FINA Committee Meeting

STANDING COMMITTEE ON FINANCE

COMITÉ PERMANENT DES FINANCES

EVIDENCE

[Recorded by Electronic Apparatus]

Thursday, March 1, 2001

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[English]

The Chair (Mr. Maurizio Bevilacqua (Vaughan—King—Aurora, Lib.)): I would like to call the meeting to order and welcome everyone here. As everyone knows, the order of the day is Bill C-8, an act to establish the Financial Consumer Agency of Canada and to amend certain acts in relation to financial institutions.

We have witnesses here from the Interac Association: Ms. Judith Wolfson, president and chief executive officer; Marc-André Lacombe, corporate secretary and legal counsel; and Kirkland Morris, policy development. Welcome. You've appeared before this committee before, I gather, so you know how it works. Since we have two hours, I will give you seven minutes to make your presentation, and then we'll engage in a question and answer session. Welcome.

Ms. Judith Wolfson (President and Chief Executive Officer, Interac Association): Thank you, Mr. Chairman. We do appreciate having the opportunity to appear before you, Mr. Chairman and honourable members.

My name is Judith Wolfson, and I am the president and CEO of Interac Association. On behalf of the association, I thank you for allowing us to appear today to offer our views on what is now Bill C-8. In the fall we did appear before this committee to express our general support for what was then Bill C-38 and to discuss some very particular concerns with one small section of the legislation, which is now clause 244 of Bill C-8, dealing with the oversight of private payment systems.

Bill C-8 will establish a new regulatory framework for Canada's private payment systems, Interac Association, Visa, MasterCard, Mondex, and others. Under the new framework, the Minister of Finance, if he believes that it is in the public interest, will have the power to designate and directly oversee the operation of any payment system that operates on a national or substantially national basis. We fully support the government's stated goals of promoting efficiency and competition, ensuring safety and soundness, and protecting the interest of consumers.

It is our belief, however, that in aiming to achieve these objectives, clause 244 does not reflect an appropriate balance between benefits and costs. Last fall we sought the committee's support for amendments to, first, tighten the scope of the new oversight framework so that it focuses only on issues of consumer protection and avoids overlap with existing regulatory processes governing payment systems, those in the Competition Act and the Payment Clearing and Settlement Act. The second aim was to increase transparency and provide needed checks and balances in the exercise of the powers created under the new framework.

In the time since our last appearance we have had the opportunity to continue our dialogue with the government on these issues. What we have heard is that with respect to the first issue, that of narrowing scope, the government wishes to maintain a high degree of flexibility in the regulatory framework. This is in light of the general uncertainty about the future direction of the financial sector and an inability to know today what tomorrow's issues might be. While we believe this will result in regulatory duplication, we understand the government's position in this regard. However, we believe the impact of this duplication can be minimized by ensuring that the new framework contains clear processes for consultation and an effective set of checks and balances. This brings us to our second point about ensuring an appropriate process and transparency.

We have some minor, yet very important, suggestions for fine-tuning clause 244, which we believe will allow the government to accomplish its goal of protecting the public interest, while providing payment systems with the predictability and transparency they need to effectively manage their business. It is these process changes for which we have heard continued support from many sides of the debate, and today we're seeking the committee's support for these amendments.

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Interac Association, as you know, is a unique Canadian success story. As a private not-for-profit association, the now 90-plus members cooperate to build a network that allows Canadians to access their funds at any time and just about anywhere they happen to be.

As a result, Canadians enjoy a standard of banking convenience that is matched in very few countries in the world. We are concerned that an overly intrusive and uncertain new regulatory framework for Interac Association and others like us could jeopardize this highly effective system. In this regard, let me be specific. There are two primary concerns with clause 244.

First, the bill gives the Minister of Finance the power to designate individual payment systems to fall under direct supervision of the government. For these designated systems, we believe the oversight measures proposed are more intrusive than they are necessary to protect the public interests, potentially involving the minister in day-to-day decision making.

For example, if the minister chose to designate Interac Association under the new powers, all of the technical rules and regulations we develop on a day-to-day basis in managing our business would have to be reviewed by the minister. Ours is a very complex and rapidly evolving business. Involvement of the minister in day-to-day rule making would create significant costs for the industry, and indeed for the government, without a clear benefit to the broader public interest.

Second, the proposed framework falls short in providing appropriate checks and balances. Bill C-8 establishes virtually no rules, conditions, or processes for designating a private payment system. There are no defined triggers for designation. There are no timelines established. Perhaps most importantly, there is no provision that gives the payment system the opportunity to fix a problem prior to being designated. The bill simply does not establish a clear and transparent framework for oversight.

To remedy these concerns, we are proposing some very simple process amendments to Bill C-8, which we believe will strike the right balance between maintaining the government's ability to protect the public interest and the industry's need for regulatory certainty and clarity.

First and foremost, Bill C-8 should contain a simple, well defined, transparent process for designation, should the minister feel it is necessary. There should be three simple steps. One, the minister should articulate a specific public interest concern with a payment system and notify the system, in writing, of that concern. Two, the system should be consulted and given an opportunity to address the minister's concern within a reasonable period of time. And three, if the system fails to adequately address the minister's concern, the government should have the power to designate through an Order in Council. This would maintain fully the government's ability to protect the public interest. It would simply make designation a last resort, rather than a first step in solving a problem. It would also ensure the designation process is transparent and fair.

Second, if and when a system is designated, the Governor in Council, on recommendation from the minister, should have the power to issue directives to correct the problems identified. The government does not need to review each and every rule and regulation of a designated system.

Let me give you an example—and this is an absolutely regular day-to-day example. We have on our books rules that deal with how the Interac trademark can be used and displayed, the format of transaction messages that flow through the network, and the colour of the OK button on the PIN pad. Those are our rules and our regulations. Surely these are not issues in which the government has a keen interest or that will have an impact on the public interest at large. Requiring the minister to review all of these day-to-day rules and regulations would create a huge amount of work on both sides. It would be costly, slow, and bureaucratic.

In summary, we support the government's goals of promoting efficiency and competition, ensuring safety and soundness, and protecting consumers. We are keen to work with the government to ensure Canadians are well served by Interac services, now and in the future. The changes we are proposing to clause 244 are fine tuning. They do not alter the government's intention. They do not limit the government's ability to protect the public interest. They simply put in place some due process and transparency that would ensure the public interest is protected in an efficient, cost-effective manner that continues to provide flexibility and promote innovation in a rapidly evolving industry.

