Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce
Issue 12 - Evidence - May 29, 2014
OTTAWA, Thursday, May 29, 2014
The Standing Senate Committee on Banking, Trade and Commerce, to which
was referred Bill S-202, An Act to amend the Payment Card Networks Act (credit
card acceptance fees), met this day at 10:30 a.m. to give consideration to
Senator Irving Gerstein (Chair) in the chair.
The Chair: Good morning. I call this meeting of the Standing
Senate Committee on Banking, Trade and Commerce to order. Today the
committee is holding an introductory meeting on Bill S-202, An Act to amend
the Payment Card Networks Act (credit card acceptance fees), introduced by
our colleague Senator Ringuette.
I must say, on a personal basis, it is a pleasure for me to welcome you
as a witness for the first time, Senator Ringuette. I have not had the
pleasure of seeing you from this afar. Usually you're just to my left. We're
delighted that you're appearing before us this morning.
This morning's meeting is divided into three parts of 40 minutes each.
During the first part, we will hear from the sponsor of the bill,Senator
Ringuette. In the second part, the committee will hear from federal
officials from the Department of Finance Canada and from the Financial
Consumer Agency of Canada. The final set of witnesses this morning will be
officials from the Competition Bureau of Canada.
With that, Senator Ringuette, the floor is yours.
Hon. Pierrette Ringuette, sponsor of the bill: Thank you Mr.
Chair. As you said earlier, usually I'm sitting on the other side. I hope my
colleagues will continue their very strong questioning of our witnesses,
even though I'm here today.
I have been working on the issue of credit card fees since 2008, with an
early study of the issue that brought forth the code of conduct. Since then,
I have put forth six times the same bill, which is modelled after the
Australian one that dates back now 11 years.
After 11 years and a number of studies, the Australian government deemed
it appropriate to introduce a bill to cap credit card fees at 0.5 per cent
for merchants, 0.3 per cent for governments and 0.0 per cent for charities.
The bill contained a provision requiring the Australian reserve, the
organization responsible for administering the legislation, to review
acceptable rates every three years.
I have obviously kept abreast of the Australian situation, and the review
has been done every three years. Following the first review, the country
further reduced merchant fees. After the next two reviews were done, the
merchant rate was kept at 0.5 per cent, the government rate at 0.3 per cent
and the charity rate at 0.0 per cent.
Since then, numerous things have happened. As I said earlier, the
Minister of Finance introduced a code of conduct. Two major events have
marked the past year: first, Visa raised its already excessive merchant fees
by 30 per cent in April, and second, MasterCard raised its merchant fees by
20 per cent in July. And that month, following nearly 18 months of
discussion, witness testimony and analysis, a complaint was filed.
The Competition Bureau heard a complaint in regard to the contract
between Visa, MasterCard and also Canadian merchants. Their first conclusion
was that although the Competition Bureau had jurisdiction only over products
that were for resale — the credit card is not a product; it is a service —
and even though it was a service, they concluded that they would further
their study because it was a major issue in the Canadian marketplace.
Their second conclusion was that the issue was so important to the
Canadian economy that it was needed to have federal regulation on the issue.
I understand witnesses will be coming forth, and they will be able to
discuss their findings and how that went.
In regard to another fact that happened last July, after two years of
study, the European Commission introduced in the European Parliament a bill
to cap merchant fees, government fees, any fees related to credit cards and
debit cards. The debit card was capped at 0.2 per cent, and the credit card
for merchants was capped at 0.3 per cent.
This is a new event because, if you recall in my few speeches in the
Senate, I had enumerated the different rates for different European
countries. The average was 0.9 per cent. So, after two years of review, the
European Commission fixed that rate at 0.3 per cent. Each of the 28
countries had 22 months to put forth the legislation in their country, but
the interstate rate of 0.3 per cent was applicable immediately.
In Canada, when I introduced the first bill in 2009, Visa and MasterCard
held 82 per cent of the Canadian credit card market, and today they have 94
per cent. I consider the fees in Canada to be excessive. If we compare the
0.5 per cent I am proposing with the current market rate, which exceeds 3
per cent, these excessive rates make up an estimated $7 billion a year.
Canadians charge an estimated $500 billion a year on their credit cards.
It is important to understand that some industries are more affected than
others, like the tourism industry. Most travellers buying plane tickets,
booking hotel rooms and making other such trip arrangements are subject to
fees that are even greater than 3 per cent, when you take into account the
extra fees charged for what credit card companies term ``card not present''
or ``owner not present'' purchases. That means that whenever consumers make
a purchase remotely and do not enter their PIN in person, merchants have to
pay extra fees. It is a fact that Canadians are making more and more
purchases online. So there again, merchants are subject to additional fees,
with credit card companies reaping the profits they generate.
Another very important consideration is not reflected in Bill S-202, as I
pointed out earlier.
All the data from our use of these credit cards and the merchant
transactions, et cetera, all that information resides on the Visa and
MasterCard computers in the U.S. In the last year, there was a major story
with regard to the NSA that has been snooping in the Visa databank in the
U.S. So, if you consider that all of the information with regard to Canadian
transactions also resides on that computer base, I think it should also be a
reason for alarm.
I am going to come back to the bill now. The fees are modelled on those
in the Australian system. But I must tell you that, with the advent of the
European Commission and its various studies, I would be entirely open to
amending the bill and lowering the rate from 0.5 per cent to 0.3 per cent.
That is especially important in light of the fact that we have just signed a
free-trade agreement with the Europeans and a large number of corresponding
systems on both trading sides will need to be brought in line with one
another. As I see it, if Canadians are going to be exposed to competition
and opportunities from the European Union, they should benefit from a
similar situation as far as the costs associated with their purchases are
concerned, not to mention the costs of goods and services. Under the bill,
the Minister of Finance would be required to review, on an as-needed basis,
the rates that would be acceptable in Canada, to set all the related
guidelines and to identify the responsibilities around applying those
interchange fees for merchants.
No doubt, you have questions, and I believe I am well-equipped to answer
The Chair: Thank you very much for your presentation. We do have a
number of questions.
Senator Black: Senator, I want to say to you, before I start my
questions, thank you for your tenacity and for your commitment to something
you so clearly believe strongly in. I would say to you that this is a model
for senators' behaviour. You have chosen an area of interest, and you have
doggedly gone at it. Regardless of what the outcome is, your intentions are
honourable, and I just wanted you to know, right off the top, that I'm very
impressed by the level of commitment you have shown to this.
Senator Ringuette: Thank you.
Senator Ringuette: People always start with the good news first.
So I am waiting for the bad news, Senator Black.
Senator Black: No, not at all. So, senator, if your proposal was
accepted, there clearly will be a financial hit to the credit card
companies. Based on the research that you have done, would it be your
understanding that, in Europe or Australia or other places you may have
looked, those companies increase other fees to consumers?
Senator Ringuette: The studies that I have — and I have numerous
ones — do not indicate that. There are two issues: whether there is an
increase in fees to the consumers from the credit card companies or the
credit card issuers, and whether the reduced rates will benefit consumers at
large. In all of the studies that I have seen — whether the reviews from
Australia or a major study done by the world economic group — indicate the
same scenario. About 50 per cent of the gains from the merchants are passed
on to consumers. With regard to credit card fees, it doesn't show any
increase. Actually, what the study shows is that, when merchants face
reduced fees in accepting credit cards, there will be more merchants
accepting the credit cards and, therefore, more consumer ability to make
What is lost in revenue per transaction for the credit card consortium is
gained with regard to volume because of more merchants providing payments
with credit cards.
Senator Black: Thank you.
In preparing your proposal, senator, can you share with us whether you
have consulted, at any level, with Visa, MasterCard or any other sources to
help inform your conclusions?
