credit to these consumers. These consumers are simply being exploited.

To some extent, Bill C-233 differs from the legislation which I tabled in this House, in first reading. For the benefit of the committee which will review this issue, I would like to point out a number of differences and explain why I am inclined to support the changes which I proposed.

The French version of clause 9(1) of Bill C-233 says that interest is calculated on a monthly basis, whereas the English version makes no mention of that. In Bill C-227, which I tabled, clause 5.1(1) specifies that interest shall be calculated monthly.

In Bill C-233, cash advances are excluded from clause 9, whereas Bill C-227 does not exclude such advances.

Clause 10(1) in Bill C-233 excludes-although I do not know if this was intended-those who contravene clause 3. As you know, clause 3 refers to financial institutions which charge or stipulate entry fees, renewal fees, etc., in relation to the use of a credit card. So, those who contravene this provision are not included in the clause on fines. Bill C-228, which I tabled, imposes for fines to any offender, including those who charge or stipulate entry fees or renewal fees.

In Bill C-233, clauses 10(1) ( a ) and ( b ) provide for maximum fines of $75,000 and $50,000 respectively. In Bill C-228, we propose the same fines; I guess we consulted with the same researchers. However, unlike Bill C-233, our bill also proposes minimum fines.

The hon. members for Simcoe North and Trois-Rivières both referred to the study on credit cards conducted by the Service d'aide aux consommateurs, and more specifically by Mrs. Madeleine Plamondon, and Messrs. Henri-Paul Labonté and Marc Pépin. I should point out for the benefit of this House and the committee which will look at this issue, that the study was made possible through a grant from the Department of Industry. This not only gives it credibility, since it is already credible considering who conducted it, but also makes it very appropriate since it was financed by public funds.

Already on page 2 of the study, the substance of the message is delivered. The authors say that their conclusions deal with the accountability of credit card issuers and the urgent need for the government to review this issue, which is obviously what we are doing here this evening. I will conclude by saying that there is real support among the public for such a measure. For example, the Borrowers Action Society wrote to me about my bills, but I want to share the benefit with the hon. member for Simcoe North. This organization wrote:

"We are very pleased to see the initiative you and the BQ are taking in this area and I wish to offer my full support as well as the support of the Borrowers Action Society. We have 7,000 identified supporters from all parts of Canada. If you think we can help in any way, please let us know".

[The Acting Speaker (Mrs. Maheu)]

The time provided for the consideration of Private Members' Business has now expired.

[The Acting Speaker (Mrs. Maheu)]

It being 6.56 p.m. and no member having risen to taken part in the proceedings on the adjournment motion, the House stands adjourned until 2 p.m. tomorrow, pursuant to Standing Order 24(1).

(The House adjourned at 6.55 p.m.)