Canada will regulate credit card companies: Flaherty
Finance Minister Jim Flaherty says the Canadian government is working on regulating credit card companies, whose interest rates remain high despite aggressive rate reductions by the Bank of Canada.
The finance minister, speaking to reporters on Wednesday in Ottawa, did not say what he had in mind in terms of regulation, nor was it clear whether the government plans to limit interest charges.
"There are number of issues we can address with respect to credit cards," Flaherty said. "So we have regulatory power and we're working on certain regulations, which I'll be able to speak about publicly soon."
He didn't respond to a question about interest rates.
Benefits to consumers in 2009 budget
In the January budget, the government said it would move to limit "business practices that are not beneficial to consumers," adding that one measure would be to require an interest-free period on new purchases.
The minister's comments came as the heads of Visa Canada and MasterCard Canada, the country's dominant credit card companies, appeared before the Senate banking committee to argue against regulation.
They also asked for further powers to enter the debit-card market, which withdraws funds directly from a consumer's accounts — a business that is dominated by Canada's chartered banks.
MasterCard Canada president Kevin Stanton said regulation of credit card companies would be a mistake that would damage consumers.
"Canada's current regulatory framework safeguards the interests of all participants, and direct regulatory price controls will suppress innovation, reduce competition and harm consumers," he told the committee Wednesday afternoon.
Delinquency has risen
Credit card companies set so-called interchange rates, which indirectly help determine how much merchants must pay for their bank or other service supplier to process credit card transactions.
The more visible and controversial interest rates charged to card users on unpaid balances are set by the chartered banks and other companies that issue the cards.
Last month, a spokesman for the Canadian Bankers Association said one reason rates are high is that delinquency has risen from about one per cent to 4.5 per cent as a result of the recession, noting that 70 per cent of users pay no interest because they pay on time.
Stanton said MasterCard sets the interchange fee in order to maximize card use, saying Canada's rates are lower than many industrialized countries, including the United States. And he argued that legislation in Australia to limit interchange rates has not resulted in lower prices for consumers, a response that was greeted with skepticism by Liberal senator Pierrette Ringuette.
Stanton said that allowing the credit card companies to enter the debit market would increase competition and give consumers greater benefits, including use around the world.