Senator Ringuette: I've certainly been watching closely what has
been happening in Australia, New Zealand and Europe. There also has been, in
the U.S, legislation to limit the fees with regard to debit cards. You have
to understand that, in the U.S. — contrary to in Canada where our debit card
issuer is Interac and they are doing a fine job at extremely low costs for
merchants and consumers — you also have Visa and MasterCard issuing debit
cards with excessive fees. It was joint legislation in the U.S. The
Republicans and the Democrats have agreed to put a cap on debit card fees in
Senator Black, I have been doing my homework quite a lot. This is also
very important; 11 years ago, when Australia put the same legislation in
place, Visa and MasterCard did not leave the market. They accepted the
market and, every three years at the review time, they go in front of the
forum and provide, through discretion, their business plan and so forth. For
the last 10 years, the same rates have been accepted.
Last year, when the European Union put their legislation forth, there was
also a declaration by both MasterCard and Visa that they accepted that 0.3
per cent rate. If Visa and MasterCard can accept a 0.3 per cent merchant fee
rate in 28 countries in the EU, why could they not accept that same rate in
Canada? I have received visits from both to my office. They give me their
side of the story, but the facts that I'm stating to you are valid.
Senator Black: Did you say 0.03 per cent in Europe, or 0.3?
Senator Ringuette: It's 0.3 per cent.
Senator Tkachuk: It's not 3 per cent; it's one third of 1 per
Senator Ringuette: Exactly.
The Chair: I'll follow up on Senator Black's question. I believe
he asked you if the reduction of acceptance fees was made up by the increase
in other fees by the banks, and you said your research indicated no. Is
there anything in your research to suggest that with the reduction in
acceptance fees, there was a reduction in retail prices?
Senator Ringuette: Yes. All the research indicates that,
with a 50 per cent reduction in merchant fees, retailers reduced their
prices to consumers by 50 per cent of their gain.
Senator Hervieux-Payette: We talked about Visa and MasterCard, but
we also have American Express in Canada. Would your bill apply to all credit
cards on the market?
Senator Ringuette: Right now, no, but I am not ruling it out. Visa
and MasterCard currently hold 94 per cent of the Canadian market, and they
both operate in the same way when it comes to banks and technology
American Express is unique because it does not need banks to provide its
services to customers. It has its own bank, so it operates within a
different context. I know the merchant and user fees are high. American
Express is not part of my initiative, nor is it covered by the Australian
experience or Europe's new legislation. The reason is that American Express
provides a completely different service from that offered by Visa and
MasterCard in Canada, and that is true of the rest of the world too, for
Senator Hervieux-Payette: We should recognize that even senators
have an American Express card for Senate- related expenses. I mention it
because, for those with a Costco membership, American Express is the only
credit card Costco accepts. So we are talking about a huge company in
Canada. And I would think that Costco had certainly negotiated a lower rate
than what American Express would charge a smaller business. That is my hope.
Generally speaking, what are the debit card fees, both here and in Europe?
Senator Ringuette: In Canada, within the Interac payment network,
fees are charged per transaction and not on the amount of the purchase. The
fee is 3 cents per transaction. That is minimal for merchants. My research
as far as Canada's debit card market and Interac go has shown that the
company offers excellent service at a minimal cost. Seldom have merchants or
consumers complained about Interac fees. At least I have not heard of any
merchants or consumers complaining about Interac fees.
Senator Hervieux-Payette: One or the other, technology-wise, it
does not make much of a difference. If they can live with an Interac charge
of 3 cents per transaction, we could say the same, but with credit cards,
would your percentage be charged per transaction or as a share of the
Senator Ringuette: When it comes to Visa and MasterCard credit
cards, all fees are based on a percentage of the purchase and a percentage
of the sales tax paid by the merchant and the consumer. At the end of the
day, consumers are the ones who are on the hook for the charges; it is a tax
on a tax.
Senator Hervieux-Payette: That means that it would not be a flat
rate for all transactions; it would still be a proportion of the purchase
Senator Ringuette: Yes.
Senator Hervieux-Payette: How many jobs were created by Visa and
MasterCard — how many employees and how many offices — in Canada?
Senator Ringuette: Senator, I will have to get back to you with
that information. The jobs created by Visa and MasterCard in Canada in the
last 10 years, I would have to look that up. Their job creation is probably
greater in the U.S. than it is in Canada.
The Chair: Would you be good enough to forward that to the clerk,
Senator Ringuette: Yes.
Senator Greene: Thank you for doing this. I appreciate it very
My question actually follows the questions asked by Senator
Hervieux-Payette. It strikes me that 0.5 per cent can be a lot of money
depending on the item. I wonder why you decided to go for a percentage
instead of a combination, perhaps, of a flat fee and a percentage, perhaps
at different levels.
Senator Ringuette: The 0.5 per cent of the purchase price struck
me as the right combination when it was done in Australia and their
follow-up study on it. It was reaffirmed also when the EU last year put a
limit of 0.3 per cent. In the U.S., for instance, the Visa and MasterCard
debit card systems are both exactly that. There is a flat rate plus a
percentage of the purchase. The U.S. legislation has put a maximum on the
percentage rate for debit cards there.
Not only are Visa and MasterCard involved in this credit card payment
system, but also all financial institutions that issue credit cards. We have
to acknowledge that your limit, say $5,000, on your credit card to make
purchases is set by your financial institution, not by Visa and MasterCard.
It's a non-guaranteed line of credit, if you look at the product. There is a
certain amount of risk and credit involved in the system.
I honestly agree with the fact that a percentage base, when you look at
all the players involved in the scheme, is a better way to approach the fee
structure. There is also the service provider in respect of the technology.
Senator Greene: On a large item, a percentage can be a lot of
Senator Ringuette: Yes.
Senator Greene: It strikes me that in a sense it's not fair
because the act of using the system is the same, really, no matter how much
the item is worth.
Senator Ringuette: Yes, but as I said, you also have to take into
consideration the line of credit that is supplied. There is a certain risk
Senator Greene: There is a certain risk, yes.
Senator Ringuette: Also, with regard to that, the studies that I
have read indicate that we were used to having, in Canada, credit cards
being used for exactly that, namely, larger purchases so that people did not
carry cash on them and so on. That trend is changing. Five years ago, rarely
would you see at the grocery store people paying with their credit card, but
Visa and MasterCard, on average, put $1 billion in advertising to have
Canadians increase their usage.
Senator Massicotte: Thank you, Senator Ringuette, for your
perseverance on this very noble issue, one that really matters to consumers
Everyone agrees that a problem exists as far as competition is concerned.
The consumer system is structured in such a way that the consumer benefits
from a cost that is indirectly incurred by the merchant. And the entire
world is trying to fix the problem. As evidenced in its 2012 or 2013 budget,
this government has adopted measures in an effort to rectify the situation.
We will hear about them later; the government is proposing other measures to
this end. The Competition Tribunal even acknowledged that there was a
competition problem. There is something wrong with the system.
With your private bill, you are claiming that neither Liberal nor
Conservative governments have done enough, and that the proposed measures,
including the code of conduct, are inadequate. Is that indeed your view?
Senator Ringuette: Yes, that is my view. The code of conduct
established some guidelines for the system, but the core problem involves
merchants, small and large. That includes major chains such as Walmart and
Costco, and even merchant associations. They have absolutely no bargaining
power when it comes to pricing. That is the core problem, and it has to be
In 2010, then Minister of Finance, Mr. Flaherty, introduced a code of
conduct, and it represents a step in the right direction. Just consider
Canada's position as far as credit card fees are concerned, as compared with
that of the European Union's 28 countries and Australia. Right now,
Australia's government is attempting to negotiate, through the trans-Pacific
agreement, which will include Australia and New Zealand. Canadians can do
something about these exorbitant costs, can they not? I am tenacious,
because I see these excessive fees as entirely unfair to Canadian merchants
Senator Massicotte: Why are marketplace rules not working?