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Mr. Chairman, we have provided to you specific language for these recommended changes, and we would be happy to provide that to the committee, if that would be helpful, and we thank you for your time today.

The Chair: Thank you. Actually, I would appreciate if those proposed changes could be tabled with the committee also for our records.

We'll now move to the question and answer session. We'll begin with Mr. Epp, a ten-minute round.

Mr. Ken Epp (Elk Island, Canadian Alliance): Thank you very much, Mr. Chairman.

I appreciate your coming here again and again and again. Eventually we'll probably get this legislation through. On that topic, I get the impression that the government is now ready to move on this, and probably there will be some movement on this, and maybe you can come to see us for some reason other than this particular legislation.

I'd like to commend you for your insight into the role of the government in your industry. The proper role of government in something like this is to ensure that the consumer's interests are protected. Do you feel that the way it works now puts consumers at risk? I know this is a silly question to ask you from your point of view, but in terms of the legislation under which you operate presently, are consumers' interests at risk, and does Bill C-8 reduce the risk to consumers, does it increase it—what's your perception of that?

Ms. Judith Wolfson: As you say, Mr. Epp, the Interac Association is governed by a consent order, pursuant to the competition tribunal, and in addition, we are governed by and come under the rubric, if you will, of the Competition Act and the Payment Clearing and Settlement Act.

I don't think there are any areas in which consumers are jeopardized at the present time—and that's particularly what our interest was in trying to narrow the scope of the legislation. I think the safety and soundness is governed through the Bank of Canada, and competition has been extremely effectively managed. The Interac Association has grown from a number in the twenties less than ten years ago up to 91 members. The membership of the Interac Association is not just financial institutions at this point, it's technology companies, it is retail—Petro Canada, for instance, is a member of Interac Association. So consumers' interests are represented by the very broad membership in the association and its governing structure.

Mr. Ken Epp: But when I, as a consumer, go to a bank machine, I don't really get to choose which one I go to—this is the one that's here and there I am. I can't really choose which of the 91 member organizations I'm dealing with—I'm dealing with Interac at that stage, right?

Ms. Judith Wolfson: You choose your bank machine. There are two services, of course, in Interac: one is the shared cash dispensing, which are the ABMs, and the second is Interac direct payment, which is the debit card service. You're referring to the shared cash dispensing service, which is the ABM.

Of course, you, as a consumer, have a vast array of choices. You can go to your own financial institution's bank machine, you can go to a bank machine that is operated by another financial institution—part of the shared cash dispensing—or you can now go to the hugely increasing number of what are called “white label machines”, and that availability for consumers has grown enormously. Consumers truly have access now to bank machines and their cash in a way they never had before.

Mr. Ken Epp: Okay. How do you make your money?

Ms. Judith Wolfson: The Interac Association is a not-for-profit association. The members pay fees to cover the costs of the association, but that's all it is, a not-for-profit association.

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Mr. Ken Epp: Okay. One of the things you said was that you feared the minister's becoming involved in day-to-day operations, and you made, I think, a facetious argument about whether he's going to become involved in approving what colour the keys on the machines are, and so on. Could you enlighten us as to what regulations there should be concerning the powers of the minister?

Ms. Judith Wolfson: Mr. Epp, I was not being facetious. The problem with the legislation is that we have hundreds of regulations, and we make them constantly to make sure that the machines and the services meet the needs of the marketplace. Under the legislation, once a system is designated, it is so broad that all regulations would have to go and be lodged with the government, and that would be very bureaucratic.

What we are suggesting is if there is a problem with the public in terms of consumer protection, and the government feels that the public interest is not being addressed, then, from our perspective, the government should say this is the problem—fix it. We should have a consultation period, we should have an opportunity to discuss it and then fix it, and if it's not fixed to the extent the government thinks is appropriate, then the government should regulate on that issue. So should the government be interested in, perhaps, a regulation on safety and security—believe me, I think we'd be there before anybody else—and should that not be fixed, then the government would regulate on that issue. But it should not have this blanket power to regulate on everything else.

Mr. Ken Epp: I think you're saying they would then regulate on that issue if you didn't solve it before that was necessary.

Ms. Judith Wolfson: Absolutely.

Mr. Ken Epp: Yes. Can you give us some idea of how many consumer complaints we get per year in Canada? Roughly, is it 20 per day, is it 100 per day?

Ms. Judith Wolfson: The difficulty, of course, is that our members are the ones who would get the complaints from consumers, and the bill addresses the whole consumer issue with financial institutions by setting up appropriate structures within the legislation.

Interac Association does not get significant numbers of consumer complaints. I couldn't possibly speak to what the members get themselves, financial institutions or others. I am not privy to those specific numbers.

Mr. Ken Epp: If there were some problems, since your name “Interac” is right on the machine, wouldn't it make sense that the consumers then find out an Interac address?

Ms. Judith Wolfson: Indeed.

Mr. Ken Epp: And contact you?

Ms. Judith Wolfson: That would certainly happen. We do get concerns. We do facilitate those discussions with the financial institution and ensure that transfer is made.

I can tell you that most of our efforts have been in reliability. This is an extraordinarily reliable network—over 99% reliability—and there are, for instance, regulations on sanctions policies if reliability is not met. We have those in place so consumers, if they do call.... We really don't see an enormous amount of concern at all, but if we do, we facilitate that with the financial institution or the member.

Mr. Ken Epp: Okay.

Mr. Marc-André Lacombe (Corporate Secretary and Legal Counsel, Interac Association): If I may, I think it's very important to understand that Interac Association is not involved with the consumer in any way. The services are really provided by the financial institution to the cardholder. So you have an account with one financial institution. The Interac services are provided to you by the association. Our role is simply to facilitate the transaction, to make sure that when Bank of Montreal receives a card from CS CO-OP, they know where to send the message so that CS CO-OP can check that the money is in the account. We're not involved in any way as part of this transaction. We set the type of messages, and we make sure that the service is uniform. Consumers will sometimes call the office, and all we can do, since we can't help the consumer, because we're not involved in the transaction, is refer them to their financial institution.

