Proceedings of the Standing Senate Committee on
Issue 17 - Evidence - September 29, 2010
OTTAWA, Wednesday, September 29, 2010
The Standing Senate Committee on National Finance met this day at 6:49 p.m.
to examine the costs and benefits of Canada's one-cent coin to Canadian
taxpayers and the overall Canadian economy.
Senator Joseph A. Day (Chair) in the chair.
The Chair: I welcome you all here this evening. On April 27 of this
year, this committee was authorized by the Senate to examine the costs and
benefits of Canada's one cent coin to taxpayers and to the Canadian economy.
Thus far, the committee has held meetings on the subject, hearing from
government officials, academics and representatives of the business community.
In our first session this evening, we will continue to consider the question
from the perspective of business. In the second session, we will consider the
issue from the perspective of the consumer. Next Tuesday, we will hear from the
Royal Bank of Canada, which has conducted, along with Ipsos-Reid, a survey that
could be interesting to the subject.
It is also important for us to hear from charities. We are working on
bringing in a charity to talk to us. Charities like the Salvation Army and some
of the other charities ask the kids who go around at Halloween to collect
nickels, dimes and pennies in these little boxes. What impact will there be on
those charities if the penny does not exist any longer? We have been following
up on these issues.
Subject to any desire expressed here, we should be able to round out the
study next Wednesday with a teleconference to New Zealand. New Zealand, as we
heard recently, has eliminated their one-cent piece. I believe they had a
two-cent piece and a five-cent piece that was eliminated as well. They had a lot
of public resistance to the earlier elimination and virtually none on the second
one. We should hear that information and be able to ask questions in that
Then I thought we would have a session to talk about what we want to see in
the report. We will ask our Library of Parliament people to help us in
reflecting whatever we decide we want to hear.
To begin this session, we are pleased to welcome our first witness for the
evening Darren Hannah, Director, Banking Operations, Canadian Bankers
Association. We have heard from the Canadian Bankers Association on other
occasions as well, and we appreciate your being here and making yourself
available to help us understand this interesting point we are looking into.
Mr. Hannah, you have a few introductory remarks.
Darren Hannah, Director, Banking Operations, Canadian Bankers Association:
Thank you for the invitation to appear before the Standing Senate Committee
on National Finance as part of your investigations into the merits of
eliminating the penny in Canada.
Canadians have a real affinity for their coinage. Whether it is the lucky
loonie at centre ice during the Olympics or the commemorative quarters,
Canadians identify with their coinage as a symbol of what makes Canada great.
Coins continue to be in strong demand in Canada. According to the Royal
Canadian Mint, in 2009 it produced nearly 1 billion new coins. This production
is new coinage as well as that added to the stock of coins already in
circulation, and these coins include pennies. In 2009, the mint pressed 456
million new pennies, and this production adds to the estimated 20 billion that
are already in circulation. Clearly, there is still strong demand for coinage
and there still seems to be segments of the economy that rely extensively on it.
That being said, electronic payments have begun to filter their way into the
small-value payment market that has been the domain of coins. Since 1998, the
average value of a debit card transaction in Canada has decreased by 20 per cent
in real terms, and the number of debit card transactions in Canada has nearly
tripled. Canadians are making greater use of point-of-sale electronic payments
for progressively smaller transactions.
Stored-value products are also making an impact on the demand for coins. For
example, Tim Hortons' annual report indicated that at the end of 2009, customers
had nearly $75 million available on their Tim cards. That value represents $75
million worth of transaction value that would have been transacted almost
certainly by coins in the past. The actual amount in dollar value of
transactions through those same stored-value cards during the year would have
been several times greater even than that amount.
To give you another example, the Ontario Ministry of Transportation projects
that by 2016, the new Presto stored- value transit card being rolled out across
the province will process over 200 million fare transactions, and potentially
over 800 million if the Toronto Transit Commission adopts the technology.
Clearly, this card will supplant many transactions that otherwise might have
been made by coinage. Increasingly, technology offers effective substitutes for
The banking industry does not have a strong view on the merits of the
elimination of the penny. Operationally, there will be savings to banks in
reducing coin-handling costs. Coins are heavy and bulky, so shipping them to
branches to meet the needs of individuals and small business customers imposes a
cost. Most of the 456 million new pennies were put into circulation through
At the same time, there are issues that need to be resolved, particularly
with respect to pricing. In addition, decisions must be made about how the
existing stock of 20 billion pennies will be removed from circulation, or if
they will be removed at all. We think there is value in reviewing the
experiences of other countries that have eliminated their lowest value
denomination coins, and the methods they used to resolve these issues.
Thank you for the opportunity to appear before the committee to provide the
banking industry's perspective on this issue. I welcome any questions you have.
The Chair: Thank you very much. I will go to questions of the
honourable senators in a minute.
The Library of Parliament provided us with a schedule in terms of the
millions of pennies that were put into circulation each year. You gave us a
figure for 2009 of 456 million new pennies in circulation, and 20 billion in
total in circulation in that one year. That number seems to be about half what
was put into circulation each year previous. In some years, the number is one
third of what was put into circulation as recently as 2006.
Is it your view that this number is a bit of an aberration, or is it a trend
that reflects what you discussed in that there are more electronic payments and
therefore less need for pennies?
Mr. Hannah: That is a good question. I looked at the trend over time,
and the reality is that there does not seem to be a trend. Production oscillates
greatly from year to year. I have not been able to see a particular trend with
respect to the amount of new mintage that takes place with pennies.
The Chair: The other point that came up yesterday was from a witness
who was involved with coin-operated vending machines and that kind of thing. He
indicated that he had to pay the bank to deposit; he rolled the coins, his
pennies, and then he had to pay money to the bank for them to accept the coins —
in particular the pennies that we are talking about. Can you confirm that is the
case and tell us more about that charge?
