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.