Mr. Ken Epp: You mentioned something about there being huge costs. That's another thing I don't quite understand. So there are more regulatory costs? So you have to go to the minister? What is the source of these huge costs that you're predicting both for your association and for the government?

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Ms. Judith Wolfson: From the government's perspective first, reviewing a myriad of regulations that don't have a specific interest in the concern at hand is a costly bureaucratic process. From our perspective, as I said, we sometimes deal with issues very quickly. We certainly want to have the flexibility to do that, should the marketplace need it. To have to go through a process of consultation with the government on a host of regulations that really don't have any bearing on the issue at hand is a costly process. It involves the discussions, the consultation, the waiting periods—that's expensive.

Mr. Ken Epp: Would it be fair to say the summary of this part is, you don't mind meeting certain standards involved, but you don't want the government involved in the details of how you achieve those objectives? Would that be a fair summarization?

Ms. Judith Wolfson: Not quite. I think a fair characterization would be, if the government has a concern, and the government expresses what the concern is and gives us an opportunity to remedy it, and then feels it isn't appropriate and wishes to regulate it, I don't have a difficulty. I hope we never get there, but I would understand the government's wanting to have involvement in scoping out those regulations and understanding. It's in all the other areas where there isn't an expressed concern that you have a carte blanche, and it does not make sense to me. It's not good, efficient, and effective regulation.

Mr. Ken Epp: Okay. One more quick one, Mr. Chairman, if I may.

I'm curious with respect to the objections you have to clause 244. I wonder whether you can give us an indication of the effect this might have on other businesses. Would there be an effect on businesses other than your own members', and if so, what would that effect be?

Ms. Judith Wolfson: It applies to other payment systems as well. I really could not speak to an impact on other businesses.

Mr. Ken Epp: Would there be an indirect cost, for example?

Ms. Judith Wolfson: There's an indirect cost, of course, to all the membership, the membership of 91 and growing, which are not—

Mr. Ken Epp: And passed on to businesses they serve.

Ms. Judith Wolfson: Absolutely. There's no question that the inefficiencies and the costs.... Switch fees are based on the costs of running a system, so of course that would be translated into the broad membership.

Mr. Ken Epp: Good. Thank you.

The Chair: Thank you, Mr. Epp.

Go ahead.

[Translation]

Ms. Pauline Picard (Drummond, BQ): If I understood correctly, the Interac Association in a networking association among the various banking institutions. I have some trouble understanding how you can ensure the protection of consumers while according to what you said earlier, the Interac Association is an association of financial institutions and not of card users. So, what is your mandate with regard to card users?

Secondly, you also referred to regulatory duplication. You talked about confusion among organizations, federal and provincial institutions, and overlap, on several occasions. Can you give us some examples of this type of duplication or confusion that might arise if we did not amend clause 244 of the bill? I really don't see what you mean when you say that you are only a networking association.

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[English]

Ms. Judith Wolfson: Thank you for the question. Let me deal with the second question first, if I was unclear.

It is not our position that there is overlap between federal and provincial legislation. There is no effect from provincial legislation at all. It is overlap between the new protection under this proposed piece of legislation and the Competition Act, which already governs, and the Payment Clearing and Settlement Act, which already governs. So safety and soundness are taken care of in a present piece of legislation, competition is taken care of in a present piece of legislation—which has worked extremely well in this regard—and it is just the area of consumer protection that is not presently governed in legislation. So our view was that we should limit the oversight of private payment systems to consumer protection, since it isn't governed by legislation.

I understand the government's interest in not narrowing the scope. It is our view that if the government doesn't wish to narrow the scope, there is duplication, but at least we can make sure that the processes then are clear and transparent, should the government wish to designate. So that's that piece. There isn't an overlap between provincial and federal legislation.

With regard to the first question on consumer protection, we are the network that allows a distributed architecture, if you will, that allows all these organizations involved in shared cash dispensing, the ABMs, or debit to talk to one another and make sure those transactions go through. We're the hub, if you will.

The relationship for cardholders is between them and their financial institution. That's where the relationship to the consumer really belongs. We do have a role in consumer protection. We have a very significant role in security. What are the standards for those machines? What should be the regulations in regard to information and disclosure on the machines? For instance, one of the regulations we have just passed concerns what should be the language on the PIN pads for surcharge disclosure. The size, the language, making sure consumers understand and are clear, that's our role. Or there is security, making sure we have standards everyone has to comply with, telling the world they are a secure and safe network.

We are, if you will, a clearing house, but the relationship between the consumer and the financial institution is theirs alone.

The Chair: Mr. Cullen, followed by Ms. Guarnieri, then we'll go to Mr. Brison.

Mr. Roy Cullen (Etobicoke North, Lib.): Thank you very much, Mr. Chairman.

Thank you, Ms. Wolfson, Mr. Lacombe, Mr. Morris. Good to see you again.

I think you'd admit that while it may be burdensome from time to time, the fact that you've been here has resulted in some change between Bill C-38 and Bill C-8, maybe not in exactly the way you would have asked for, but it seems to me that in Bill C-8 now.... There was some confusion—I don't know if it was from you—but the oversight regime that could have applied under part two has been clarified. I don't know if that was a concern of yours, but the consultation with the participants and the manager now has been incorporated into Bill C-8. So it's not just one side of the coin, and there's more consultation reflected, I think, in Bill C-8 now. As you've said, it doesn't go as far as you would like.

I'd like to step back a moment, and address the payment system. I think you'd probably agree this is a pretty important part of our whole financial structure in Canada, and indeed internationally. I think you're saying you'd like to see the minister involved only with respect to consumer protection. But is there not also a role the minister and the Government of Canada would have with respect to prudential matters relating to the payment system and efficiency issues? Or do you see it strictly limited to consumer protection? And what would your rationale be for limiting it to consumer protection?

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Ms. Judith Wolfson: Thanks, Mr. Cullen. I'll try to be as clear as I can.

I think it is very appropriate for the government to be concerned about consumer protection, safety and soundness, and competition—all three. Interac Association is already governed in respect of its safety and soundness and its competition by other pieces of legislation. Consumer protection is not presently governed, and that's why it was our position that this piece of legislation should be narrowed in this way.