Mr. Hannah: The price involved in this situation depends upon what his
banking relationship is and what sort of package he has bought if he has bought
a package. Coin handling is expensive. A number of things are involved. As a
consequence, a charge may be associated with it.
However, it also depends on what sort of banking relationship he has. There
are everything-inclusive prices, where consumers pay one price and that is it
for the business relationship. Some packages are more limited, and then there is
à la carte pricing on top of that package. It depends on exactly what he has
arranged with his financial institution.
The Chair: He would need an account to deposit it in. Does a retail
bank provide that service? If I have 500 pennies and I want to convert them into
something larger, do I have to pay a fee to convert them?
Mr. Hannah: Typically, you do not pay as an individual, but in the
case of a business, they are dealing with an exponentially larger numbers of
coins and multiple deposits. Typically, an individual will not walk in with
thousands of dollars of rolled coins, but a business may well do that on a
regular basis. As a consequence, the expense associated with handling that
coinage is more substantial for the bank.
Would it be helpful if I walked you through what is involved in handling
The Chair: I think it would be. We will focus on the penny but the
process will be the same for any coin presumably.
Mr. Hannah: Coin handling in Canada is provided through a coin pool.
The pool involves financial institutions, armoured car carriers and the mint.
Typically, the coin is not held on site in the branch. It is held in the
vaults of the armoured car carriers. The branch will make a decision, based on
the amount of coin it happens to have on site, whether it has enough to meet its
current needs until its next shipment or whether it has a surplus. In some
areas, it may have more coinage than it thinks it needs. If it needs to order
additional coinage, it will call up the armoured car carrier, who will ship the
coinage to the branch. Likewise, if the bank has a surplus, it will send coinage
The coins then go into, and are drawn from, a coin pool. All the institutions
that are part of the coin pool that is managed through the armoured car carrier
will have a notional allocation in that pool. If I, as a bank, withdraw a
certain amount of quarters and ship back a certain amount of nickels, I debit my
holdings in the coin pool for one amount and I credit it for another.
The advantage of this pooling relationship is that it minimizes the amount of
surplus mintage that needs to take place because banks can make greater use of
all the coins in circulation. However, handling and transportation costs are
associated with this relationship, and with moving coins back and forth.
Then, once the coins are at the branch, banks have a certain set of other
costs. They have packing and handling costs. When shipping coins back and forth,
the mint has standard packing systems that must be followed because they try to
make it easy and safe for the armoured car carrier. We understand that. There is
a handling cost there.
Then there are the costs of distributing the coin through the branch and also
through — in some cases they have what I can only describe as dedicated bank
machines designed for the distribution of rolled coin. There is the operation
and maintenance of those machines as well, plus periodic verification that
Coin comes in a rolled fashion. Periodically, branch staff verify through
spot checks that the coinage is legitimate, and then there is the general branch
expense associated with that verification.
The Chair: That is interesting. Those of us who grew up with a local
bank in our small community think of the bank as providing a service, and a lot
of the bank advertising is in that direction, but you remind us banks have a lot
of expenses that must be covered in some particular manner. As expenses go up in
handling something that does not have a lot of return, then the bank has to
think about how to handle them.
Last evening, we were informed by a witness, the vending machine operator,
that of all the banks in his area, only one bank will accept his business. The
rest do not want to be bothered with handling a large volume of small coins.
Does that surprise you?
Mr. Hannah: I cannot speak to this individual's circumstance. I do not
know what business they are in or what institutions they are working with, so it
is difficult for me to speak with any degree of granularity.
I can say, an important point here you will notice, he did end up with
service. He was able to access banking services in his community to meet his
needs as a merchant. I think that point is an important one. In Canada, we pride
ourselves on the fact that we are one of the most extensively banked countries
in the world. Ninety-six per cent of Canadians have a bank account. That
percentage is one of the highest in the developed world. That important point
needs to be made.
Senator Gerstein: Thank you, Mr. Hannah, for appearing before us
today. It was almost 50 years ago that Great Britain removed its half penny, and
probably within the last five or six years, Australia, France, Spain, Israel,
the Netherlands and New Zealand have removed their penny. In fact, in New
Zealand and Australia, there was a one-cent and two-cent coin.
You have made remarks about coinage in general. We are not here to talk about
coinage in total such as loonies, toonies and not even nickels, although a
number of people have raised the subject of nickels and the future of the nickel
in Canada. Let me focus solely on the penny.
I was a little surprised to hear you say, as a representative of the Canadian
Bankers Association, that you had no view on it. Is that my correct
understanding? You have no view as to what the banking association or the banks
feel about the handling of pennies?
Mr. Hannah: Yes, that is broadly correct, and you have partially
answered in your question why that is the case.
Banks provide a service to their clients. They view handling pennies as a
service they provide to their small business clients. They charge for the
service because it is an expense, but nonetheless, it is a service. We provide
the service as clients need it, and we likewise provide whatever coinage they
need. If they need pennies, we provide pennies; if they need nickels, we provide
nickels; if they need dimes, we provide dimes; and so forth.
The elimination of the penny changes that equation a little but not much. We
still have to provide a service to the clients. There will still be coinage in
circulation. If the government decides they want to change the denominations, we
are happy to work with them to make that change, but it is not something we view
as a priority from an industry perspective.
Senator Gerstein: If you were to assume it to be a priority, it would
have to be in relation to something else. Again, it comes down to the actual
handling of it. What do your customers tell you? Are customers happy about
dealing with pennies? Surely there must be some kind of a reaction. I am
surprised there is no reaction from the association. Yes, I understand you
provide a service, but surely there must be some kind of feedback from your
member banks and from customers as to whether the penny has a role in the
coinage of Canada.