Senator Ringuette: Because there are only two major providers.
Over the past ten years, whenever Visa raises its prices, MasterCard follows
suit because they dominate the market. The statistics show that 94 per cent
of credit card transactions made in Canada are through either Visa or
MasterCard. They dominate the market and they know it.
They also know that Canadians are using their credit cards more, not
Senator Massicotte: Your bill refers to ``commissions
interbancaires'' in French. What are they exactly?
Senator Ringuette: Interchange fees.
Senator Massicotte: Eighty per cent of the fees paid by the
merchant do not go to either Visa or MasterCard. Nearly two thirds of those
fees go to the issuing bank, not to Visa or MasterCard. Which fees does the
bill seek to reign in? A single transaction reflects three or four different
types of fees.
Senator Ringuette: The fees we are trying to reign in are those
under the exclusive control of Visa and MasterCard.
Senator Massicotte: Are they the interchange fees or merchant
Senator Ringuette: Merchant fees. They are the ones known as
Senator Massicotte: Or ``interbank''?
Senator Ringuette: No, interchange. Visa and MasterCard set the
interchange fees for merchants and negotiate with Canadian banks the portion
of the fee that they will collect. Visa and MasterCard would have us believe
they are not the ones who set the prices, but we know full well it is them.
Senator Tkachuk: What are the fees charged now by Visa and
MasterCard to retailers?
Senator Ringuette: To retailers?
Senator Tkachuk: Yes.
Senator Ringuette: It differs depending on what type of card you
have and how you purchase. It differs if you have a high premium card. There
is a lower premium card, and there is a no premium card. It also differs
whether you are present when you make the purchase or not.
Senator Tkachuk: Or you buy it off the computer or something?
Senator Ringuette: Exactly, but the average is over 3 per cent.
Senator Tkachuk: The average is over 3 per cent, and that would
apply to both Visa and MasterCard?
Senator Ringuette: Yes. They have a slightly different fee
structure but, at the end of the day, they are pretty similar.
Senator Tkachuk: Could you tell me what the difference is between
the premium card and the no premium card? That is, the best interest or the
best fee versus the worst fee card?
Senator Ringuette: It depends if you are asking for the best fee
for the merchants. Are you asking with regard to merchants?
Senator Tkachuk: Yes.
Senator Ringuette: Okay. The lowest fee is the plain Visa or
MasterCard with no bells and whistles and so on.
Senator Tkachuk: How much is that?
Senator Ringuette: That would be about 1.8 or 1.9 per cent. The
highest premium, the credit card with all the bells and whistles, is roughly
3.1 per cent. Then there is an additional fee if you are not present when
you buy, when you buy via the phone or Internet and so on.
Senator Tkachuk: Are Petro-Canada gas prices cheaper than other
gas companies? Petro-Canada has their own credit card. Do they pass on the
savings of their own credit card to the consumer? They have their own credit
card, and I don't know whether they charge themselves a fee versus another
company that would use a Visa or a MasterCard. Is there any significant
difference in prices? Home Depot has their own credit card, too. Are their
prices cheaper than others, such as Home Hardware or others who use Visa or
Senator Ringuette: These are in-house cards.
Senator Tkachuk: Yes.
Senator Ringuette: You will recall that, for a while, Canadian
Tire had their own card. That is completely in-house. If the credit card
unit of Petro-Canada decides that they will charge an administration fee to
the Petro-Canada concessionaires, that is their in-house thing, but
you have to realize also that it is limited. You cannot use your Petro-
Canada card to buy something at your corner store or grocery store.
Senator Tkachuk: I understand, but part of your argument here is
that consumers will benefit. You mentioned Australia.
I have a study by Chang, Evans and Garcia-Swartz, The Effect of
Regulatory Intervention in Two-Sided Markets: An Assessment of
Interchange-Fee Capping in Australia. They said that another predictable
result is the absence of evidence that consumer prices have fallen in
Australia as a result of lower merchant discounts.
So, in Australia, consumers didn't benefit from the 0.3 per cent. My
assumption would be that, if there were no lower prices, that businesses
benefited maybe by passing that same charge on to the consumer.
Senator Ringuette: Senator Tkachuk, I think that is the study that
was done in Australia and was paid for by MasterCard. Could you verify that,
Senator Tkachuk: I don't know. Would that make it a bad study?
Senator Ringuette: It would be a little biased from my
Senator Tkachuk: For the studies that you are quoting, I think
that we would appreciate —
The Chair: Senator —
Senator Tkachuk: Could I just ask a question?
The Chair: Wrap it up. We have two more.
Senator Tkachuk: For the studies that you were quoting, I would
like it if you could circulate those to members of the committee with the
names of the authors so that we could access them as well.
The Chair: Thank you, Senator Tkachuk. Your statement has been
made. Senator Ringuette, forward that to the clerk.
Senator Ringuette: It would be a pleasure to circulate the
European Commission study.
Senator Bellemare: Congratulations, Senator Ringuette, for being
so tenacious and for raising these questions. I think a good many consumers
and businesses are asking the same questions. As an economist, I have always
been somewhat reluctant when it comes to getting involved in pricing.
Competition is supposed to yield results. A great many interconnected pieces
are also at play. Businesses pass along the costs in other ways when they
are subject to taxes and regulation. I gather that the reason that Visa and
MasterCard will not take other action is the increase in volume.
You also mentioned that other fees are usually not increased. This means
that credit card fees for consumers remain unchanged when fees are reduced
for merchants. My question has to do with credit card interest rates. If
there is no connection between the other fees, can a parallel be established
between a lower return on Visa and MasterCard credit cards and the costs
that affect consumers who have credit, especially through interchange fees?
Is there not a risk of interest rates increasing?
Senator Ringuette: Senator Bellemare, thank you for your question.
Interest rates are set by financial institutions. They are no longer
determined by Visa or MasterCard. Interest rates are usually set based on
the clients' credit history and the type of card they take out. This is a
strange coincidence, since that is an issue of concern for me. I actually
introduced another bill before the Senate — Bill S-210 — which deals
specifically with the current interest rates of 60 per cent. However, there
is no connection between lowered merchant fees and interest rates on credit
cards. Those are two completely different elements.
Senator Bellemare: So there is a wall between them. There is no
opportunity to make gains?
Senator Ringuette: Exactly.
The Chair: Thank you. Our concluding question from Senator
Senator Maltais: Twenty five or thirty years ago, most merchants
accepted credit cards — be it The Bay, Sears, Holt Renfrew, and so on.
Studies even showed that the Sears credit card made more money for the
company than the sale of household appliances and clothing. Those same
merchants decided to transfer that aspect to Visa or MasterCard. Why?
Because they wanted to send their bad credit files to the card-issuing bank.
The merchant was no longer responsible for the credit. We should definitely
not forger that the merchants you are defending today have been just as
cruel as MasterCard and Visa in the past. That said, how do you explain
that, in a city like Edmundston — a charming little city — the chamber of
commerce managed to make those large companies, including Discover, an
American credit card, make concessions? The work done by those people is
amazing. Do you believe MasterCard and Visa would go as far as colluding in
terms of interest rates?
Senator Ringuette: No, I said that their rates were fairly
similar, despite a few differences. In my beautiful little city, where I
began my political career, I was the director of the Edmundston Chamber of
Commerce. The chamber has always supported merchants' efforts. A few years
ago, I introduced my bill at a luncheon, and the Edmundston Chamber of
Commerce supported my initiative. We have to realize that credit card
issuing has changed. You probably remember the time when merchants offered
their clients to put the purchases on their account. On the weekend, the
client would go cash in their paycheque at the store and would pay their
bill then. The transaction market has changed. The reason pan-Canadian
organizations — including the Federation of Independent Business and the
Conseil des commerçants — are addressing excessive fees for their members,
merchants and small Canadian businesses is that they have no bargaining
power with multinationals such as Visa and MasterCard.