We have had discussions with the government over the past number of months. We understand it is the view of the government that it should not be narrowed. It doesn't make sense for us to have the duplication, but we can live with it, as long as the processes for designation and consultation are clear and transparent. The difficulty is that this bill still doesn't achieve that. It talks in very vague language about consultation, in terms of involving the members as well, but it puts absolutely no boundaries on the areas of concern. It doesn't create the possibility of saying, this is what we're worried about, go and fix it. So you don't have an opportunity to remedy.

Do I think the government of the day is going to come in, depending on someone's mood, and say, today we're going to designate? Of course not; that doesn't make sense. However, there should be in legislation provision for clear, precise discussion in the marketplace, so that there's certainty about this sequence: if there's a problem, we'll tell you what the problem is, go and fix it; if you don't, we'll regulate—and then we'll regulate on that area. That's the precision that I think makes good legislation and allows the marketplace to operate with certainty and clarity.

Mr. Roy Cullen: One of the challenges, as I think you'd probably appreciate, is that the payment systems are evolving and changing so rapidly. We don't really know exactly the shape or form all of them are going to take. We have things like smart cards. We have a whole host of other things. My understanding is, the way the act has been clarified, if there were going to be a designation, there would be consultation with both the manager and the participants. So surely, if there were some concerns, they'd be on the table. Are you saying that this would be a big mystery to everybody?

Ms. Judith Wolfson: I'm saying there's no clear statement in the legislation that the government has to articulate a specific public interest concern, there is no opportunity in the legislation to address that concern, and there's no process that is transparent and clear, a process for Governor in Council to regulate a specific area. It's hugely unclear what that process is. I think the clarity would be very helpful.

Mr. Roy Cullen: My understanding is that the manager and the participants would be consulted, so that there would be an opportunity for exchange of views. I guess what you're pointing out is the need for clarity in the guidelines as to what would constitute a public interest concern. But as I say, one of the challenges is not knowing exactly how payment systems are going to evolve.

As to these rules and regulations, as I understand it, the regulations or new rules would be submitted to the minister within 10 days. A new rule comes into force 30 days after. The kinds of items you referred to—the colour of the button, etc., etc.—I expect would not be of concern to the minister unless they raised other issues. They would go through normally. So there's notice that in the absence of word from the minister, they become rules. What are the kinds of rule changes, then, you believe the government might be concerned about? Are you saying that the rule changes would all be in the kind of category that you described? Or could you describe other rules that would be more substantive and of relevance in terms of public interest?

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Ms. Judith Wolfson: Let me perhaps work backwards. I do think having a system where you submit all rules and regulations to the government, but do not know what their real concern is, is not an efficient way of running a business. If the government is concerned about a specific public interest issue in the payment system, they should tell us what it is and give us the opportunity to address it. To have a response that says, show us everything, and we'll decide at some point if we're interested in it or not, isn't an efficient way of running a business. Let me give you an example of the kind of rules—

Mr. Roy Cullen: How would you filter what you send to the government regarding rule changes and what you don't?

Ms. Judith Wolfson: If the government is concerned about a specific area, we suggest it should be speaking to the private payment system as follows. We are worried about tampering, security with machines and the kind of regulations you might have in that regard. We're going to designate and go through the consultation process. We don't think you are properly protecting consumers. You haven't convinced us. We're going to regulate—I'm giving you the worse case scenario; I don't think that would happen, but let's assume. Then share with us all the rules and regulations that have to do with this particular concern.

Marc-André can help me. We have I don't know how many regulations and rules that we change constantly. That is, in my view, not the most efficient way for government to run its business. First, if they're not interested in it and it has nothing to do with them, why is the government going to have a process to review those rules? That doesn't make sense.

Mr. Roy Cullen: Given the evolving nature of the payment system, given the changes going on, how would the government know in advance that a rule change would be inconsequential? Who's going to filter that?

Ms. Judith Wolfson: Right.

Mr. Roy Cullen: Initially, there's a learning mechanism going on here.

Ms. Judith Wolfson: Sure. The government, from my understanding, has no intention of running this business. Even with the legislation as written, the government has no intention of taking over and running the private payment systems. They will have to assume that the membership, the businesses, want this to operate efficiently, effectively, and in the best interest of the public. Otherwise, the public wouldn't have the confidence it has.

So at the present time there has been no indication from anybody that this system doesn't work in a phenomenally excellent manner. It is the best in the world. The government is saying they're worried about having the power, should there be a consumer protection issue—or safety and soundness, although that's already taken care of. Let's just narrow it, for the sake of discussion, to consumer protection. The government wants the ability to come in. How are they going to do that? They're going to do it the way they are going to deal with everything else they're looking at in the financial service sector. They're going to have policy. They're going to look at that.

There's no way, no matter what the breadth of the legislation, I can see the government looking at each and every regulation. So define your area of concern, and then allow for consultation in that area of concern. That's all we're saying. That way, we will all concentrate on what seems to be at risk, if anything at all, rather than placing no onus at all on government to say, this is what we're worried about. It is extremely expensive and inefficient for government legislation to have such gaps in particularity.

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Let me, if I may, give one more example. The association has just invested a lot of money, certainly well over $10 million, in making the system more robust, because we don't know how many transactions are going to be there in the future. That's been a significant investment. That kind of investment comes with clarity, certainty.

We're not trying to say you should avoid placing a consumer protection duty on the government—of course the government has that obligation—but we're asking that it be done in a way that tells people what you're worried about and gives them open, clear, transparent process. That's our point.

Mr. Roy Cullen: A point you've made before I found more compelling, and that is, if you are looking at forming strategic alliances with other payment systems around the world, they would be looking for clarity. You may understand the rules—

Ms. Judith Wolfson: Absolutely.

Mr. Roy Cullen: I find that a reasonably compelling argument, except that everywhere in the world countries are wrestling with the same kinds of issues we have here. The payment system is evolving. We have smart cards. We have debit cards. It's changing so rapidly. We're in fact opening up the payment system, as you know, to insurance companies, stockbrokers, etc.

Ms. Judith Wolfson: Absolutely.

Mr. Roy Cullen: So while a potential strategic partner in Europe, for example, might like to have more clarity in the rules, I expect in their own countries they'd have similar lack of clarity, for want of a better term. So world-wide, we're probably all wrestling with similar kinds of issues. Are you saying that in other countries, say in Europe or South America or in the United States, the rules are clearer and that a potential partner might say to you, “Here's it's as clear as glass. Why isn't it clear up there?”