Mr. Hannah: That is a good question as well.
I know that the mint itself conducted a survey a couple of year ago — they
may have mentioned it when they were here — where they asked businesses and
consumers about the future of the penny: Do they want the penny eliminated; and
do they want to keep it? As I recall, two thirds of small businesses said, let
us eliminate the penny. Consumers seemed to be more split at the time; some were
in favour and some were uncertain.
Consumer concern one way or the other about the future of the penny is not
something I can say comes to our attention as an association on a regular basis.
Likewise, when we addressed the question with members, it is not something
members identified as a priority.
Nonetheless, we recognize that this committee is studying an important issue,
so we want to be here to provide a resource to you to help you in those
Senator Gerstein: Thank you.
Senator Marshall: I share Senator Gerstein's reaction. He was
surprised and I am disappointed that you do not have a position on whether we
should keep or eliminate the penny.
What impact will eliminated the penny have on the members of your
association? Will there be any impact? Will there be cost savings? Will there be
any advantage or disadvantage to your members? Can you speak to those issues?
Mr. Hannah: There are cost elements to handling coins, as I mentioned.
There are transportation, storage, packaging and handling expenses. Yes, there
are those expenses. What we do not know as an association is what it will mean
with respect to pricing issues and what it will mean to how both retail and bank
pricing happen. These issues will need to be resolved, and they are not things
we have gone through in depth and studied.
However, bear in mind that, again, from our perspective, we view handling
coins as a service to our members and we will still have to deal with coinage
because there will still be a lot of coinage in circulation.
Senator Marshall: To ensure I understand you, you went through the
scenario of your coin poll and everything, so if the penny is eliminated, there
should be cost savings. However, you are providing services at a price.
Therefore, if the penny is eliminated, you will rejig your internal processes
and your internal fees. Is that right? Is this why you do not have a position on
eliminating the penny? Regardless of whether the penny exists or not, you will
adjust by rejigging your pricing and your services. Is that right?
Mr. Hannah: With respect to the question about pricing, clearly there
are cost savings. This market is a competitive; if there are cost savings,
eventually they find their way into retail prices. How that happens, the
magnitude of this cost savings and how long it takes to find its way into
pricing are difficult to assess. Again, the penny is one denomination involved
in coin management that is one part of treasury and cash management, so it is a
small slice of a broader business.
In answer to your question, the change will find its way through the
marketplace and the market will re-establish itself; correct.
Senator Marshall: Based on your knowledge of the banking system and
the system of your members, do you think that if we eliminate the penny, its
elimination will eventually filter through to become savings for your customers
as opposed to extra costs? Are cost savings anticipated? What is your gut
Mr. Hannah: As I said in my opening remarks, there will be modest cost
savings associated with reducing the amount of coinage that must be shipped and
As I mentioned a moment ago, in a competitive marketplace — and this is a
very competitive marketplace — banks compete with each other for business, with
trust companies, credit unions, ATB, Desjardins and so on. That saving will
eventually find its way down into retail prices. However, how big that saving is
and how we separate out that slice from all the other factors that go into
pricing a complex relationship that happens between a bank and its client, and
how we sort out that factor from all the other economic factors that are at play
at the time is difficult.
Senator Marshall: The only thing I can say in conclusion is that it
does not give us much reassurance in that we are asking you the question. I
would hate to make a decision to eliminate the penny and have the members of the
association, two years down the road, say they have to increase fees for their
customers because we scrapped the penny.
Senator Callbeck: Thank you for coming this evening. Yesterday one of
the witnesses made reference to the fact that not everyone can open a bank
account. How do banks determine whether someone can open an account?
Mr. Hannah: In Canada, we have regulations under the Bank Act called
Access to Basic Banking Services Regulations that require a chartered bank to
open an account if someone presents two pieces of identification from a
prescribed list. It is a requirement.
Senator Callbeck: I have talked to people who tell me they cannot open
a bank account; the bank will not accept it.
Mr. Hannah: I do not know their specific circumstances, but there are
few instances where Access to Basic Banking Services Regulations do not apply.
The only exceptions I can think of are if banks suspect somehow that the
identification provided is fraudulent or that something criminal is happening.
Those are the only two exceptions to Access to Basic Banking Services
That being said, bear in mind those regulations apply only to federally
regulated financial institutions; they do not apply to credit unions, caisse
populaire, Desjardins and ATB. Those institutions have their own rules, so I
cannot speak to them.
Senator Callbeck: No, I am speaking of federally regulated banks. If
people have a driver's licence and their social insurance number, they can open
Mr. Hannah: They should be able to open an account. If they cannot, I
recommend that they talk to the Financial Consumer Agency of Canada or talk to
the bank ombudsman.
Senator Callbeck: Do you have any idea what per cent of Canadians have
a bank account?
Mr. Hannah: Ninety-six.
Senator Callbeck: Ninety-six per cent?
Mr. Hannah: Yes; that information is according to a survey by the
Financial Consumer Agency of Canada in, I believe, 2006.
Senator Callbeck: You have no official position on whether the
government should eliminate the penny or keep it, but yesterday a witness
suggested that we look not only at the penny but at the nickel as well. Do you
Mr. Hannah: One would want to walk before they run.
Senator Callbeck: Yes; if the government decided to discontinue the
penny, should this elimination be a gradual phasing out or should it be
terminated all at once?
Mr. Hannah: That is a good and important question. Again, we have this
large stock of coinage in the market. Clearly, you want to ensure that whatever
decision is made is properly communicated and communicated well in advance
because you do not want to give people cause for concern that somehow they will
lose all this value. If they have cause for concern, then predictably retailers
and financial institutions will face an immediate onslaught of pennies. That
will not be good for anyone, so clearly, communication will be an important part
of whatever strategy the government opts for if it moves in this direction.