Senator Maltais: I will stop you there, senator. I do not agree
with you in that regard. How many people live in Edmundston? Fifty thousand?
Senator Ringuette: No.
Senator Maltais: Not even that many. If a city of less than 50,000
manages to make Discover pay, what good is the chamber of commerce, the
consumers council and other similar organizations? What is their use if the
chamber of commerce of a city like Edmundston was able to make a
multinational American company give in, and none of the organizations that
defend consumers and businesses can negotiate with those credit card
companies? What is the point?
Senator Ringuette: Senator Maltais, if 28 European countries
concluded — following many studies on the phenomenon — that merchants have
no power against Visa and MasterCard, I am wondering why the Canadian
government cannot come to the same conclusion.
The Chair: Senator Ringuette, on behalf of the Banking Committee
and your colleagues, we greatly appreciate the presentation that you made
today, and you can now resume your usual seat.
Senator Ringuette: Thank you.
The Chair: We are now pleased to welcome — and he is becoming a
regular in front of us now — from the Department of Finance Canada, David
Murchison, Director, Financial Sector; and Erin O'Brien, Chief, Financial
Sector Stability - International, Financial Sector Division. From the
Financial Consumer Agency of Canada we have Mr. Kevin Thomas Acting
Director, Compliance and Enforcement Branch.
I will turn the floor over to Mr. Murchison first, who will make an
opening statement, to be followed by Mr. Thomas.
David Murchison, Director, Financial Sector, Department of Finance
Canada: Thank you, Mr. Chair. It's nice to be back before the committee.
I am here today with Erin on my left and Kevin on my right. They've been
introduced, of course.
We have provided you with a handout, a slide presentation which provides
general background on the issue that Senator Ringuette spoke of earlier. In
there, I think you'll find some answers to questions that some of you posed
earlier. While I won't propose to go through that slide deck unless you ask
me to, I will reference it on a couple of occasions as I go through my
In Economic Action Plan 2014, the government announced two initiatives
related to credit cards: one dealing with the cost of credit card acceptance
for merchants and another dealing with market conduct.
On the issue of costs, merchants pay fees each time they accept credit
card payments from consumers. As with any other input cost, merchants pass
some or all of those costs on to consumers in the form of higher retail
prices. Senator Tkachuk, I noticed you asked a question about the Australian
experience and how those costs might be passed on.
In 2013, the Competition Tribunal found that certain of Visa's and
MasterCard's network rules have an adverse effect on competition which
results in higher costs to merchants. I note that a colleague, Richard
Bilodeau from the Competition Bureau, will be speaking before you shortly.
In light of the finding of the Competition Tribunal, the government
announced in Economic Action Plan 2014 that it will work with stakeholders
to promote fair and transparent practices and to help lower credit card
acceptance costs for merchants.
The Department of Finance has been studying the issue of credit card
acceptance fees — especially interchange fees — and has been working with
stakeholders to deepen our understanding and discuss options. Interchange
fees are high in Canada, as shown on slide number 6 of the handout. The
dynamics of the market are complicated. Interchange fees affect merchants,
consumers and financial institutions differently. In principle, any action
to address these fees must consider the impacts on different participants in
For example, a reduction in interchange fees would benefit merchants by
lowering the costs of credit card acceptance, but could have a perceived
negative impact on cardholders who enjoy using the rewards associated with
many credit cards. Many of you will be familiar with the points that you get
when you make purchases with credit cards. Slide 5 in the deck will show you
a pictorial essay of that transaction.
From the standpoint, on the other hand, of financial institutions,
interchange is an important source of revenue from credit cards and
partially covers the cost of credit card services, such as rewards programs
and other services to cardholders, as well as the cost of fraud and credit
losses. As you can expect, given the diversity of interest among
stakeholders, we have heard a wide range of perspectives on what should be
the best course of action to lower credit card acceptance costs for
Market conduct — or business conduct might be a better term — is part of
a second initiative which is to improve the conduct in the marketplace. The
Code of Conduct for the Credit and Debit Card Industry is a voluntary code
that was created in 2010 to promote merchant choice, transparency and
disclosure, and fairness in the credit card market. We have close to 40
entities that are signatories to the code of conduct, ranging from credit
card networks, acquirers, as well as a large group of financial institutions
that issue credit cards. The Financial Consumer Agency of Canada is
responsible to monitor compliance with the code of conduct.
In Economic Action Plan 2014, the government announced that it intends to
strengthen this code of conduct, and over the last few months we have
received feedback from stakeholders in a number of areas for potential
improvements to the code. This includes inclusion of a dispute resolution
process for merchants; enhanced disclosure for key contract terms and fees;
rules governing contract renewal; and requirements on the branding of
premium credit cards.
During our engagement with stakeholders, merchants and merchant
associations, they told us that the creation of code has materially improved
market conduct in the industry. We continue our work with stakeholders to
develop options for further improvements.
This concludes my opening remarks. I would be happy to discuss any
questions you may have.
The Chair: Mr. Thomas is next on behalf the Financial Consumer
Agency of Canada.
Kevin Thomas, Acting Director, Compliance and Enforcement Branch,
Financial Consumer Agency of Canada: Good morning and thank you for
inviting the Financial Consumer Agency of Canada to appear before the
Standing Senate Committee on Banking, Trade and Commerce.
My name is Kevin Thomas, and I am the Acting Director of Compliance and
Enforcement at the agency. It is my pleasure to represent Commissioner Lucy
Tedesco, who is unable to be here and sends her regrets. The agency
appreciates the opportunity to speak in this forum.
The topic of payment card networks and how merchants interact with them
is of particular interest to us. Before I describe our work in this area, I
would like to give a brief overview of our organization.
The federal government created FCAC in 2001 to provide financial
information to consumers and to oversee the market conduct of banks and
other federal financial entities. Since then, our mandate has been expanded
to include responsibility for helping Canadians to improve their financial
In other words, it is our job to help Canadians develop knowledge, skills
and confidence in their ability to make informed financial decisions.
Another specific group we reach out to is merchants and the associations
that represent them. Over the years, we have developed information, tools
and webinars for merchants with two aims in mind: first, to ensure they are
treated fairly in their dealings with the six payment card networks that
operate in Canada; and, second, to ensure they understand their rights and
responsibilities when dealing with these networks. Our website includes a
section devoted to merchants. This one-stop-shopping approach makes it
easier for merchants to find information and tools they can use to make
decisions about their dealings with payment card networks.
Merchants can also use our website to access a copy of the Code of
Conduct for the Credit and Debit Card Industry in Canada.
The primary purpose of the Code of Conduct is to ensure that payment card
networks make proper disclosure to merchants of the fees associated with
accepting credit and debit card payments. The code took effect in 2010
following consultations between the Minister of Finance and representatives
of payment cards, credit card issuers and merchant associations. Today, our
agency is responsible for ensuring compliance with the code. Responsibility
for policy development rests with the Department of Finance. In the event
that we encounter issues during monitoring that arise outside the code, we
report them to the minister for consideration.
However, from time to time our commissioner issues guidance to clarify
the code's provisions. For example, last winter the commissioner published
guidance to clarify references in the code to increased disclosure in sales
and business practices, and cancellation of contracts without penalties.
To close, let me emphasize that our agency supports merchants both in
becoming knowledgeable about rights and responsibility in respect of payment
card networks and in making informed decisions when choosing and using them;
and we will continue to do so.