Ms. Judith Wolfson: I am not an expert on every other payment system, although we have significant experience with many. But there is no system I am aware of where the management of the business is regulated to that specific level by government.

I think what we need is an ability to change with the marketplace. It is evolving enormously, and I understand that balance between what we don't know and what we need to know. Chip cards represent another activity, smart cards—we're involved in this as we speak. Provincial governments are involved in smart card initiatives. Will you be able to piggyback for efficiency, will consumers be able to have one card at some point, not a myriad in the wallet? Every single retailer you go into is giving you yet another card, and loyalty goes with it.

We don't really know what the system will be. I think for the marketplace it's really important to have the ability to grow, not to be inhibited by rules that are ineffective and costly, yet to have proper rules that deal with safety and soundness, competition, and consumer protection. That makes a lot of sense. Our view is that you should address the issues that are really there, not clutter it with issues that may not be there, creating costs and, thereby, the reluctance of the private sector to continue to invest in a system that works and has to work very quickly.

I think the way we've structured the proposed amendments deprives the government of no ability; there's absolutely no obstacle to coming in if there's a concern. Just tell us what it is, and if we can't fix it, regulate it openly and transparently. That's our position.

Mr. Marc-André Lacombe: I think it's also important to realize that our concerns are not with the regulation of the whole payment system, only with these other payment networks. We know the bill contains a lot of regulations regarding the Canadian Payments Association, and when we talk about the payment system and regulation, that's where it is regulated.

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It's also important to note that we are not involved in the settlement in any way, shape, or form. All of our transactions are transactions that get settled through the Canadian Payments Association. So a lot of the concerns are already dealt with at the payment system level. What we're talking about are those payment systems that were deemed to not fall within the scope of the CPA and were allowed to develop outside of the CPA. Those are different.

The Chair: Ms. Guarnieri.

Ms. Albina Guarnieri (Mississauga East, Lib.): Thank you.

I must confess that I'm certainly one of those Canadians who uses her debit card excessively.

Ms. Judith Wolfson: And we're grateful.

Ms. Albina Guarnieri: I hope my husband doesn't hear this testimony.

Certainly I think most Canadians will agree that it's a big advantage, especially at grocery stores that don't use credit cards.

Would I be correct in saying that Interac is essentially a monopoly in the business of selling access to their customer accounts? And just to give me a clearer understanding of your business, could you give me a breakdown of the costs associated with the debit service of the retail outlet?

You mentioned earlier that you've just invested $10 million into your business. Who supplies the equipment, the card swipe machines? What does the retailer pay for the service, and what is the retailer's cost for a transaction? Can you give me some idea about what the consumer pays for a transaction?

Ms. Judith Wolfson: The answer is no, I can't, and the reason I can't is that's not the business of Interac Association.

The investment I was referring to is in the—

Ms. Albina Guarnieri: The security aspects.

Ms. Judith Wolfson: —the inter-member network software that allows the shared cash dispensing and the shared Interac direct payment. That is our business. The costs and the investment were to ensure that we have the newest and the best software to make sure that network is robust. The retailer costs and the fees are absolutely not within our purview, nor do I know them. They are the purview of the financial institution and its customers—be they retailers or cardholders—and that is an issue that is negotiated in the marketplace.

I think that's the best answer I can give you.

Ms. Albina Guarnieri: You can't give me a ballpark figure of what you would charge for the business of providing the service to a consumer?

Ms. Judith Wolfson: We don't charge a fee. What we have are switch fees. The switch fees are based on the total cost of the system, and they are then attributed on a per-transaction basis to the members, depending on how many transactions they have. We've supplied you with a list of the membership, which is only probably current to this week—I'm not sure about next week. Some newer members may have fewer transactions than others, so it's based on a switch fee per transaction.

Ms. Albina Guarnieri: Are you essentially a monopoly? Would that be a fair statement?

Ms. Judith Wolfson: No.

Marc-André, why don't you take that one?

Mr. Marc-André Lacombe: The fee that the members pay us is a very small portion of the cost of providing the service. The service includes terminals at the merchant, it includes banking machines all over Canada—we now have 32,000—and also it includes systems at the vendors so that these systems can process transactions and verify accounts.

Our system is a very tiny part in all of this. The services are really services.... When you wanted your debit card, you went to your financial institution and they gave you a series of packages: you can pay so much a month and you get that many transactions, or you pay per transaction. There's a wide variety of fees at various institutions, and it's the same thing on the retailer side. I think we have fourteen different members that provide the service directly to retailers, and the services depend on the pricing policies of each member. Because of the Competition Act, we are prohibited by law from discussing any of these fees.

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Ms. Albina Guarnieri: Do you supply the machines?

Ms. Judith Wolfson: No, the machines are supplied by various members or folks who are in relationships with them.

Ms. Albina Guarnieri: Where do you see competition making sense, given the business structure that you have?

Ms. Judith Wolfson: I'm sorry, but I don't understand the question.

Ms. Albina Guarnieri: Well, if you're a consumer or you're a local retailer, let's say you didn't want to use Interac. What would be the other alternative that you would have?

Ms. Judith Wolfson: A retailer could provide a number of ways of payment.

Ms. Albina Guarnieri: If you didn't want to go through Interac to buy the service....

Ms. Judith Wolfson: For what service? For debit cards?

Ms. Albina Guarnieri: Yes, for debit cards.

Ms. Judith Wolfson: In Canada, as I say, through the consent order that was reached with the Competition Bureau, the system that was set up was, if you will, an infrastructure, a highway. It was agreed that the highway would be a coast-to-coast-to-coast highway. On that highway, there are all kinds of folks who have decided what kind of vehicle they will use. We now have merchants who have decided to operate their own vehicle on that highway, and more merchants can, should they wish to do so.

We have financial institutions, we have third-party processors, we have technology companies, we have telecom. They can come in and say they want to use the highway, and there is no differentiated cost. They can use it on a cost-recovery basis and create their own vehicle on that highway, depending on what the business case is.

Ms. Albina Guarnieri: One last question: You mentioned you're interested in obtaining the right balance in the process for designation and consultation with the government. You said you wanted simple, well-defined steps, and you referred to the timeframe. You requested a reasonable period of time, if I'm not mistaken.

Ms. Judith Wolfson: Correct.

Ms. Albina Guarnieri: What would you consider to be a reasonable timeframe?

