OTTAWA — Canada’s top credit card companies are warning politicians against meddling in their businesses, saying regulations on fees they charge could wind up hurting consumers.
Citing Australia as a “lesson in unintended consequences,” MasterCard’s Canadian president Betty De Vita said that country’s attempt to regulate fees has backfired.
“The regulation was expected to reduce consumer prices. What happened … however, produced no reduction,” she told a Senate committee Thursday.
“If interchange fees are artificially reduced, banks will be forced to take action to make up the shortfall. In Australia, consumers have seen annual fees and finance charges increase while consumer benefits have decreased.”
Liberal senators, who are proposing a law that would create a body to monitor credit card behaviour, expressed disbelief.
Liberal Senator Pierrette Ringuette said the credit card industry needs to be reined in and a voluntary code, which was introduced by Finance Minister Jim Flaherty earlier this year, is not sufficient.
She estimated credit card companies, banks and other players in the industry are raking in $7 billion a year “too much” in high fees to merchants and exorbitant interest rates charged to late payers.
As in past hearings on the issue, the senators came armed with anecdotes of what they considered gouging.
One senator gave the example of a shopkeeper in Nova Scotia that had seen his fees increase by 45 per cent in a four-month period.
And committee deputy chair Celine Hervieux-Payette brought her own example, saying she had recently been given notice that the interest rate for late payment on her card was being raised to nearly 30 per cent.
She called the rate “fantastic” in an era of historically low interest rates.
“Code of conduct or no code of conduct, it is happening,” she said.
In their submission, De Vita, Visa Canada president Tim Wilson, and Nancy Fung of the Canadian Bankers Association used almost identical words in calling a mandatory policing body “redundant.”
They said the voluntary code, which the major players signed on to this year, and a recently announced task force to study the payments system was capable of achieving what the Senate bill seeks.
The code requires credit card companies to provide clear information regarding fees and rates, and give advance notice of any changes. Merchants can also cancel contracts without penalty should fees rise or new fees be introduced.
But Ringuette said the problem with the code is that it doesn’t prevent companies from raising fees.
She said the Senate bill should be regarded as only the first step, and that the ultimate goal is for governments to cap fees.
She accused the three witnesses of “collusion” for their similar arguments, although she retracted the charge after an objection from Conservative Senator Don Plett.