Senator Pierrette Ringuette

New call for probe of credit cards

"It's greed."

With that blunt assertion, a New Brunswick senator pinpointed what she believes has led to Canada's major banks charging high interest rates and transaction fees in tough times.

Pierrette Ringuette says she's getting hundreds of calls and emails supporting her bid to have a Senate committee examine the credit card industry.

"Every one just increases my determination to move forward," says Ringuette.

A member of the Senate banking, trade and commerce committee for the past two years, Ringuette plans to bring back a motion she first tabled in December asking the committee to tackle credit cards.

Her motion fell off the agenda when Parliament was prorogued.

She argues that scrutiny of industry practices could not be better timed than during the current economic downturn.

"The interest rate the consumer will pay impacts directly on the amount of purchasing they will make, and the amount of purchasing impacts on the bottom line of the business community," she said.

The global financial crisis has prompted Ottawa to intervene to help the banks, so she argues it's the banks' turn to help credit-card consumers and retailers.

In November, the federal government unveiled measures that included buying up $75 billion in mortgages in an effort to keep banks lending to business and individuals.

The Bank of Canada's trendsetting rate has also fallen by two-thirds in the past year to 1.5 per cent.

Ringuette argues the country's chartered banks should reciprocate by lowering not just their mortgage and other lending rates but also credit card rates - but one major bank has hiked its top rate for customers with outstanding balances to 24.75 per cent, she said.

"There's no balancing in the philosophy they're putting forward in the current fiscal crisis," she said. "There's no give and take."

But the Canadian Bankers Association counters that the prime rate is just one piece of a larger puzzle and a Visa official says that Ringuette and interest groups representing retailers are confused about who pays the industry's transaction fees.

The 1.5-per-cent central bank rate only applies to short-term borrowing. Most of the borrowing Canada's banks are doing now costs them far more than it did a few months ago.

"Different financial institutions around the world are not trusting each other as much, so they're charging one another more," said association spokeswoman Maura Drew-Lytle.

Ringuette says that a kind of transaction fee is also rising - a point Visa Canada disputes.

According to her research, the interchange rate is up to three per cent of the purchase price for businesses, up to 1.8 per cent for governments and 1.5 per cent for charities accepting donations, she told the Senate.

The interchange rate is set by the credit-card company, such as Visa. A retailer's bank pays it to the shopper's bank. Neither a shopper, nor the retailer pay it.

Visa began posting its interchange rates online Dec. 1; the highest rate there is two per cent.

"We don't have any interchange rates of three per cent for businesses and we don't have specific rates for charities," said Visa Canada's Brian Weiner, who said Visa is looking forward to sharing its views with Ringuette.

She said the interchange rate has risen substantially in 2008.

Weiner said changes to the rate structure last April raised some rates and lowered others, leading to confusion among retailers, but overall, the "effective rate" is virtually unchanged.

He said he thinks Ringuette and some business groups have confused the interchange rate with the fee that retailers pay their bank for processing transactions, called the merchant rate.

That rate is negotiated between retailers and their bank.

Like the rates charged to cardholders, it benefits from competition, said Drew-Lytle.

"In Canada, we have a very competitive credit-card market with a lot of different issuers and choice for consumers," she said.

All the major banks offer basic credit cards with rates of 13.9 per cent, while customers who do not carry a balance month-to-month pay no interest.

But Ringuette wants the industry to justify why retailers pay a higher fee if a customer chooses to use a premium card and if the customer is a high-risk cardholder - something the retailer would have no way of knowing.

"There's no transparency in the system," she said.

Ringuette says for her, this is not a partisan issue that should pit her and her Liberal colleagues against the Conservatives.

"I hope my Senate colleagues will see the urgency," she said. "The government has the power to put some balance into this situation so that everyone has a chance to survive, not only the big banks, but small businesses and consumers."