Senator Callbeck: If they decided to terminate it, when you say
communication, are you talking three months, six months or a year?
Mr. Hannah: I think the more time, the better because, again, you want
to ensure that people understand, you want to ensure that they recognize what
the process is, and you want to ensure all this change happens in an orderly
fashion. Typically, you will need to tell them not once but multiple times. It
takes a while for changes like this one to reach into the public consciousness,
so you do not want to make it quickly.
The Chair: Let us assume two years. What happens after two years to
those people who still have a few pennies at home? Is it no longer proper tender
that can be used? They cannot take it to the bank and say, give me five cents
for these pennies?
Mr. Hannah: That will be a public policy decision the government must
make. Does the government take all pennies out of circulation and set an end
date for their use? Does the government stop minting new pennies and let them
slowly dissipate over time? If the government sets an end date, what happens
after the fact? Is there a redemption process? Is it like when the Europeans
moved to the euro? Did they have a process for migrating domestic currency to
the new currency? Those questions have to be resolved in this process if the
government goes down this road.
It will be helpful in that regard to look at what other jurisdictions have
done in this area because they will have encountered these questions either
beforehand and thought them through or after the fact if they had not thought
them through before. One way or the other, their experience will provide
valuable lessons in this context.
The Chair: Can you help us with respect to the $1 bill and the $2
bill? If we had one of those paper bills nowadays, can we still use it to pay
Mr. Hannah: You probably can, but if you have a $1 bill and it is
valid, I do not think I would sell it for $1.
Senator Dickson: Thank you for your firm opinion that you do not have
any opinion. That information gives us direction.
To come back to the communication process, which you brought up, we have
heard from other witnesses that this process is vital if a decision is made to
eliminate the penny. Who will share the cost of that communications process.
Will your organization share in the cost of that communications process? The
government has been favourably inclined to assist banks with buying mortgages
from the banks, and in other ways.
Do you have an opinion as to the extent to which your association will assist
financially in the communications process? Other associations are giving serious
consideration to it, by the way, so you know the background.
Mr. Hannah: In the hypothetical it is hard to answer that question,
obviously. I will say generally that banks communicate with our clients all the
time. Banking is a relationship business. The bank wants to communicate with its
client to ensure its client is situated in the right product, is comfortable
with the service it receives and is comfortable with the relationship. If
something changes that relationship from an institutional perspective, an
institution will communicate with its clients; but it is difficult for me to say
more than that because the rest of it will depend on the circumstances,
situation and process that is put in place to roll out this change. A discussion
would have to take place at that time when that decision is made.
Senator Dickson: By checking with international associations,
corresponding banks where coinage has been taken out of operation, can you
please go back to your membership banks, discuss with them the extent to which
they may or may not participate in such a communications process, then come back
to us with an answer? I look in the paper today, and the Royal Bank has one full
page at least on mortgage rates; promoting mortgages and whatever. Will they
provide "X," will they cooperate with us or will they do nothing? We want to
Mr. Hannah: The challenge is that the question is hypothetical, and I
am certain the answer will be: Can you tell me more about the specifics of how
this change will take place. Absent that information, it will be difficult to
give you any more of a direct answer than I have given, even if I were in their
shoes. Participation would be decided at the time based on the circumstances and
the plan in place to try to phase out the product. It is a difficult question
for them to address as it is a difficult question for me to address.
Senator Dickson: With great respect, I prefaced the question by
suggesting that you check with other jurisdictions. The Canadian banking system
is big and successful. You cannot expect government to do everything. Can you
check, please, and return to us with an answer? Give us scenarios, such as what
action bank "X" in Australia took, et cetera, including whether certain banks
did nothing. I am ready to declare you a hostile witness.
The Chair: I will declare you a hostile senator.
Senator Dickson: I am becoming concerned.
Mr. Hannah: Senator, I can ask some of the other associations in
jurisdictions where they eliminated a coin what process was put in place. That
is about as much as I can do. Does that address your question?
Senator Dickson: At least you are moving. Thank you.
The Chair: Thank you for your aggressive questioning, Senator Dickson.
Senator Murray: Mr. Hannah, we have before us a study of whether the
country should abolish the penny. You have told us that you do not have a
recommendation in that respect, and I respect that view. We are dealing at the
level of principle now.
However, as one of the witnesses yesterday reminded us, as with all great
initiatives, the devil is in the details. Instead of a bill before the committee
proposing legislation to abolish the penny and to detail how the rounding will
take place, we have this study. What would your position be if we had a bill?
As you know, merchants can continue to charge $1.59 or $1.98 or whatever, and
in the final price it is indicated to us that if rounding is symmetrical, prices
will be rounded down when the final price ends in 1, 2, 6 or 7 cents, and
rounded up when the price ends in 3, 4, 8 and 9 cents. That rounding can take
place in respect of cash transactions or all transactions, including electronic
transactions with credit cards and debit cards — instruments in which your
members have more than a passing interest.
If we have a bill before us that contains such detail, do you think that the
Canadian Bankers Association and the chartered banks will be here to give us
their opinion on the bill and the details?
Mr. Hannah: Certainly, if there is a bill related to banking, we will
examine it as we examine any bill related to banking and financial services.
Senator Murray: Does the Canadian Bankers Association conduct research
of any kind for the chartered banks? I presume members of the CBAare the
chartered banks of Canada? Are there other members?
Mr. Hannah: No.
Senator Murray: Are there other financial institutions?
