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Motion to Authorize Committee to Study Credit and Debit Card Systems

Hon. Pierrette Ringuette, pursuant to notice of November 25, 2008, moved:

That the Standing Senate Committee on Banking, Trade and Commerce be authorized to examine and report on the credit and debit card systems in Canada and their relative rates and fees, in particular for businesses and consumers; and

That the Committee report to the Senate no later than June 30, 2009, and that the Committee retain all powers necessary to publicize its findings until 90 days after the tabling of the final report.


Honourable senators, I have made a motion to authorize the Standing Senate Committee on Banking, Trade and Commerce to study the credit and debit card systems in Canada, as well as their respective rates and fees, in particular for businesses and consumers.

Here are the facts: according to my research, Canadians have 64.1 million credit cards and use 65 per cent of them to purchase $294 billion worth of goods and services.

Eighty per cent of these 64.1 million credit cards are issued by Visa or MasterCard. The maximum interest rate for consumers is 24.75 per cent. The maximum fees for credit card payments, or interchange fees, are 3 per cent for businesses, 1.8 per cent for governments and 1.5 per cent for charities.

In fact, since the spring of 2008, interchange fees have gone up. Interchange fees are the percentage of the total purchase price that businesses pay so that their customers can make credit card purchases. We should also be concerned about the fact that credit card issuers are still charging consumers higher interest rates than the rates for commercial bank loans.

According to a recent Toronto Star article, changes to come into effect on December 1 at TD Bank will result in higher interest rates for most customers who do not pay the minimum balance on their VISA card two times in a row. Therefore, if you pay the minimum balance 30 days after the payment date, you will be charged 24.75 per cent interest, which represents an increase of 5 per cent. We should bear in mind that the Bank of Canada prime rate is 2.25 per cent.

In the event of financial difficulties, we sometimes rely on credit to a greater extent and that is what will happen more and more.

Honourable senators, some of our fellow citizens are in difficult situations and the major banks are partly responsible. The federal government injected $75 billion into a mortgage buyback plan in the hope of encouraging banks to lend funds, that is, to increase liquidity. Consequently, banks and credit card institutions should be able to charge fair rates that will enable businesses and consumers to deal with the current financial situation.

My research indicates that businesses pay an interchange rate to credit card issuers of up to 3 per cent of the amount of purchases, and indications are that credit card issuers are raising rates for premium cards and for higher risk customers. There is neither disclosure to businesses of the customer's risk factor nor any input for businesses as to the number of premium cards issued and its additional interchange rate.

We must all acknowledge the aggressive marketing strategies used by credit card issuers to give consumers premium cards and, therefore, directly increase interchange rates on the business community.

The Canadian Federation of Independent Business, which represents 105,000 small businesses in every sector, has denounced the introduction of new types of cards such as premium, mosaic or infinite. In addition to being unsolicited, those cards bring a different interchange rate when the card has been deemed "high spend" or when the bank detects that a certain amount has been reached.

Interchange rates vary considerably and the complexity of their structure becomes an indeterminable cost for businesses. Accordingly, those charges will be passed on to consumers.

Business interchange rates on major credit cards generate $4.5 billion in revenue for credit card companies. Canadian rates are already among the highest in the industrialized world. Of course, credit card issuers need to generate revenue for their shareholders. However, the very same companies that have raised the interchange rates are not necessarily poor companies.

Visa Inc.'s 2008 fiscal fourth quarter earning figures show that the company had a net income of $0.8 billion from total operating revenues of $6.3 billion. MasterCard Worldwide 2007 Annual Report indicates a net income of $1 billion from net revenues of $4.1 billion. MasterCard Worldwide net income has more than doubled between 2006 and 2007.

Credit cards are an important monetary medium for exchange between customers and businesses. In 2007, 64.1 million credit cards were used in Canada. Almost 65 per cent of Canadian consumer payments for $294 billion in goods and services are done using credit and debit cards. Visa and MasterCard have about 80 per cent of the national credit card market. Credit card companies are, therefore, extremely wealthy and powerful.

