Senator Pierrette Ringuette

Senator leading charge on card rates; Vows to fight for probe on credit, debit card system as banks' partial rate cut sparks backlash

Senator Pierrette Ringuette is vowing to reintroduce a motion that urges the Standing Senate Committee on Banking, Trade and Commerce to probe Canada's credit card and debit card systems, including the thorny issue of regulating interest rates and fees.

Her pledge comes as the public backlash over a decision by the Big Six banks not to fully match a big interest rate cut by the Bank of Canada gains momentum and consumer advocates muse about sending a petition to Finance Minister Jim Flaherty.

Ringuette, a Liberal from New Brunswick, plans to revive her motion in the new year. She tabled the motion on Dec. 2, but it fell off the agenda when Parliament was prorogued.

She is urging the Senate committee to examine whether tough regulations are needed to control the interest rates and fees paid by consumers and businesses.

Another key item of discussion would be the mass marketing of credit cards.

"The interest rate being charged by credit cards is very high - under no control, no regulation whatsoever. And this needs to be looked into, especially in the current financial crisis," Ringuette said yesterday in a telephone interview from Ottawa.

Additionally, she wants the committee to explore whether the interchange fee paid by merchants should be calculated based on the actual cost of conducting the transaction, rather than as a percentage of the purchase price. Credit card companies have already argued that the rates are reasonable given the cards' benefits.

According to the Canadian Bankers Association, there are about 64.1 million Visa and MasterCard cards in circulation in Canada. As of July, there were more than 65 "low-interest" card products with rates of 13.9 per cent or lower.

Ringuette's original motion would have required the committee to report its findings by June 30. She is now hoping senators will fast-track the motion.

"If Australia and the U.K. can regulate credit cards and debit cards, we can do the same," she said.

She was also critical of a decision by the chartered banks not to fully pass on a 75 basis point interest rate cut by the Bank of Canada. Banks instead chose to lower their prime rates by 50 basis-points last week.

Ringuette noted that banks are tapping taxpayer-funded programs to bolster lending, including Ottawa's $75 billion mortgage purchase program.

Public backlash over that issue shows no signs of abating, especially on the Internet.

Cyber activists such as Patrick Novak say petitioning Finance Minister Flaherty is the next phase. The 32-year-old homeowner started a Facebook group called "Pass on Rate Cuts Canadian Banks." It had attracted more than 1,335 members as of yesterday.

A second Facebook group - "Canadians for a Fair Banking System" - also intends to pressure the federal government on the issue. Meanwhile, the Consumers' Association of Canada has made it a top priority after being flooded with some 2,000 emails and phone calls.

While Canadian banks have avoided the financial missteps of their American and European peers, they continue to face higher funding costs, especially on "volatile" international markets, said Nancy Hughes Anthony, president and CEO of the bankers association.

The Bank of Canada rate itself is only one source of short-term funding for banks.

"So there is not a one-to-one relationship with the Bank of Canada rate," she said.

Even so, major Canadian banks have taken steps to lower mortgage rates in recent days.

Economists monitor the spread between the London interbank offered rate, or Libor, and so-called overnight index swaps to determine credit market strength.

A report yesterday from TD Economics, which provides analysis of economic performance and the implications for investors, suggested that while "medium- term funding costs improved" in Canada, "short-term spreads widened" because the OIS rates fell after the Bank of Canada rate cut.