We will also continue to monitor the compliance of payment card networks
with the code of conduct. And our commissioner will continue to issue
guidance to clarify the code's provisions as required. Thank you for your
attention, and I look forward to answering any questions you may have.
The Chair: We will start with the Deputy Chair of the Committee,
Senator Hervieux-Payette: My first question is: How many people
are working and in what kind of economic activities? These two companies are
bringing to Canada employees on the ground that have earnings and spend
money here. This is important because to permit this exaggerated cost, I
would say, only to send money abroad would be quite annoying.
What is the percentage of those who have cards with all the bells and
whistles? There can be all sorts of benefits if you use certain kinds of
cards, such as flights and so on? Do you have statistics on the number of
people who take the basic card, usually with an interest rate of around 9
per cent, and the number who take the card with bonuses at 21 per cent? Are
you aware that if you pay that bill at your bank on the last day you are
still considered late because the bank has to have at least five days to
deal with it? Of course, not many people know when it says payment is due on
the twenty-first, you have to pay on the sixteenth? Could you explain this
to us? In your model, you talk about those who bring a lot of privileges. I
want to know if it's 20 per cent in that category, 10 per cent or 80 per
Mr. Murchison: I want to make sure I understand the question. I
think there are two questions there. One is: Would we have statistics that
break down the kinds of credit cards in the marketplace, ranging from
premium cards to basic cards? Your second question relates to the timeliness
of payment and recognition of that payment.
I'll ask Ms. O'Brien to answer the first one.
Erin O'Brien, Chief, Financial Sector Stability - International,
Financial Sector Division, Department of Finance Canada: Our figures
show that approximately 10 per cent of cardholders have premium cards. These
are typically cards associated with rewards programs, travel points, et
cetera. Those cardholders represent about 35 per cent of the spend in the
Senator Hervieux-Payette: For me that is good news, for sure.
Don't forget about the statistics on Visa and MasterCard operations in
Canada. I understand we can have the information later, but it is important
that we know. You are dealing with these people on a regular basis, and you
can obtain that information more easily than I can.
Mr. Murchison: We'll do our best to get that. I've emailed my
staff to see if I can get the answer for you. The information we had a few
minutes ago didn't break out the Canadian operation; but we'll see if we can
get that answer for you.
Senator Hervieux-Payette: The other question is about the card
Mr. Murchison: I don't have the specifics for that answer. They
relate to overnight settlement rules.
Ms. O'Brien: The timing of the payment is dictated by rules
governed by the Canadian Payments Association. To provide some guidance to
consumers, it should indicate clearly on the bill when the payment is
required in order for the bill to be considered paid on time.
Senator Hervieux-Payette: Is Mr. Thomas agreeing with that? Is it
clearly indicated that the due date for payment is on the twenty-first? Even
if I show up on the date with cash at the bank or use my Interac card to
pay, I will be declared in default and I would have to pay the 21 per cent
interest rate on the amount of money due?
Mr. Thomas: I would not speak to whether this is always the case.
We found that, if you pay on the last day and you tell your bank this is due
today and I'm paying it today, they will make arrangements to ensure you are
not penalized for any late payments.
Senator Hervieux-Payette: Is it clearly indicated?
Mr. Thomas: On the credit card statements, I believe it is.
Senator Tkachuk: I have a number of questions on credit cards and
costs. Credit card companies are in business and, the last I heard, they are
not a utility. Within the percentage that a retailer pays, they receive some
benefits. I used to be in business. Right now, when you get a Visa, you
deposit it that night. It is cash; right? That's a big deal. In the old
days, before credit cards, you deposited cheques and you weren't sure if it
was cash. There is a high cost to the retailer for NSF cheques, cheques that
were not good or were a problem because a signature was wrong or a wrong
date was put on. Those were costs that the retailer had to absorb at the
time, which they no longer have to absorb.
The customer gets another benefit. I had bought a rental in Florida and
it turned out to be a dud. Visa gave me my money back. That was a big deal.
That was a very big deal. It was a $2,000 deal. I couldn't have done that
without the credit card.
There is a cost to that. There is a cost to the points. That's a
marketing cost. Surely the marketing costs drive business. For a retailer,
it stimulates sales. When they market, there is an off-setting cost in the
sense that I, as a retailer, received a benefit of the marketing being done
by Visa to drive their business, right? There are all these costs. At 0.3
per cent, my question would be how will all those benefits be affected?
Mr. Murchison: You're asking if —
Senator Tkachuk: Why are we regulating something that provides
such benefits to the consumer? I receive a heck of a lot of benefits from
that card that I don't even pay for.
Mr. Murchison: Maybe I could make one clarifying point. The
government, in its budget action plan, has committed to only working with
stakeholders to promote fair and transparent practices and help lower credit
card acceptance. It has not said anything about regulation. I appreciate
that we are here to discuss Senator Ringuette's bill, but there is no
mention in the budget action plan about regulation.
Senator Tkachuk: If the government is concerned, there must be a
reason why they are concerned.
Mr. Murchison: Yes.
Senator Tkachuk: I'm not sure what it is. I'm not sure what the
concern is. Maybe you could explain that a little more clearly than you did
at the beginning, because I'm still not quite sure why this is a big deal.
Mr. Murchison: There are several factors in the budget action
statement and the interest of doing what is been said. The first is that
merchants are complaining, notwithstanding all of the benefits that you just
mentioned, senator. Maybe that was then and this is now. It's a younger
crowd of merchants than it was, and they don't remember. Nonetheless, we
hear from individual merchants, we hear from associations, and there is a
high level of noise about the level of credit card acceptance costs that
they pay. We also hear that it used to be better in olden days.
Senator Tkachuk: Yes, I'm sure.
Mr. Murchison: There was peace in our time, sometime before, and
there isn't now. That's one factor in this.
The other would be on chart 6, which I had pointed to before. You'll see
that Canada and the United States would be outliers in the global payment
system as it relates to credit card acceptance. Those would be two things I
would point you to there.
Senator Massicotte: Thank you again for being with us. As you
know, time flies, but five, six, or seven years ago, this committee studied
the whole issue of credit cards and made a significant report, which the
government partly responded to by adopting the code of ethics and so on. I
must admit that, at that point in time, I fought hard among my colleagues.
The issue for me is that I'm a big believer in the marketplace and
therefore I frown with great suspicion on any intervention or impediment to
the marketplace because there are always serious consequences. The solution
would recommend that we give guidelines and force the openness of the
contracts so merchants can even charge extras and fees. You went partly
I must admit, to give credit to my colleague, if you look at the world
experience, given the way it works, the person getting the benefit does not
pay for the cost of those benefits, and the merchant is squeezed there and
has no say in the fees. Even Walmart, the biggest merchant in the world,
could not negotiate a special deal. That's how powerful the mis- arrangement
or the unhealthy relationship of all of this is.
I'm now a little bit pessimistic. You made some reference, not as much as
we would have liked in the original report, that we can never get there. In
fact, if you look at the world, in Australia the central market made a study
and said maybe no impact. They don't know if there is an impact on retail.
It's not conclusive. Irrespectively, the rest of the world has responded to
increases in fees, so somebody is profiting. I'm a big believer in the
marketplace and, if the fees are less, eventually consumers will benefit,
but it's a slow process.
I'm not so sure your approach will get there. It's more coaching. Walmart
now is negotiating again to see whether they can come to a deal. Even they
can't negotiate a reduction in fees. The one thing that we have to be
cautious about is that the most significant part of the fees does not go to
Visa or MasterCard; it goes to the banks. In the Canadian system, it goes
predominantly to the banks, and there is an oligopoly there and that's where
he problem lies.
Let me challenge you. Why do you think what you're proposing now, given
our little progress, even with what the tribunal said, will make a
difference? Why don't we resign ourselves to what the world is doing and say
there is a real problem and we have to legislate the fees because we're not
going to get there based on the market mechanism, which I strongly favour?
Mr. Murchison: I will repeat myself. I'm working with the
commitment made in the budget text, and that's where we are today. I can't
speak to a world that might be beyond that.
I would say, though, that we have not stopped at code enhancements. There
continue to be a number of improvements that we see can be made in the
marketplace. We continue to see some market abuses on the acquiring side,
and those need to be cleaned up. We do think that further transparency among
consumers, so they are aware of what the costs are for the credit cards, is
helpful. That may all be short of the answer you would like to hear, though,
Senator Massicotte: I don't wish you bad luck but, if I were a
betting man, which maybe I am, I would bet you won't go far enough and you
won't get the results.
Let me jump to the other issue. We made reference in earlier testimony
about the European Commission, the 0.3 per cent issue. To clarify that
issue, I thought the reason that 0.3 per cent stuff in the European
Commission arose is because credit cards charge a 3-per-cent fee in Canada
for most cards. If you use your Visa or MasterCard and go to the U.S. or
Europe, they will charge you a currency switch and they will charge you
another 3 per cent. The shoppers in Canada going for a weekend in the United
States have to add 4 or 5 per cent to the bill when they pay by credit card.
I think that's what they were trying to address, because the European
Commission thought it was not fair to charge foreign exchange fees when they
are in one market. I think that's where the 0.3 per cent comes from and not
the interchange fee. Am I correct in saying that?
Mr. Murchison: Erin can perhaps speak more fully to this, but the
approach in the EU has been to try to provide to the merchant an
indifference test, so that the merchant, in accepting a payment form, will
be indifferent between taking cash, cheque or a credit card. That's been the
thrust of the approach there.
Senator Massicotte: Is that honourable? Is that what we should
also be seeking?
Mr. Murchison: Again, I will go back to the record that I have
before me, so I'll defer from answering that question.
Senator Bellemare: Like my colleagues, I would like to know where
the money will come from if merchant fees are reduced. I talked earlier
about the communicating vessels principle. What would change if merchant
fees were reduced?
In your slides, you say that interchange fees are an important source of
revenue. A portion of credit card revenue is used to pay for rewards or
other cardholder benefits. So my understanding is that reduced merchant fees
would have an impact on rewards and benefits.
Slide 6 contains a comparative chart on an international scale. At first
glance, the Canada and U.S. interchange fees are among the highest. However,
in Canada and the U.S., the difference between interchange fees on credit
cards with benefits and those without benefits is not as large compared with
other countries around the world. In other words, other countries have
interchange fees on credit cards with benefits that are much higher than
fees on cards without benefits.
Would you like to comment on that? Do non-premium credit cards sort of
finance the premiums? Why is the difference between Canadian cards and cards
issued in other countries not that significant?
Mr. Murchison: I think there are two questions there. You had
asked me, first, in the world, where costs to merchants were reduced, how
the distribution of that would be reflected to other stakeholders. I don't
have the full answer to that question, but it would impact consumers, who,
currently, are getting a certain level of benefits.
A consumer will get that benefit indirectly, if you like, through the
merchant, in the course of buying a good. The interchange fee is part of
that. The consumer also, however, for some cards, will pay an annual fee.
Then, in turn, there will be some consumers who are paying fees associated
with not paying their credit card on time and are forced to pay a revolving
credit line through that process. So, consumers would be affected in some
way there. How big that would be, I'm not sure.
The issuer community would also be affected. They would now be getting
lower interchange fees, which, as you note, are part of their income, so
their income will be reflected. Whether they will be able to make that
income up will depend on the degree of that reduction.
Senator Bellemare: What percentage of interchange fees is used to
Mr. Murchison: It varies. Do we have a distribution range we could
Ms. O'Brien: No. I think interchange is an important source of
revenue. It is not the sole source of revenue in terms of credit cards. Part
of that is made up of annual fees or interest rate charges, and so there
isn't a one-to-one proportion between the rate of interchange that's charged
and the rewards, for instance, that are associated with particular products.
The Chair: We will have to conclude and move to Senator Ringuette,
and the final question will come from Senator Maltais.
Senator Ringuette: Thank you. I understand you don't make the
policies; you just try to put them forth.
Mr. Murchison: We make policy, and then some of it's accepted and
some of it's not.
Senator Ringuette: I want to stress to my colleagues that the
table on page 6 dates from July 2013. Therefore, not all of the 28 countries
in the European Union for which the rate will be 0.3 per cent, whether it's
a premium or a standard credit card, are reflected in this table.
Mr. Murchison: The problem there, just to speak to that very
point, if I may, for a second, is that it's an average rate that has been
agreed to in the EU, an average effective rate. These are not reflecting the
average. So we're seeing all the categories here, but the average is the
The Chair: Do you have a question for the panel?
Senator Ringuette: Yes. My first question is: What do you think,
for instance, about Senator Tkachuk's example? When you look at this issue,
are you aware that, when a customer returns an item purchased, the same
merchant interchange fee applies when they return? So they're being charged
twice for the same item with regard to the customer.
Senator Tkachuk: That's not the same. She made reference to me.
It's not the same. What I was talking about was the question of me getting
my money back for a bad item. She's talking about the return of an item that
Mr. Murchison: You're talk being about fraud, I think.
Senator Tkachuk: Exactly. It was fraud. There was no place.
Mr. Murchison: You didn't get the product you paid for.
Senator Tkachuk: I didn't get the product that I bought.
Senator Ringuette: But the merchant is being charged twice.
Mr. Murchison: We are aware of that.
Senator Ringuette: How much time have you spent with regard to
looking at the European Union legislation that will be in force in just
about 10 months? Have you looked at that? Your part of the public service,
Finance, is a major department when you look at all the implications of the
Canada-EU free trade agreement. Have you looked at the impact that this will
have on having an equal playing field or a fair playing field for Canadian
merchants and Canadian consumers, in comparison to their new competition in
Mr. Murchison: On the first question, we follow the global
developments — in the EU, Australia, New Zealand — reasonably closely. We
try to stay on top of those issues. I think the EU experience is a response
to an anti-trust case there, so I don't believe it's legislative.
Senator Ringuette: No, it's legislation.
Ms. O'Brien: I understand that there currently is draft
legislation or a proposal that is being considered in the EU.
Senator Ringuette: I'm sorry?
Ms. O'Brien: There is a legislative proposal being considered in
Senator Ringuette: It was tabled last July.
Ms. O'Brien: Yes, and it is currently going through the
legislative process and has not yet been accepted.
Senator Ringuette: No, the 28 countries had 22 months to enforce.
The Chair: Our final question of this session is from Senator
Senator Maltais: Mr. Murchison, you said something interesting
that struck me. We are talking about services. A credit card is a service
people can choose to buy or not. Your document states that there are 90
million credit cards in Canada. On average, that works out to three credit
cards per Canadian, including infants and elderly people who can no longer
For the majority, the privilege of using credit cards costs $100, $125 or
$150 a year. Why would merchants not have a fixed cost for the use of a
credit card? Let us use the hypothetical example of Mr. X who conducts
$200,000 in business with MasterCard. The card company tells him that it
will cost him $2,500 a year to use its banner. Would that be a possibility?
Mr. Murchison: You would have to ask the networks that question. I
think it is possible, but whether they would choose to do that for their
business would be a question for them.
If we look at the evolution in this marketplace, we have gone from
networks that were basically utilities, if you like, to profit-seeking
enterprises when they went into IPOs, at which point relatively simple
structures went to quite complicated and deep. You heard from Senator
Ringuette that there are a whole variety of sectors and different payment
provisions, depending on who you are, what you are buying, and so on.