Mr. Hannah: No, they have to be a chartered bank to be a member of the
CBA, whether domestic, foreign branch or full service. A member must be a
Senator Murray: How many members are there?
Mr. Hannah: There were 51 members at last count.
Senator Murray: Your members will want to weigh in on this subject. I
asked whether your organization conducts research. I would be astonished to
learn, in view of the discussion that arises more than periodically of what to
do about the penny, that either you or some of your members had not conducted
research as to various scenarios that the government or Parliament might follow,
and the resulting effects on the banks. Perhaps the rounding one way or another
will cancel itself out on electronic transactions but I am sure your members
have conducted research into that area, if only in their enlightened
Mr. Hannah: In the instance that there is a clear and present issue,
we will look at it. We will make an informed decision about how we will respond
to the issue, and then we will communicate the informed decision.
Senator Murray: Perhaps you do not know the answer to this question
and we need to ask one of the banks. Perhaps we should ask but I would be
surprised if they had not looked at it. The banks have well-equipped and
well-staffed research departments so I would be surprised to learn that they had
not examined various scenarios with which a government may propose legislation
to eliminate the penny. Do you think it possible that they have conducted that
Mr. Hannah: I do not know. When I asked the question of our members,
the response was reflective of what I have told you.
Senator Murray: Perhaps we should make an inquiry to them to determine
whether they can help us in that respect. Perhaps they can share with us
research, albeit hypothetical, that they have conducted on various hypotheses.
The Chair: Next week, we hope to talk to a witness from the Royal Bank
of Canada who has been involved in survey work. We may be able to delve into
that issue and, if we are not satisfied, we will expand to other witnesses.
Senator Murray: That is fine.
Senator Runciman: I have a supplementary question to Senator
Marshall's question on the economic implications for the banking industry. I
cannot recall if it was Desjardins Group that we heard this testimony from when
we started this process in the spring. Did they indicate an estimated $20
million in savings annually for the chartered banks? I recall the witness
indicating savings of that amount. Are you aware of that savings?
Mr. Hannah: I am aware of the study, but I cannot verify its
authenticity. I am not in a position to either refute it or to bolster it, but I
am aware of the study.
Senator Runciman: To follow up on Senator Murray's suggestion, when
the government contemplates an initiative that has potentially positive or
negative implications for the banks, why would an association like yours not try
to assess those implications? I am curious as to why the CBA, an association
representing the chartered banks, would not take a thorough look at such a study
precisely in terms of those potential implications for your membership.
Mr. Hannah: As I said earlier, we view this issue as being a client
service issue. As an industry, banks provide coin management services, cash
management services and account management services to clients. They will
continue to do so irrespective of whether the penny is maintained or eliminated.
Senator Runciman: This is futile in the sense that if there were
financial implications, it would strike me that an association would want to
know what they are.
The Chair: We have checked through our research from before the summer
break and found that Desjardins Group indicated to the committee that they
believe the cost to the financial institutions of having the penny is about $20
million. The savings if the penny is eliminated, by implication, is $20 million,
given the storage, transportation, extra handling, et cetera, that will be
Senator Marshall: Unless the banks pass that $20 million in savings on
to the customer, it might not be a savings to the bank.
The Chair: It is a savings that they can do something with.
Senator Marshall: I want to go one step further. You said that the
association has not taken a position on the elimination of the penny. Will the
same hold true if the decision is made to eliminate the penny? Will the
association be interested in providing input on the process, or is that
something they have no interest in expressing an opinion on and no interest in
participating in what the process will be?
Mr. Hannah: Clearly, if a decision is taken to eliminate the penny, we
want to be involved or consulted on some level on how that process rolls out.
Again, the process will guide how much friction will happen as we make this
change. We will certainly want to be part of the process for making that happen,
and we would have to be; bearing in mind that, again, most of the coinage
ultimately is circulated into the economy one way or the other through financial
institutions, whether through banks, credit unions, caisses populaires or what
Senator Marshall: Since the association has not expressed an opinion
on whether the penny be retained or whether we eliminate the penny, it seems to
me the association does not anticipate any big impact on the bank other than the
$20 million in savings. It seems that we can eliminate the penny and it will not
be a big deal for your members.
Mr. Hannah: As I said, the main issues are around pricing. Are there
systems implications? There probably are, but one way or the other the
institutions still have to handle coinage. The big questions are the ones around
pricing — and those questions will need to be resolved — and the ones around
communication to clients on how to remove these things from circulation, if you
remove them at all. Those are the big issues that need to be resolved.
Senator Marshall: This is probably an unfair question but I will ask
it anyway: Do you think we should eliminate the penny soon, or do you think it
is worthwhile waiting until people use electronic payments more?
Mr. Hannah: You are right; it is an unfair question.
Senator Marshall: You can answer it anyway.
Mr. Hannah: There are more electronic payment options now than ever
before. People are making use of them. I highlighted a few of those options in
the opening remarks. That being said, it is also fair to say that a lot of
coinage is still being circulated out there because obviously, the new mintage
is still happening and people still make use of it. Timing on these things is
always a challenge. It is difficult to say with certainty but options are
Senator Marshall: If we wait long enough, the penny will take care of
Mr. Hannah: That is a good question.
The Chair: I guess there will be no answer to that last question. You
do not have to answer. It is your prerogative and we do not want you to feel we
are cross-examining you here. We are trying to develop options on an idea that
we may or may not develop into a piece of legislation. Your participation early
in that study helps us in defining the best way to go.
We appreciate your being here early on in this process. We are not studying a
bill here, as has been pointed out by Senator Murray. Rather this study is a
policy study to determine whether this concept of the penny or penny elimination
is a good idea, and if so, how do implement it.