Ms. Judith Wolfson: When we were meeting with the secretary of state and I think he agreed that perhaps it was a process that designated what was reasonable—an open transparent process—he said, “All right, you'll have seven days”. I think his tongue was in his cheek at that point. I'm not sure exactly what “reasonable” is. I think initial responses depend on the complexity of the issue. It may well be that a primary response is thirty days. We have all kinds of timeframes and regulations.

I think you need to have flexibility, depending on the complexity of the issue, so perhaps it would be an initial response within thirty days, and then it would be agreed upon depending on the complexity of the issue. On certain issues it might be very simple, and on others you may need to study it. So I think a hard and fast rule is very difficult, but you need to have a floor perhaps, and perhaps thirty days for an initial response is an appropriate one.

Ms. Albina Guarnieri: Thank you.

The Chair: Thanks, Ms. Guarnieri.

We'll have two final questioners, Mr. Brison and Mr. Epp.

Mr. Scott Brison (Kings—Hants, PC): Thank you, Mr. Chairman. I apologize for not having been here for the whole presentation, but I had an industry committee meeting at the same time.

The first question I have is relative to full functionality of the Interac system. One of the MacKay task force recommendations was in the interests of creating a better environment for competition, particularly in facilitating the entry of smaller players in banking. It was also recommended that the government investigate and move forward with a full functionality of the Interac system.

I understand that with the technology, it's possible now to effectively deposit to your branch through any Interac machine, regardless of whether you're at the same bank or your home bank's Interac machine. The prohibition from doing it is a policy issue, as opposed to a technological barrier. I would like your feedback on why that's so, and on what the downside is to that, and also from an upside perspective. It's clearer from a competition perspective that it would be beneficial, but what's the downside to moving to full functionality of the Interac system?

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Ms. Judith Wolfson: We have had extensive discussion on that issue about our functionality. There is no technical solution. It would have to be created. Could one find a technical solution? I believe one can generally find a technical solution to anything, given enough time, enough resources, and the need. There isn't one at this point in time.

The issues were what is the need and what is the cost. We did extensive research and we shared that with the government. There was not sufficient interest to make a business case. The ones who were purportedly the most interested were the ones where the cost would not be borne primarily. Our continous consumer research did not show a supportive business case where folks were prepared to pay the costs and whatever fees would be there in order to do the shared functionality. As a matter of fact, consumer interest went down in the recent research, and we shared that with the Department of Finance. The business case was not there. At present there isn't a technology fix, but that isn't reasonably the barrier.

Mr. Scott Brison: I'd like to have your information or your documentation on that. It would be helpful. Intuitively it would make a significant difference from a competitiveness perspective for smaller players, if full functionality would be a big step in that regard.

Your recommendations in terms of the transparent process seem at first glance to be quite reasonable. One of the difficulties with regulations, or public policy in general, is often we develop these things dealing with perceptions as opposed to realities. This would at least ensure that if the government were interested in providing a public good through some regulatory mechanism, then it would at least be defined. It makes sense. I suppose we'll be discussing it further, but at first glance it seems to make sense.

One specific consumer protection issue is that increasingly merchants seem to be—this is somewhat anecdotal—taking the debit cards and swiping them, as opposed to the consumer doing this directly. Is there a policy or an initiative you're pursuing to address some of that? It seems to me to be a bit of a security issue that is evolving.

Ms. Judith Wolfson: It's a really interesting issue and it is of increasing concern to us and is something, as a matter of fact, we have been dealing with very currently. I'm sure you all read increasing media reports, particularly in the gas station sector, where there were skimming issues and consumers were concerned about double swiping. You'll see that in many of the gas stations, particularly in the GTO area, there are consumer self-swipe devices.

It is something we're looking at. We're looking at our rules to talk about the ability for a consumer to swipe. How do you avoid double swiping? The issue, as well, is what kind of certification of devices should be in place. It's something, as a matter of fact, that Kirkland is gainfully employed reviewing right at this time. I think consumer confidence is important and there are rules right now.

For instance, you aren't allowed to affix your PIN pad. You can't have it where the consumer can't take the PIN pad and ensure they can protect their PIN. We have those kinds of rules, but we're looking at it right now to make sure that in particular sectors that's going to be affixed.

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The other area, of course, is in mobile technology. That's an increasing interest, where the PIN pads will be far more mobile and use mobile technology, so in pizza delivery or at your table in restaurants you will be able to swipe your card yourself. That's happening. Of course, the investment is significant when you change those technologies, and we're actively looking at that.

Mr. Scott Brison: Okay. The whole evolution of wireless technology is going to have significant impacts, and of course security issues are included. For example, e-plicity is a Halifax-based company that's doing work with the taxi companies in Montreal. It's very interesting.

That's all I had, Mr. Chair, except for the ongoing inequity we have all experienced at times with our payment systems. I don't know whether there is a way to address it, but it seems to me blatantly unfair that the only people who can withdraw money from their accounts using bank cards are those people with money in those accounts. And if there's something that can be done and if it's within your purview—

Ms. Judith Wolfson: Absolutely. I'll refer that to the legislators.

Mr. Scott Brison: —it would make a huge difference in the quality of life of all Canadians, the people we represent in this place.

The Chair: I hope your amendment is adopted, Scott.

Mr. Scott Brison: Thanks.

The Chair: Thank you.

Ms. Judith Wolfson: Thank you.

The Chair: Just for the record, that was not serious.

Mr. Epp.

Mr. Ken Epp: That's right, Mr. Chairman. I've often thought, even when I was speaking in the House, that Hansard does not express the tone of sarcasm.

I have a couple of questions more. One concerns the fact that you indicate you'd like more transparency. Now, I can't imagine that you really want to have the kind of transparency where, when a consumer out there issued a complaint, it would instantly hit the wires. That would undoubtedly tend to reduce the confidence in your system, which I frankly think is very high right now. As a member of Parliament, I have had very, very few people come into my office to say that they have concerns about their payment system. We've had some complaints about the banks, some about the way they're charging fees, and things like that. What do you mean, therefore, when you say that you want this to be transparent?

Ms. Judith Wolfson: Very simply put, we want to know from the government what a specific problem is. If there's a problem, we want to have an opportunity to rectify it. Then, if the government decides to designate this a private payment system, we want it to go through the Governor-in-Council process, so there's an opportunity to look at the regulations and have good debate prior to the industry being designated or regulated.