Senator Maltais: MasterCard and Visa will certainly not lose any
money with the merchant. The merchant will increase the prices of their
products in order to avoid losing money. Consumers ultimately pay the price.
They are the ones we should protect.
Mr. Murchison: Yes.
The Chair: On behalf of the members of the committee, thank you
for appearing before us. This concludes our second session.
In our final session today, the committee will hear from representatives
of the Competition Bureau of Canada. I am pleased to welcome Mr. Richard
Bilodeau, Assistant Deputy Commissioner, Civil Matters Branch Division B,
who is accompanied by Ms. Nadia Brault, Senior Officer, Civil Matters Branch
I turn the floor over to Mr. Bilodeau for his opening statement.
Richard Bilodeau, Assistant Deputy Commissioner, Civil Matters Branch
Division B, Competition Bureau: Good morning. My name is Richard
Bilodeau and I am an assistant deputy commissioner in the Civil Matters
Branch at the Competition Bureau. I am accompanied today by Senior
Competition Law Officer Nadia Brault, also from the bureau's Civil Matters
Thank you for inviting us to appear today as you study Bill S-202, An Act
to amend the Payment Card Networks Act (credit card acceptance fees). It is
a pleasure to be back before this committee.
While the bill does not directly relate to the scope and mandate of the
Competition Act, the bureau is closely following developments in this area.
The Competition Bureau, as an independent law enforcement agency, ensures
that Canadian consumers and businesses prosper in a competitive and
Headed by the Commissioner of Competition, the bureau is responsible for
the administration and enforcement of the Competition Act and three
The Competition Act provides the commissioner with the authority to
investigate anti-competitive behaviour. The act contains both civil and
criminal provisions, and covers conduct such as bid-rigging, false or
misleading representations, price-fixing or the abusing of a dominant market
position, among other things. The act also allows the commissioner to make
representations regarding competition before regulatory boards, commissions
or other tribunals. As an advocate for competition, the commissioner may
also perform market studies designed to improve the understanding of the
effects of competition on the economy.
The Competition Act applies, with very limited exceptions, to all sectors
of the Canadian economy, including the financial services sector.
The bureau has been active in the financial services sector over the last
few years. I would like to give a brief description of some recent matters
relating to both the debit and credit payment markets. First, I would like
to briefly touch on the debit card market — specifically the Interac payment
In 2009, Interac requested that the Commissioner of Competition agree to
vary a 1996 consent order to allow Interact to restructure from a
not-for-profit association to a for-profit model. Based on the information
available at that time, the bureau announced in February 2010 that it did
not support changing or removing the consent order safeguards that
effectively protected consumers from the potential anti-competitive activity
subject to the consent order.
That said, in 2013, Interac requested that the 1996 consent order be
amended to allow it to restructure from an unincorporated association to a
corporation with an independent board. Following a comprehensive analysis of
the rapidly evolving payments industry, the bureau consented to the request.
The restructuring would permit Interac to operate the services currently
offered by the association under a cost-recovery model, enabling it to fund
research and development in new and innovative payment services. This
structure would provide Interac with greater flexibility to compete in the
evolving marketplace, while retaining appropriate safeguards against
I would also like to speak about the bureau's work in the area of credit
cards. As this committee knows, in December 2010 the bureau filed an
application with the Competition Tribunal to strike down restrictive and
anti- competitive rules that Visa and MasterCard impose on merchants who
accept their credit cards.
Credit card acceptance fees paid by Canadian merchants are among the
highest in the world, estimated at $5 billion per year. To protect these
hidden credit card fees paid by Canadian merchants, Visa and MasterCard have
imposed on merchants a number of rules that harm competition.
The rules challenged by the bureau prohibit merchants from encouraging
consumers to consider lower cost payment options such as cash or debit, and
prohibit merchants from applying a surcharge to a purchase on a high-cost
credit card. Further, for a merchant to accept any of Visa or MasterCard's
credit cards, that merchant must also agree to accept all credit cards
offered by those companies, including the premium cards that impose
significant costs on merchants.
These restraints on merchants result in higher prices for all consumers
because merchants pass along costs they take on as a result of Visa and
MasterCard's anti-competitive rules. Although the tribunal issued a decision
in July 2013 that dismissed the bureau's application, it found that Visa and
MasterCard's conduct did have an adverse effect on competition.
The Tribunal's decision also recognized that the Commissioner of
Competition advanced a case that should have been brought before the
Tribunal. At the same time, the Tribunal felt that regulation of the
industry would provide a more appropriate solution than any remedy it could
issue under the Competition Act.
Following a careful review of the Tribunal's decision, the bureau decided
not to appeal but to focus its efforts on identifying alternate means of
addressing the competition issues in the supply of credit card services in
The bureau maintains that without changes to Visa and MasterCard rules,
merchants will continue to pay excessively high card acceptance fees. These
fees will continue to be passed along to consumers in the form of higher
prices for goods and services. As such, the bureau will work with the
federal government and relevant stakeholders to advocate for changes in the
credit card market and has been monitoring recent developments in this area.
For example, we note that the government cited the Tribunal's findings in
the Visa and MasterCard case in the Economic Action Plan 2014 and indicated
that it would strengthen the Code of Conduct for the credit and debit card
industry in Canada to further improve business practices. The bureau
welcomes and supports measures that increase transparency and flexibility
for Canadian merchants and consumers.
In conclusion, the bureau understands the importance of competition in
this very complex market to all Canadians, including consumers and
retailers. I would like to note that while we recognize that high prices are
an important concern for Canadian consumers, the bureau does not have the
authority under the Competition Act to regulate the daily operations of
markets or the level of prices in any particular industry, including the
pricing of financial services in Canada.
However, the bureau does have the authority to act when we believe
anticompetitive conduct has harmed competition. That is what we did when we
filed an application against Visa and MasterCard. Ultimately the Tribunal
did not grant an order eliminating Visa and MasterCard's restrictive rules,
but it did recognize that those rules had an upward effect on pricing for
credit card transactions.
Thank you again for inviting us today. I would be happy to answer your
Senator Massicotte: Thank you for being here today. If I were to
summarize that in my words, the Competition Board did conclude that the
arrangement with the credit card companies is anticompetitive and it caused
a monopoly structure to impose their fees. You concluded that. Is that an
Mr. Bilodeau: The Commissioner of Competition filed its case
before the Competition Tribunal; it is a quasi-judicial body.
Senator Massicotte: That was the bureau's conclusion?
Mr. Bilodeau: Yes, that was the bureau's conclusion.
Senator Massicotte: The Tribunal said, ``We don't disagree with
your conclusion, but this is more of a policy decision as opposed to a
regulation decision.'' They said they would not award you what you are
seeking. They are basically throwing the ball to the government and saying,
``Government, this is more of a macro issue; you should consider this, and
this is more your decision-making level.'' Is that a good summary?
Mr. Bilodeau: Yes. I would add to that that at the outset the
Tribunal found that section 76, which is the section of the act that we used
to bring our application to the Competition Tribunal, they found that in
order for section 76 to apply, the resale of a product had to be present. In
this case, we had not shown that Visa or MasterCard's credit card network
services were being resold. For that reason, the Tribunal at the outset said
that the elements of section 76 are not met and the Commissioner does not
win its case.
Senator Massicotte: What do you mean, ``resold''?
Mr. Bilodeau: Section 76 is the price maintenance provision of the
act, and it deals with situations where a manufacturer says to a distributor
or a retailer that you cannot sell my product for less than $10 to your
customers. For section 76 of the act to apply, there has to be the resale of
a product. If I manufacture pens and I am selling them to a retailer who
will resell them to you, that is being resold. They found in this case the
network services were not being resold; so it didn't meet that legal test of
The Tribunal went further. They did complete their entire analysis of
section 76 and ultimately found, as you properly described, that they had
market power and that they had engaged in practices that influenced upward
prices and they have had adverse effects. Ultimately, even if we had been
entirely successful, they still would not have, as you described, issued an
order because they felt that regulation was the more appropriate one.