I will leave the last question to Senator Gerstein, the deputy chair of the
Senator Gerstein: Mr. Hannah, I will come back to where I started. We
had representatives from the retail council and the grocery association
yesterday, and both of them indicated that we should eliminate the penny. They
had caveats, but that is their position.
The Canadian Bankers Association, as you mentioned, represents 51 banks. I
believe the number of employees is close to 250,000. I have always viewed the
CBA as a bit of an advocacy group; that they really look into whether there are
effective public policies that contribute to the economy and that are good for
Am I to walk away from this meeting with the assumption that you have no view
on eliminating the penny; that you do not care, and there is no view? You have
told us that the bottom line is, whatever decision is made we will continue to
service customers. Is that the view of the advocacy group?
Mr. Hannah: We do not have a strong view on this issue. That much is
Senator Gerstein: Is there even a weak view?
I am not trying to pressure you; I only want to be clear.
Mr. Hannah: I think my answer to Senator Marshall may provide guidance
here. We want to be part of the process, were a decision made to eliminate the
penny. We do not have a strong view one way or the other though on whether that
decision should be taken.
Senator Gerstein: That is my concluding question.
The Chair: Thank you, and thank you very much Mr. Hannah, the
representative of the Canadian Bankers Association, for appearing again before
us on this subject. The Finance Committee appreciates your agreeing to be here.
You may want to stay on. We will speak next to the Consumers' Association of
Canada. You can witness different points of view.
On behalf of the committee, we thank you very much for being here.
We will now hear from Mel Fruitman from the Consumers' Association of Canada.
You heard the discussion we had in the previous session, Mr. Fruitman, from
the Canadian Bankers Association. You know the types of questions we might ask.
With that background, do you have a few introductory remarks?
Mel Fruitman, Vice-President, Consumers' Association of Canada: Thank
you very much, chair. By way of brief introduction, the Consumers' Association
of Canada, as many of you know, is a 63-year-old independent, not-for- profit,
volunteer-based national organization. Our mandate is to inform and educate
consumers about marketplace issues, to advocate for consumers with government
and industry, and to work with government and industry to solve marketplace
problems in beneficial ways.
To the topic at hand, I will be brief because what I have to say today is to
reiterate and reinforce much of what you have already heard in your previous
As you are aware, basically, the penny no longer has any purchasing power. We
cannot buy anything for a penny any more. You have heard anecdotal information.
My anecdotal information is that when my parents had a variety store 50 years
ago, during the 1950s, we used to sell penny candy and it really was a penny; it
is now ten cents or a dollar. For a penny, consumers could buy three blackballs
or a piece of bubblegum. For two pennies, they could buy a strip of paper with
buds of candy on it. However, at the same time a loaf of bread was 17 cents, a
quart of milk was 21 cents, a pack of cigarettes was 31 cents and a chocolate
bar was 5 cents. Interestingly, even if consumers could buy that chocolate bar
today for 5 cents, here in Ontario it would cost 7 cents by the time they added
the HST and rounded it up, so there is a point about rounding.
Pennies are considered by most people to be a nuisance because they have so
little value. We have to carry them around with us. We see so many stores now
that have that little jar or dish — give a penny, take a penny — because stores
do not want to deal with pennies and consumers do not want to deal with them.
Interestingly, I ran into this factor at the airport on my way here. I had taken
out all my coins and put them in my briefcase to go through security. Then I
bought a muffin, which was priced at $2.49. By the time the tax was added in, it
came to $2.61. I thought I had a penny but could not find it, so I wound up with
four more. Now I have five pennies floating around. That is a nuisance, and I
think most people look at it that way.
Had there been someone behind me, they would have been ticked off about the
fact that I was taking time to rummage through my briefcase to see if I had that
penny. It slows things down. Some organizations have attempted to put a dollar
value on that time and expand it to the economy as a whole. I do not know
whether their figures are right or wrong. I do know, as a consumer, that if
someone standing in a lineup has a person in front of them groping for pennies
trying to make that transaction, the person waiting becomes annoyed because the
person in front of them is slowing everything down.
As far as we can see, there is absolutely no downside to eliminating the
penny. Unequivocally, please, let us eliminate the penny.
The Chair: I am sorry that Senator Gerstein could not hear you say
Senator Murray: As a witness here the other day said, the devil is in
the details. Suppose we were drafting a bill and you were helping us draft that
bill. It would receive second reading from you because you are in favour of the
principle. Now we are into the details. You agree that merchants cannot be
prevented from, and should be encouraged to, continue pricing at $1.59 or $1.98,
whatever it is, and therefore rounding will be needed. Do you agree that
rounding up and rounding down cancel each other out over time?
Mr. Fruitman: Yes, definitely, if we are talking about purchases of
Senator Murray: Yes, and after the tax.
Mr. Fruitman: If we purchase one item, as I purchased in that
particular instance, clearly it will be biased in one direction or the other.
However, by the time we add in a number of items and add on the tax, then,
statistically I believe rounding does balance out.
Senator Murray: I mentioned earlier to our friend Mr. Hannah how it
was supposed to work. If rounding is symmetrical, as it says here, we round down
prices where they end in 1, 2, 6 or 7 cents, and up where the final price is 3,
4, 8 and 9 cents. You agree with that.
Do you believe that the rounding should apply only to cash transactions,
should it apply across the board to electronic credit card or debit card
transactions, or do you think it matters?
Mr. Fruitman: I think it will apply only to cash transactions. We are
talking about eliminating the penny, which is a cash transaction, and
eliminating it for various reasons. There is no reason to round up or down an
electronic transaction where the amounts can be dealt with in the exact amounts.