Is there "collusion" in this quasi-monopoly situation? Are the proposed increases by credit card issuers a means to move towards the 2 per cent of sales vacated by the reduction of 2 per cent of the GST? I strongly believe that, based on those facts, there is a definite need for parliamentarians to be involved in the debate and in understanding the impact on businesses, consumers and the overall economy.

Similarly, we are concerned about the impact on businesses of the likely fee increase for debit card purchases, such as those using Interac.

Apparently, Interac is in talks with the Competition Bureau about giving up its not-for-profit status. The Senate study should provide information for the Competition Bureau.

In 2006, the Bank of Canada did a survey revealing that each debit card purchase cost the vendor about 12 cents. In addition, debit card holders were paying a monthly fee or a per-use fee. If Interac were no longer a not-for-profit operation, would the interchange fees businesses and consumers pay on debit card use go up? If so, the unit costs would rise, and this would lead to a rise in consumer prices.

We should also look at the potential impact of rising interchange rates on the three levels of government; i.e., Crown corporations, government agencies, museums, parks and licensing departments, which all pay interchange rates when Canadians purchase government services. Any increase in the rates paid by these entities would logically raise government's cost.

Being from New Brunswick, my office was in contact with Service New Brunswick and we have discovered that they have a blended 1.813 per cent interchange rate. Service New Brunswick passes that rate to their partners, such as the City of Fredericton and the City of Edmundston, for sewer and water bills.

Rates charged to government agencies and Crown corporations are significant. A report from the U.S. Government Accountability Office states that, for fiscal year 2007, U.S. federal entities accepted cards for over $27 billion in revenue and paid at least $433 million in merchant discount fees. For those able to separately identify interchange costs, these entities collected $18.6 billion in card revenues and paid $208 million in interchange rates.

Honourable senators would all agree that these taxpayers' dollars could have had a more efficient use. Why is MasterCard only charging 0.33 per cent to Australia's government and agencies but 1.813 per cent in Canada? That is one and a half per cent more for the same kind of operations.

When Canadians donate to a charitable organization, they have no idea that part of their donation is used to pay the companies that issue credit cards. When I discussed this with representatives of some large charitable organizations, I found out that credit card companies charge an average of 1.5 per cent of all donations as an interchange fee. I should note that these companies have suspended their fees in certain cases, such as when the tsunami hit.

In Australia, MasterCard and Visa have voluntarily eliminated interchange fees for charitable organizations. Why can they not demonstrate that kind of corporate citizenship in Canada by applying the same policy here?

The Canadian Federation of Independent Businesses says that Canadian credit card fees are unregulated and are, therefore, higher than in many countries where they are regulated. I believe that the possibility of establishing legislation and regulations should be explored by the committee. I invite honourable senators to visit a campaign called "Stop Sticking It To Us" at the following address: The group behind the website, made up of Canadian associations led by the Retail Council of Canada, represents more than 120,000 Canadian businesses.

According to the campaign's website, Canada has some of the highest interchange rates in the world. Rates in Canada average 2 per cent while regulated rates in Australia are 0.45 per cent and in the U.K. are 0.78 per cent. The Australian authorities have been regulating interchange rates for the past five years. The Retail Council of Canada estimates that nearly $2 of every $100 Canadian spent using credit cards go directly to Visa and MasterCard and their issuing banks.

Mr. Derek Nighbor, Vice-President of National Affairs for the Retail Council of Canada, says that a $1 transaction and a $100 transaction cost about the same to process, yet the fee is based on a percentage of the total price of the sale. There seems to be a disconnect there.

There is also a related campaign headed by the Canadian Federation of Independent Business. I met with both organizations.

I believe that the Senate must refer this motion to committee. We have to make sure that these organizations get some respect that their work is not undermined by excessive interchange fees and that, all things being equal, fees charged in Canada are competitive. We have to make sure that interest rates charged to consumers are fair. The Bank of Canada's current rate is 2.25 per cent, but credit card companies charge as much as 24 per cent.

Honourable senators, this is not about the Senate or partisan politics; this is about regulations, accountability and oversight. This is about our economy.

We have to make sure that Canadians' voices are heard, and we have to urge the government to intervene if necessary. I hope that the Senate will let the committee do its work to carry out this study. We have no time to lose.