Mr. Ken Epp: In other words, when you use the word “transparency”, you mean transparency for you, so you don't have government officials sitting in a back room somewhere concocting things and you don't really understand what they're doing. You're not talking about transparency for the public.

Ms. Judith Wolfson: No. I'm talking about a transparent, open process of legislation.

Mr. Ken Epp: Okay. I have a second question related to the same thing. The way I read your brief, you're saying that when the minister becomes aware of problems, the minister should only take action after talking to you.

Ms. Judith Wolfson: Yes.

Mr. Ken Epp: Wouldn't your system make it too late? Whenever I write a minister, it usually takes about six months to get an answer. I would think that you should rather be pressing for some sort of requirement that, if the minister should learn of a problem, he or she inform you of it within the hour so you can start working on it.

Ms. Judith Wolfson: Mr. Epp, this business has become as successful as it has because for all the participants and the members, this is their livelihood. The only way they can survive and grow is with consumer confidence.

Mr. Ken Epp: And if they do it right.

Ms. Judith Wolfson: The minute there isn't consumer confidence, you won't have a system that works. We're not waiting for anybody in government to tell us what the issues are. We are constantly, constantly vigilant, and believe me, the media would keep us constantly vigilant even if we weren't inclined to be so.

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What we are saying is that the government, within its legislative responsibility, shouldn't use a shotgun approach, hitting and regulating segments of the industry haphazardly. Tell us what the problems are, and we'll fix them. If we don't because there's a concern or a legitimate disagreement and the government feels a certain action is in the public interest, it's the job of government to protect the public.

Mr. Ken Epp: Is it your evaluation that if there were a problem, you would be aware of it before it got to the minister?

Ms. Judith Wolfson: I would be shocked if there were a problem that came to the government before we knew about it.

Mr. Ken Epp: Yes, that would be my impression as well.

Ms. Judith Wolfson: We wouldn't be in business very long if that happened.

Mr. Ken Epp: Okay. I have one last question, Mr. Chairman, and that is whether in your view this legislation adequately anticipates changes in payment systems. Right now you have these cash-dispensing machines. I really do expect that within a very short time—I'm not ready to predict a timeline, whether it's five years, ten, or whatever—they will be obsolete. In five to ten years or thereabouts we will no longer have wallets full of folding money, full of Canadian banknotes.

Ms. Judith Wolfson: Sure.

Mr. Ken Epp: Rather, we will have some sort of smart card, and we will be transferring money to a little smart card instead of transferring paper into our wallets.

Are you anticipating this as an industry? Have you given any study as to whether Bill C-8 anticipates this, or is everything already covered?

Ms. Judith Wolfson: Firstly, I absolutely agree with you. I think that the role of cash in our society is changing enormously quickly. As a matter of fact, our newest research, which was in the press not two months ago, talked about the fact that in the perception of Canadians their cash has now been superseded by plastic. The use of cash and paper is rapidly declining, so what you say is absolutely true.

What do I see? We all would like to be able to look into crystal balls. There is no question that we will look at other payment mechanisms. Payment on the web is also going to be an extremely interesting new development. As to cross-border exchanges, the web is not restricted to operating within the borders of Canada. Purchasing doesn't stay within Canada. We are looking at the kinds of issues that will happen in a web-based economy. Does this bill address that? I'm just not familiar enough with all aspects, but I think that in terms of this particular part and our role, this gives flexibility to the government to be able to involve itself where necessary.

Mr. Ken Epp: What I'm driving at here is—

The Chair: What is your definition of “final question”?

Some hon. members: Oh, oh.

Mr. Ken Epp: I guess it's whenever the chairman finally interrupts me and tells me I'm done.

The Chair: I'm sorry about that, but—

Mr. Ken Epp: But I'm still on the same question.

The Chair: Oh, are you? Okay.

Mr. Ken Epp: You see, if I lose my wallet, whoever finds it has access to $25 cash. They do not have access to my bank account with its thousands of dollars of deficit.

Ms. Judith Wolfson: That's right.

Mr. Ken Epp: They're limited. Now, if I have a cash card, I do not want that cash card to be connected to my bank account. I want to be able to transfer $50 to that card. If I lose that card, whoever picks it up can spend $50 and they're done, that's it.

Ms. Judith Wolfson: And that's what you have when you have that card because you're protected by a PIN.

Mr. Ken Epp: Okay, but are you anticipating this new technology, and are you doing research into it? Specifically, should there be anything in this bill on that issue, or do you think that's for another time?

Ms. Judith Wolfson: Yes. Firstly, I don't think that in this piece of legislation we should be addressing any specifics that we don't know enough about. In terms of what we are doing about it, there is nothing we can conceive of that would not allow for protection, at least in terms of what we have at this time. Future chip technology will add more protection, not less. I absolutely agree with you. The only card that might have the same lack of protection that cash has would be a stored-value card like a Bell telephone card, where you can put in a certain amount, say $10, or like a card for vending machines. You might not have that same kind of protection. I see nothing in the future that wouldn't allow you at least the kind of protection we have today.

Mr. Ken Epp: Mr. Chair, that's my final question.

The Chair: I won't take that as a draft.

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Mr. Ken Epp: Oh yes, you're next.

The Chair: Ms. Bennett, do you want to follow up on Mr. Brison's point?

Ms. Carolyn Bennett (St. Paul's, Lib.): Thank you, Mr. Chairman. I do want to follow up on Mr. Brison's point. In fact, I've been stewing about this since the last time Ms. Wolfson came before our committee.

You have a bunch of members. Do you have a board?

Ms. Judith Wolfson: Sure.

Ms. Carolyn Bennett: Who is on the board?

Ms. Judith Wolfson: The board is set up pursuant to the consent order. The board is made up of a number of direct connectors, financial institutions, small players, white label players—

Ms. Carolyn Bennett: Being able to make deposits at all of the machines is something seniors and the more vulnerable population have been very concerned about. They say, “They closed the branch next to me, there's a machine here, but the next machine is a long way away from my institution. How come I can't deposit my cheque into the machine that's right next to me?” When I asked Mr. Brison's question the last time you appeared, you said it wasn't in the business plan. You also forecasted that there maybe wouldn't be cash or cheques one day. But I wasn't sure we could actually go there, in that these people are still worried about this.

