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Ringuette calls for investigation of credit, debit card systems

Published Wednesday December 31st, 2008


"Canadians deserve reasonable and justifiable rates"


By Madeleine Leclerc


Senator Pierrette Ringuette recently tabled a motion in the Senate, 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.


"The proposed investigation would endeavor to expose the impact of rates and fees on businesses and consumers - focusing on rising interchange rates and interest rates," stated Ringuette. "Interchange rates are the percentage of the total purchase price that businesses pay in order to provide credit card services to their customers - and they have risen substantially in 2008."


"Canadians hold 64.1 million credit cards and use 65 per cent of them to purchase for $294 billion of goods and services. 80 per cent of the 64.1 million credit cards in Canada are Visa or MasterCard. Consumers pay up to 24.75 per cent in interest rate and credit card transaction fees or, to use the financial sector language, the interchange rate, are up to 3 per cent of purchases for businesses, up to 1.8 per cent for governments and 1.5 per cent for charities," she added.


Interac has entered into talks with the Competition Bureau regarding the abandonment of Interac's "not-for-profit mandate". Currently, the average cost to businesses for debit card transactions is $0.12 per transaction in addition to consumer fees.


In her speech, Ringuette indicated the example of Australia where interchange rates are currently 0.45 per cent for businesses, 0.33 per cent for government agencies and 0 per cent for charities.

The Senator strongly believes that the Senate should investigate and report on the credit and debit card systems in Canada. She argues that the government must establish regulations and oversight to ensure transparency into credit and debit card rates.


"In a difficult financial situation, some Canadians will depend more on credit. It will be a growing problem. Some Canadians are suffering and the big banks are contributing to this situation. While on the other hand, they are receiving a hand out, from the federal government with the injection of $75 billion towards a mortgage buyout plan in the hopes of encouraging banks to increase their lending capacity i.e. their liquidity. Accordingly, fair rates should be available for businesses and consumers to face the current financial situation be it from banks or credit card issuers," she stated.


"My research indicates that businesses pay an interchange rate to credit cards issuers of up to 3 per cent of the amount of purchases, and indications are that credit card issuers are rising rates for premium cards and for higher risks 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 premier, 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 are going to be passed on to all consumers."


Among the highest


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 who have raised the interchange rates are not necessarily poor companies," Ringuette said.


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 $1.0 billion from net revenue 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 people and businesses. Visa and MasterCard have about 80 per cent of the national credit card market. Credit card companies are, therefore, extremely wealthy and powerful. Is this a "collusion" situation because of this "quasi monopoly" situation?" Ringuette asked. "Are the credit cards issuers proposed increases, 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 involve in the debate and in understanding the impact on businesses, consumers and on the overall economy."


Debit cards


Also of concern and a related issue, is the impact of probable increase in transaction rates of the debit card system - i.e. Interac - for businesses, Ringuette pointed out.


"It seems that Interac has entered into talks with the Competition Bureau regarding the abandonment of Interac's "not-for-profit mandate". The Senate study should provide guidance for the Competition Bureau," she stated.


In 2006, a Bank of Canada survey indicated that the average cost to firms for debit card transactions was $0.12 per transaction. Additionally, debit card holders usually pay a per transaction or a monthly rate.


"If there is a change with Interac's not-for-profit mandate, will there be an increase in debit card interchange rates for businesses and fees for consumers? If so that would result in higher per-unit costs. Ultimately leading to higher consumer prices."


"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 sewage and water bills."


"Rates charged to government agencies and Crown corporations are significant. A report from the United States Government Accountability Office which states that, for fiscal-year 2007, "federal entities accepted cards for over $27 billion in revenues and paid at least $433 million in associated merchant discount fees. For those able to separately identify interchange costs, these entities collected $18.6 billion in card revenues and paid $205 million in interchange fees." We would all agree that these taxpayers' dollars could have a more efficient use. Why is Master Card only charging 0.33 per cent to Australia's government agencies and 1.813 per cent in Canada?"


A portion of donations


"When Canadians give to a Charity, they never think that a portion of their donations are being used to pay credit cards issuers. However, in conversation with a few of our major charities, I have learned that the credit cards issuers charge on average 1.5 per cent of our donations as interchange rates. I must also inform you that in the past and for certain major events such as the Tsunami, these interchange rates were waved for those specific donations."

"For example, in Australia, MasterCard and Visa eliminated interchange costs for charitable organizations. Why can they not be a good corporate Canadian citizen and exercise that same corporate policy?"


"The Canadian Federation of Independent Business 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," Ringuette said.


Highest interchange rates


She invited senators to visit the Stop Sticking It To Us campaign (


"This group, made up of Canadian associations led by the Retail Council of Canada, represents more than 120,000 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 UK 0.78 per cent," she said. "The Australian authorities have been regulating interchange rates over the past five years."


The Retail Council of Canada estimates that nearly $2 of every $100 Canadians spends using credit cards go directly to Visa and MasterCard, and their issuing banks. "Derek Nighbor, vice-president of national affairs for the council, says that a $1 transaction and a $100 transaction costs 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 with the means," Ringuette stated.


"There is also a related campaign headed by the Canadian Federation of Independent Business. I met both the Retail Council of Canada and the Canadian Federation of Independent Business."

"I strongly believe that the Senate must refer this motion to Committee. We must make sure that businesses are respected and that their work and efforts are not being negatively impacted by over the top interchange rates; and that, all things being equal, the rates in Canada are competitive rate. We must ensure fair interest rates for consumers taking into consideration the current Bank of Canada rate of 2.25 per cent while credit cards issuers are charging up to 24 per cent."


"These issues are not about the Senate, this is not about party politics, this is about regulation, and this is about accountability and oversight. This is about our economy! We must make sure that the voices of Canadians are heard and pressure the government to intervene if needed. I am hoping that the Senate will allow the Committee to do its work and pursue this study; sooner rather than later," Ringuette concluded.