Senator Murray: With one sort of transaction, the cash transaction —
which according to the testimony we heard yesterday comprises a smaller and
smaller proportion of transactions — as the only type to which the rounding will
apply, will either the cash transaction or the electronic transaction be
advantaged or disadvantaged vis-à-vis the other, by reason of that fact?
Mr. Fruitman: I do not think so. We are talking pennies, so the
difference in that transaction will be small. Particularly, an electronic
transaction tends to be for higher amounts than the cash transaction, so if we
are talking about $10, $20, $30 or more, a penny this way or the other will not
make a difference, but it should not wind up arbitrarily in the hands of someone
Senator Murray: It should not even wind up with the government?
Mr. Fruitman: Definitely not the government.
Senator Murray: In summary, if we have a bill before us, obviously you
are in favour of the principle. Is there any item of the implementation that you
think the Consumers' Association of Canada will want to be heard on, with regard
to any of these details that I have mentioned?
Mr. Fruitman: Yes, I think we would want to be involved in whatever
the rollout plan is.
Senator Murray: What do you mean by the rollout plan? I am talking
about the details of how it will work.
Mr. Fruitman: The implementation, yes.
Senator Murray: That is, the details, the rounding up and down and
whether it applies to cash.
Mr. Fruitman: How it will work, how it will happen, what the time
frame is, how it will come about in the marketplace, what advance information
will be given to people, what the time frames are for conversion to take place
in the stores and whatever the banks must do to accommodate it. I think we would
want to be involved. I am not familiar with how it was implemented in other
countries, but I believe it was over an extended period of time.
Senator Murray: You would be out there, out front, supporting a
government that took this initiative?
Mr. Fruitman: Yes.
Senator Murray: Would your organization play a part in the educational
and communications process?
Mr. Fruitman: We do not have the mechanism to do so. We are a
volunteer organization without the resources.
Senator Murray: How do you conduct your advocacy? You are able do the
work you are doing now.
Mr. Fruitman: We are involved in this sort of thing.
Senator Murray: You are not involved in public advocacy?
Mr. Fruitman: How do you mean that?
Senator Murray: Do you conduct a public communications program?
Mr. Fruitman: We do not. We do not have the resources. We respond,
react and try to provide our input when we can and when appropriate. We deal
with the media often when they ask us questions about how things affect
consumers and what consumers think.
Senator Murray: How are you financed?
Mr. Fruitman: We are not. We are financed by nominal donations by
people who feel that they would like to have us, and a lot out of pocket, when
it comes down to it.
The Chair: You ask people for their extra pennies to keep you going?
Senator Murray: What do you have by way of a central headquarters or
organization? Do you have a full-time staff?
Mr. Fruitman: We do not. We used to have a part-time office in Ottawa.
We recently closed that down. We are operating basically electronically now.
Senator Murray: You are the president.
Mr. Fruitman: I am vice-president.
Senator Murray: How did you become vice-president?
Mr. Fruitman: I was elected at an annual general meeting. We have an
active board of directors and we have an annual general meeting, which anybody
who has paid a membership fee can attend. We still accept memberships, but we do
not solicit them anymore. We do not have a mechanism to solicit members.
Senator Murray: How many paid-up members do you have?
Mr. Fruitman: I honestly do not know.
Senator Murray: If I want to join, how much do I pay?
Mr. Fruitman: About $25 per year. We like to say we have 33 million
Senator Murray: Sure, so you do. Thank you.
The Chair: You touched nicely on a number of points, Senator Murray.
Senator Marshall: That was informative. Does the association have any
views on the length of time with regard to implementation? If the decision is
made to eliminate the penny, does the association prefer to see something happen
quickly or does it prefer to see something like a three-year period to give
people a lengthy period of time to bring in their pennies?
Mr. Fruitman: Definitely not quickly. I am not sure what the most
appropriate period would be. It could easily be a couple of years. Eliminating
the penny is something that needs to be done but it is not urgent that it be
done now. It requires lead time, first, to work out details. The next step is
for the changes to take place; any modifications that need to be made to
electronic systems, cash registers and so forth for people to adapt. Clearly,
there must be a good communications program associated with the rollout.
Senator Marshall: You are not thinking about a quick transition period
but something longer than three months?
Mr. Fruitman: I am thinking of a minimum of nine months, probably much
The Chair: Yesterday, a witness said in a normal business cycle, they
repair slot machines and coin-operated equipment on a 12-month to 18-month
cycle. How does that time frame fit in with what you are thinking?
Mr. Fruitman: That is probably acceptable. I presume you are talking
about vending machines. I am not sure any of those machines accept pennies
The Chair: No; he was trying to convince us to eliminate nickels too.
Mr. Fruitman: I see. That is a whole different issue.
The Chair: Yes; we are not studying that issue.
Senator Marshall: I cannot recall who it was, but I think one of our
witnesses yesterday talked about three years.
The Chair: The issue we are trying to determine is, what happens after
three years. If we say it is to wind down over three years, after three years
can the penny still be used? If someone has five of them, can that person use
them for a five-cent purchase, or are they no longer legal tender? That is one
of the details that we will have to work on.
Mr. Fruitman: I am not sure how that detail would work. Perhaps, after
a certain period of time — during which retailers will have the opportunity to
make whatever changes they need to make, the communications program has been
rolled out and we know what is happening — then retailers can round up based on
the formula that Senator Murray mentioned. That approach will then not take them
afoul of the Competition Act because of the way they are pricing.
At the same time, if retailers do not have the capability of rounding down
for whatever reason, the consumer can round down. In other words, if I buy
something and my bill is $9.52 and retailers do not have the wherewithal or the
wit to tell me it is $9.50, I can offer them $9.50 and they cannot refuse it.
Then sometime again after the penny is taken out of circulation, retailers
should not be obliged to accept payment in pennies, but whether they are still
legal tender or not, I do not know.