If I have my money in a credit union or all of that and I would like my clients to be able to deposit at the Royal Bank, how do we make sure it isn't the big institutions that are making these decisions rather than the small institutions in terms of protecting the consumer?

This comes to your point of in so many aspects of government we are stuck with a complaint basis. In terms of you wanting this scoped down more narrowly on a needs-to-know basis with regard to your regulations and all of that.... If there were people in the Department of Finance who could read your regulations and go, eureka, I don't think this is good for consumers, can you...? It's very difficult if you are asking government to wait until there's a problem to then request the set of regulations from your company based on that problem, as opposed to looking at all the changes and maybe being able to pre-empt something that isn't in the best interests of Canadians.

Those are my concerns based on your suggested amendment. We want to know how decisions are made in your organization to make sure that smaller companies and consumers.... I'm worried it's just a bottom-line kind of decision.

Ms. Judith Wolfson: Let me address it absolutely directly, Dr. Bennett.

Firstly, just off the top, nothing prevents the Department of Finance from talking to us at any time about any concerns, and you don't need a regulation in order to do that. Having been a deputy minister in the Government of Ontario for many years, we didn't wait for regulations in order to go and deal with the industry in many areas and talk about what was happening and consumer interests. It is in the interests of this organization that it respond to consumer interests, or it wouldn't be in business.

Let me address how decisions are made. It is set up pursuant to a consent order with the Competition Tribunal. As a matter of fact, if I'm correct—and Marc-André, who's our corporate secretary and legal counsel, will correct me if I'm wrong—the major large financial institutions are no longer the majority on the board. We have, in addition to the Bank of Montreal, CIBC; Laurentian Bank of Canada; Royal Bank; Scotiabank; TD Bank, including Canada Trust; caisses populaires; and Credit Union Central of Canada. There are equal votes, by the way, on the board for everyone. BCE Emergis Inc. is on the board. CGI, which is a technology company that provides a lot of the white label machines and does a lot of technology, is on the board.

TCS (Canada) Ltd. is our newest board member. Its president is a man called George Oliver. They are now the third largest deployer of ABMs in the country. Is that correct?

Mr. Marc-André Lacombe: They're the largest.

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Ms. Judith Wolfson: That's not one of the largest financial institutions. This is a white label.... It's a third of the ABMs, if I'm correct. No, I'm not right. I don't know the number. Anyway, he's our newest member on the board.

There is absolutely an opportunity for consumers who are using different kinds of payment mechanisms, technology companies, credit unions, the Caisse Desjardins in Quebec, and the financial institutions to be on the board. That's the structure.

Ms. Carolyn Bennett: So the smaller institutions, and I mean deposit-taking organizations, have an ability to outvote the big guys.

Ms. Judith Wolfson: I forgot to mention Sun Life Financial Trust Inc.

There are certain resolutions that require a two-thirds majority—that's all in the consent order—and some that require a simple majority.

But the reality is that this is a very business-like organization that looks at how we can grow this business for the population of Canada. You wouldn't get the kind of strength and robustness in the marketplace if you didn't take those issues into account.

The Chair: Thank you, Dr. Bennett.

On behalf of the committee, I want to thank you very much. I'm glad you've subscribed to season tickets to the finance committee. Of course we'll look at the points of view expressed as we head toward clause-by-clause consideration sometime in the near future. Thank you.

Ms. Judith Wolfson: Thank you. We will make sure we lodge with you the specific language.

The Chair: Madame Picard.

[Translation]

Ms. Pauline Picard: This does not concern the witnesses. I simply want to express an opinion on our notices of meeting. Yesterday we received three, four or five notices of meeting with different times. Some said nine o'clock and then others said eleven o'clock. I have noticed this type of change a few times since last week. It's very difficult for us; we have tight schedules and we must sit on other committees, and it is difficult to make appointments around the meetings of our own committees. I don't know if the situation can be solved easily, but I find it very awkward that a hearing is confirmed and then cancelled. I hope you will be able to make the necessary change. I have not consulted my colleagues, but everyone is somewhat disturbed by this way of doing things.

[English]

The Chair: I want to address that issue. We had a striking meeting during which we elected the chair and vice-chairs, and I gave out a timetable, which everybody who was present actually agreed upon. Then we proceeded to ask witnesses when they would like to appear. Interac was the only one that wanted to appear this week. We allocated two weeks for initial hearings, anyway. Most of the people wanted to appear the week after the parliamentary break. Days were allotted to hear witnesses, but the only one that said yes for this week was Interac.

I hope that clarifies your situation. It's a situation that not only you have to go through but I have to go through as well.

Mr. Epp.

Mr. Ken Epp: Mr. Chairman, you might want to dismiss our witnesses, since we're no longer dealing with them.

I have a question with regard to Madame Picard's comments.

The Chair: Sure. Thank you.

Mr. Ken Epp: Are we going to have a planning subcommittee?

The Chair: Yes, we are.

Mr. Ken Epp: We haven't struck that yet.

The Chair: Actually, we have, but we don't have a date for the first meeting.

Mr. Ken Epp: When did that happen?

The Chair: That happened on the first—

Mr. Ken Epp: When I was sleeping. I seem to have missed a lot that day.

The Chair: We do have a steering committee. We dealt with that the day we—

Mr. Ken Epp: Has that steering committee met yet?

The Chair: No, it has not met.

Mr. Ken Epp: So we're just going ahead on the basis of straight, practical.... I have no objection to that.

The Chair: Yes. What we would have to deal with as a steering committee would be future business, but because we already had done some preliminary work on scheduling, we had the entire committee agree to the schedule. So de facto they were the steering committee.

Mr. Ken Epp: Okay. Just for my interest, who is on the subcommittee?

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The Chair: Myself, and there's a representative from every party, obviously.

Mr. Ken Epp: There is?

The Chair: Yes.

The Clerk of the Committee: Mr. Chair, it's in the motion. It includes the chair, the two vice-chairs, a representative from every other party, and one of the parliamentary secretaries.

The Chair: Yes, one of the parliamentary secretaries, because we have two parliamentary secretaries.

Mr. Ken Epp: So do you know who it is for our party?

The Clerk: It's whoever comes. No one is named. You have to arrange it among yourselves.

Mr. Ken Epp: Okay.

The Chair: Okay? