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Bank fees under Senate scrutiny

IDNUMBER 200903020047
PUBLICATION: The Windsor Star
DATE: 2009.03.02
ILLUSTRATION: Colour Photo: Peter Woolford;
BYLINE: Sarah Schmidt
SOURCE: Canwest News Service

Bank fees under Senate scrutiny

Some CIBC customers who want to withdrawal money from their own bank account will soon see the fee go up a nickel to 65 cents on certain transactions.

If they turn to their line of credit to pay bills, they -- like customers of most major banks -- will notice an increase in the interest rate after a short-lived drop when the Bank of Canada cut its prime lending rate earlier this year.

And if consumers use their credit card at shops, retailers are now paying higher transaction fees, set by credit card companies and paid to the issuing banks. These fees, totalling more than $4.5 billion last year, trickle down to consumers through higher price tags.

With consumers feeling choked at every turn during the current economic downturn, parliamentarians are set to grill Canada's banks and credit-card companies about what is driving higher fees and borrowing costs at a time when the central bank's benchmark lending rate is at a historic low and the companies are reporting healthy profits.

The Senate banking committee is set to launch hearings this month at the urging of New Brunswick Liberal Senator Pierrette Ringuette.

"This is a major source of frustration right now, almost outcry, by the way those fees are being increased -- whether it's fees from the credit cards towards the business community or credit cards toward the consumers," she said.

Behind the scenes, major players in the financial industry have enlisted an army of lobbyists and public-relations specialists to court the public and politicians after dodging a bullet earlier this year.

Concerned that the federal budget was going to include more regulation to rein in credit card interest rates, the companies were relieved when Finance Minister Jim Flaherty simply outlined proposals to strengthen disclosure requirements to assist consumers to make "informed decisions" when using credit.

But a sense of trepidation is back as the companies face a wide-ranging Senate probe and a sustained campaign by the Retail Council of Canada and the Canadian Federation of Independent Business alerting consumers about how credit card companies are "gouging" merchants with transaction fees and the flood of "premium" cards in the market that command higher fees.

Because the fees are passed on to issuing banks -- and Visa Canada and MasterCard compete with each other to have the most attractive offer -- there's a perverse thing happening, says Peter Woolford, the retail council's vice-president of policy and research.

"What they're competing to do is to give the bank a greater and greater ability to take more and more money from the merchant. In most businesses, you compete by lowering your costs to give your customer a better price. In this market, they compete to raise their costs to pass on more profit to the bank that issues their card and they get that money from a third-party."

Woolford says the anticipated Senate hearings is a great place to figure out the extent to which credit-card companies are benefiting from these higher transaction fees.