The Chair: I do not know either. We are asking questions at this
Senator Runciman: Yesterday in the retail council's written
submissions, they raised the spectre of tax-in pricing in relationship to
rounding, which included eco fees as well. Does your organization have a view on
Mr. Fruitman: Eco pricing opens up a whole bunch of cans of worms. It
was poorly implemented several months ago here in Ontario.
I think consumers are split on tax-in pricing. On the one hand, we like to
know how much the government is raking off the top from us. On the other hand,
it is easier to know what the final price is at the cash register. Again, it
does not make much difference when we are talking about purchases of multiple
items. Few people go through a supermarket with a calculator and total up how
much they are spending so they will know what the cost will be at the cash
register so we are talking about one- or two-item purchases.
I lean towards the tax-out pricing so we can see what it is, we know what it
is, and we know how much is added on.
Senator Braley: Does a business have the right to price items either
way? Some price one way and some price the other way. They have the right to do
Mr. Fruitman: I am not positive about that. That item has been up and
down over the years. I am not sure where that item sits now.
Senator Braley: I have retail operations selling football tickets with
taxes in, and I have operations that add the tax to the price. They have the
option now, as a business, to price either way.
Mr. Fruitman: This discussion took place — I guess it was almost 20
years ago — when we converted from the Federal Sales Tax, FST, to the Goods and
Services Tax, GST. Some organizations, at that time, opted for tax-in pricing
while others did not. The competitive marketplace basically forced businesses to
tax-out pricing, because if they used tax-in pricing and their competitor used
tax-out, tax-in prices looked higher.
Senator Braley: That is the merchant's decision. We still have the
right as the retailer.
Mr. Fruitman: I am not positive, I am sorry.
Senator Murray: Does it depend on the province?
Senator Braley: I have Ontario and British Columbia operations. I do
not know about Alberta.
Senator Murray: I am talking about the authority. In some provinces,
it may be.
Senator Braley: The federal government collects the tax now for both
provincial tax and GST, which is the Harmonized Sales Tax, HST, in the various
provinces, but otherwise federal and provincial governments have two sets of
auditors. In both cases, they are working with whatever decision is made. In
Ontario now, it is 11.5 per cent for the 13 per cent.
Senator Murray: I remember the discussion well. This point is slightly
off subject, but I remember well when we brought in the GST. There was a
discussion within the government as to whether we should insist on the tax being
within or outside the price. I am not sure what the authority of the federal
government is in that respect. Perhaps we could have legislated to have tax-in
I felt then — and I suppose in principle I still feel, since I am a small
"c" conservative — that it is wise and only fair to show what the taxpayer is
paying in taxes. On the other hand, since that time I have been startled by the
number of people, both merchants and consumers, who vastly prefer a system like,
say, with the Value Added Tax in Europe, where VAT is included.
The Chair: They know what the price is when they pick it up.
Senator Murray: Yes, and they do not have to calculate in their own
mind what GST plus PST is.
Senator Braley: Merchants have to show the amount on the invoice, if
there is an invoice, and whether the tax is in the calculation or not, so tax is
Mr. Fruitman: Again, that issue, in part, relates to another
educational problem we have these days with so many people who do not know how
to calculate in their heads anymore. At 15 per cent, they had trouble, and at 13
per cent in Ontario, it is much more difficult. There is that argument but, as I
said, I personally still prefer to see the tax out so that we know how much it
The Chair: I may be able to bring us back on topic with this question,
because I think Senator Murray might have opened it up.
We had a discussion yesterday about consumer protection legislation, and that
involves advertised pricing and a number of things like that. Quebec was the
province that was mentioned.
Are you familiar with consumer pricing legislation in provinces that might
impact on a decision to become involved in rounding up and rounding down, such
as has been discussed here?
Mr. Fruitman: Not specifically; it has been a long time since I have
looked at that perspective. I recall that there was something different in
Quebec, but I am sorry; I do not remember exactly what it is.
The Chair: That is another area for which we hope to have a briefing
note from our researchers, to help us with whether, if the recommendation is to
eliminate the penny, it can be handled without some provincial approval; whether
it can be handled by the federal government solely, on its own.
Mr. Fruitman: That is something that will have to be researched. I
suspect that it can be, but I am sorry; again, I do not know, without going into
the details of the various provincial legislation. Some of this issue goes way
back to the days of the disputes and discussions about bar-coding and showing
prices on product, so it was all wrapped up in that issue.
The Chair: Are there any questions flowing from that?
Senator Callbeck: I have one question. Yesterday the Retail Council of
Canada was here. They say that in considering the elimination of the penny, many
believe that Canada's value-focused shoppers will be receptive to claims that
the elimination of the penny will increase prices. What do you say to that view?
Mr. Fruitman: There is that fear out there, but again it is a
competitive marketplace. Retailers try to make it appear as though their prices
are better than their competitors' prices. There is a psychological factor in
there, long established, of the 99-cent and 98-cent pricing rather than going to
the even dollar; that if it is $5.99, somehow it sounds less expensive to us
than $6. I think that factor will still hold and I do not think that retailers
are likely to use that factor as a mechanism for bumping up all their prices. If
a retailer says that an item that was $5.99 will then be priced at $6, and if a
competitor comes out at $5.99, the price will look a lot cheaper, even if it is
only one penny.
The Chair: Thank you, Mr. Fruitman. That seems to be all our
questions. We appreciate your appearing and helping us out with the consumer
point of view.
Mr. Fruitman: Again; do it.
The Chair: This meeting is now concluded. We meet again next Tuesday
morning. It may well be that we will meet a half hour early if the funeral for
one of our colleagues takes place at 11 a.m.