Canada needs controls on credit card interest rates, says Senator Pierrette Ringuette of New Brunswick.
"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 Wednesday after hearing testimony from bank and business groups at Senate hearings on credit and debit cards.
Ringuette, who has been pushing for a Senate inquiry into the cards, demanded that representatives from the Canadian Bankers Association explain why credit card rates are so high, compared with the Bank of Canada's rates.
"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.
CBA president Nancy Hughes Anthony said she will give the committee a written explanation on why interest rates remain high.
One reason is the delinquency rate, said CBA vice-president Terry Campbell. It has risen to about 4.5 per cent from about one per cent because of the recession.
"This is unsecured credit the customer can choose to activate 24/7 anywhere in the world, where there is no interest on that for a time and there could be no interest forever," he said.
Hughes Anthony said 70 per cent of Canadians pay no interest on their credit cards because they pay off the monthly balance before it's due.
Debit card worries
Catherine Swift, CEO of the Canadian Federation of Independent Business, warned the committee about what the small business group sees as a looming competitive problem.
Credit card companies shouldn't be allowed into the debit card business, she said.
The CFIB website said that would shift debit card transaction costs from a flat rate to a percentage of the sales value, and fees would go up "dramatically."
Swift said small businesses in the U.S. have warned that allowing the change will increase user fees.
"Their advice is, don't do it, don't let [credit card issuers] Visa and MasterCard into your debit business. And that, I thought, that was pretty stark," she said.
Credit card companies have said allowing them into the debit card business will boost competition and give consumers more choice.
Swift also told the senators that Canadian merchants faced increases last summer of up to 30 per cent in the fees they pay for accepting credit cards, and were given no explanation.
The CFIB website calls this "a huge cash grab."
MasterCard Canada, which has been the most vocal of the card companies in defending the business, released another report Wednesday saying that regulating fees that merchants pay would hurt small business.
Raymond J. Keating, chief economist of the U.S. Small Business & Entrepreneurship Council, said in the report that small business owners who use cards as a financing tool will "get squeezed on several ends — higher costs to use their card for business purchases, fewer services and less innovation from issuers, and lower sales due to a decreased number of cards in use by consumers."
Rate controls panned
The report said "the interests pressing for government price controls in interchange do not want a 'free-market solution' on interchange," the fees that card companies charge merchants.
"They instead want government to overrule the market to impose their desires."
However, Canadian card users have complained that the market is not free, and the federal Competition Bureau is looking into whether the card companies have breached the Competition Act and abused their dominant position in the industry.
The CFIB's Swift wrote to the competition commissioner last fall, asking for such an investigation.
"Effectively, Visa and MasterCard enjoy a duopoly for all practical purposes," she said.
"There is still, obviously, inadequate competition between these two duopolists. This, then, reflects a weakness in the statutory framework itself."
The MasterCard report also highlights the benefits that credit cards bring to small business.