Senator Massicotte: Because of section 76? You must meet that
Mr. Bilodeau: Yes.
Senator Massicotte: In our society, not frequently, but there are
many other relations whereby the party receiving the benefit is not the
party who pays directly for the services. There is not a direct resale of
the product. Where there's a tri-party relationship, and you have got that
Does that mean that the current legislation will not allow the
competition board to get involved in those issues also, because it will not
meet that specific test?
Mr. Bilodeau: There is a long history to the price maintenance
provision. I will not go back in time because we would be here a long time,
but it has traditionally been used in situations where companies are
indicating to one of its suppliers or customers how much to resell the
product for. That used to be a criminal statute; now it is a civil statute
that has what we refer to as a ``competition test.'' That practice may
happen, but, if it does not harm competition, then we will not be concerned
Senator Massicotte: Does the current legislation, relative to the
administration of the Competition Bureau, does it not provide to do
something where you can determine there is market power, there is an effect
on retail prices, and there's lack of competition? You don't have the power
to do something in that case, if you don't satisfy section 76?
Mr. Bilodeau: Section 76 is just one of the provisions available
to us in the Competition Act. In that situation, if we are challenging
conduct under section 76, then, yes, we have to show there is a resale of a
product. A lot of different practices can be examined under other sections
of the act.
Senator Massicotte: Why did you not do so in this case?
Mr. Bilodeau: When we look at the facts of this case, and we look
at the provisions that are available to us in the Competition Act, we felt
that this was the provision of our act that most applied to the situation
and was the most appropriate to use before the Competition Tribunal.
Senator Massicotte: I guess you screwed up.
Mr. Bilodeau: I would disagree.
Senator Bellemare: Mr. Bilodeau, I would like you to expand on the
arguments you presented before the tribunal.
In your presentation, you said the following, and I quote:
The rules challenged by the Bureau prohibit merchants from
encouraging consumers to consider lower cost payment options like cash
or debit, and prohibit merchants from applying a surcharge to a purchase
on a high cost card.
What does that mean in plain language?
Mr. Bilodeau: One of the rules Visa and MasterCard imposed is that
a merchant cannot apply a surcharge when a consumer pays with their credit
If I want to use my credit card in a store to pay for my purchases, the
merchant cannot say that, since I am using a high cost card, my purchase
will cost me an additional 2 per cent or 3 per cent. The merchant cannot do
that nowadays, since Visa and MasterCard created rules that prevent such
The argument we presented to the tribunal was that, if I went to a store
with my high cost credit card and was told that a surcharge of 3 per cent
would apply, I would obviously prefer not to have to pay that extra 3 per
cent. Depending on what I had in my wallet, I could pay with cash — which
probably costs the merchant less — or with my debit card. As Senator
Ringuette mentioned, Interac fees are about 3 cents per transaction. The
merchant would appreciate that more. At that point, I would decide what
payment method to use.
I was being told that, if the merchant had the possibility, they could
steer consumers toward lower-cost payment options. That is what we have seen
in other jurisdictions. Australia has been mentioned, and the tribunal
refers to that jurisdiction in its decision.
Senator Bellemare: In other words, allowing the merchant that
freedom would help implement somewhat sounder competition rules. Since
certain credit cards cost more and others less, such an approach would be
conducive to a more transparent competition system.
In fact, those who use cash to pay are currently financing those who use
Mr. Bilodeau: That is a good point. This is indeed what is
happening. When we go to a store and pay with a credit card that costs 2.65
per cent — which is one of the MasterCard rates — or use our debit card,
which may cost 3 cents, as consumers, we are paying the same price, and the
merchant makes more or less money, depending on the card.
Senator Ringuette: First, I have an observation. I followed very
closely the event and the case that you had in front of the Tribunal. I was
impressed. Since then, at our office, we are looking at an item that perhaps
might modernize section 76 with regard to your authority over the price of
services into the marketplace.
All that being said, the Competition Bureau has acted diligently, but at
the end of the day, as you state here, the Tribunal's decision also
recognizes that the Commissioner of Competition advanced a case that should
have been brought before the Tribunal. That is why, even though they have
looked at the importance of this issue in the Canadian marketplace and the
Canadian economy, the Tribunal still went ahead and studied the issue, and
it came up with the conclusion that this issue had to be brought under
regulation by the government. I think it was a big victory for all the
efforts and the energy that you put in to try to have fairness in the
I guess the next step is in front of us with my bill. Of course, as with
any witness, we would welcome any kind of recommendation with regard to the
bill. If there are some weaknesses in it, in order to address this issue, I
and, I am sure, all of my colleagues would welcome your input, considering
all of the experience that you have with regard to this issue.
Mr. Bilodeau, how can we increase the effectiveness of Bill S-202 with
regard to all the experience that you have had with this issue?
Mr. Bilodeau: As you may appreciate, we are not in a position to
provide comments on legislation. Our mandate at the Competition Bureau is to
enforce the Competition Act and the provisions that are given to us by
Parliament. We have done a lot work in this area; you are correct. A lot of
the work that we have done is reflected in the Competition Tribunal's
If you are interested in reading more material, the Competition
Tribunal's website has available for access all of the public versions of
the testimony from experts and expert reports. There is a lot of information
Senator Ringuette: Yes; I have all of it.
Mr. Bilodeau: A lot of the positions and the knowledge that we
have has been before the Tribunal and is publicly available. I draw your
attention to that.
Senator Tkachuk: Regarding the behaviour of Visa and MasterCard as
far as prevention, is there language in the contract that we could have a
copy of that they use to prevent the retailer from advertising other methods
of payment in their own place? Do you have that? Could it be made available
Mr. Bilodeau: Visa and MasterCard have very lengthy rules that
apply to their networks. I think they run in the thousands of pages. Yes,
the rules governing no-surcharging and honouring all card rules are
explicitly in those rules.
I am not sure if the bureau is able to provide you with a copy of those
rules, because a lot of the information that we have was collected during an
investigation and it is protected by confidentiality provisions, but we can
check to see if we have those available. It might be better to ask that
question of the networks themselves.
Senator Tkachuk: Do they actually go to the retailer and say,
``You can't advertise another method of payment''? In other words, ``I can't
give you a discount if you pay cash,'' or ``I can't give you a discount if
you write a cheque,'' or some other method of payment?
Mr. Bilodeau: To be clear, what I am referring to is the
no-surcharging provision specifically, which says you cannot add a cost to
accept a credit card. When it comes to discounting, the code of conduct put
in place by the Minister of Finance clearly states that you are allowed to
offer discounts for cash payments.
Senator Tkachuk: You are?
Mr. Bilodeau: You are allowed to offer discounts.
Senator Tkachuk: In other words, you can't surcharge. You cannot
pass on the price, right?
Mr. Bilodeau: That is right.
Senator Tkachuk: The taxi that I take from the airport here
charges me $1.50 if I use my credit card. How do they do that?
Mr. Bilodeau: I was asked that by Senator Ringuette the last time
I was here. It is a bylaw from the City of Ottawa that allows taxi companies
to charge $1.50 when you use your credit card or your debit card, and
because it is a city bylaw, it is permissible.
Senator Tkachuk: Is that right? So any city can do it? Don't tell
them. They will take all the money themselves.
The Chair: To our panel, thank you very much for appearing before
us. You have been very helpful.
To our sponsor, we again express our appreciation for bringing this
forward. We will be discussing it further.