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Ottawa to grill banks on rising fees; Banking Committee; Senate hearings to begin this month

IDNUMBER 200903020077
PUBLICATION: National Post
DATE: 2009.03.02
EDITION: National
ILLUSTRATION: Black & White Photo: Nathan Denette, National Post Files /CIBC customers will soon see fee hikes on some of their transactions. ;
BYLINE: Sarah Schmidt
SOURCE: Canwest News Service

Ottawa to grill banks on rising fees; Banking Committee; Senate hearings to begin this month

OTTAWA - Some CIBC customers who want to withdraw money from their 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 toward 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, said 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," Mr. Woolford said. "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."

Mr. Woolford said 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.

"Visa and MasterCard say we're wrong. We think we're right. OK, let's get this out on the table," he said.

The business associations also have a fresh concern about the push by Visa and MasterCard to enter Canada's debit market.

Interac, the non-profit association that dominates the debit market, has already applied to the Competition Bureau to become a profit-driven operation in anticipation of a shake-up, and merchants are warning of increased debit fees for businesses and consumers if the restructuring of the debit market occurs.

Glenn Thibeault, consumers affairs critic for the New Democrats, said the coming showdown over Interac and the debit market makes the Senate hearings all the more pressing after "lots of talk but no action" on the part of the Conservative government to protect consumers.

"Here, again, these companies are going to be making billions of dollars on the backs of consumers and on the backs of small businesses."

Tim Wilson, head of Visa Canada, said he welcomes a close examination of the business to explain the benefits of the interchange system to retailers and consumers. "I understand it's a challenging economic time for retailers and they're examining every aspect of their cost base," he said.

As to whether we're being unfairly targeted, I think there are a lot of misconceptions in the market about Visa's role in the system and about the cost of accepting cards and the value that those cards drive."

Nancy Hughes Anthony, president of the Canadian Bankers Association, said the banking industry is happy to participate in any Senate hearings to defend its recent record on fees, interest charges and borrowing costs.

She said bank fees "are very, very competitive" if "you start looking around the world."