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Be wary of letting credit card firms into debit business, committee toldCatherine Swift of the Canadian Federation of Independent Business told a Senate committee that she has been given advice from her U.S. counterparts about allowing Visa and MasterCard in the debit market, currently run by the banks. "Their advice is don't do it, don't let Visa and MasterCard into your debit business, and that I thought that was pretty stark," she said. Swift said the U.S. experience is that fees to users are higher than Canada's rate, which is a set fee per transaction. Credit card companies argue Canada is one of the few countries where they are excluded from the Interac system, adding their participation is good for competition and will offer consumers greater choice. But the argument received short shrift from New Brunswick Senator Pierrette Ringuette, who led the call for parliamentary hearings into one of Canada's most murky and complex businesses. Many countries regulate credit cards transactions, and after hearing from Swift and the Canadian Bankers Association on Wednesday evening, Ringuette said she was convinced controls are needed in Canada. "I'm convinced there are abuses in the system and I'm convinced we need to legislate fairness for both the business community and consumers," she said. She said she was "frustrated" that the bankers association could not explain why interest rates to consumers approach 20 per cent on many cards, when the Bank of Canada trendsetting rate is at a record 0.5 per cent low. "When the (bank) interest rate in the '80s was in the vicinity of 16 per cent, the credit card interest rate was at 21 and 22. Now the bank rate is at 0.5 and they are 19.9. There is no rhyme or reason except greed," she said. Swift said she also was confused about how interest rates are set and has had difficulty obtaining an explanation for her 105,000 members. She said Canadian merchants were hit with increases of 25 per cent and 30 per cent on the fees they are charged for accepting credit cards last summer and were given no explanation. Merchants pay about two per cent on the value of their sales for the right to accept payment through credit cards, but fees can go as high as four or five per cent. As for rates on consumers, she said Canadians need to get angry. "I don't understand it," she said. "We should be madder about this stuff and we're not. It's pretty unacceptable behaviour to not have those rates coming down." The Canadian Bankers Association, representing the banks that issue credit cards and set interest rates, said one explanation is that delinquency has risen from about one per cent to 4.5 per cent as a result of the recession. "This is unsecured credit the customer can choose to active 24/7 anywhere in the world, where there is no interest on that for a time and there could be no interest forever," said Terry Campbell, the association's vice president of policy. CBA president Nancy Hughes Anthony points out 70 per cent of Canadians don't pay interest because they regularly pay their card balance each month. She told the committee she would provide a written explanation why interest rates on many cards remain high. But she bristled at the suggestion that banks are using profits to buy up foreign competitors, an idea that was advanced by Prime Minister Stephen Harper. "The banks to my knowledge are not on a shopping spree," she said. "We have seen erosion on the balance sheet. The recession has started to bite Canada's banks, they are not immune from it." |
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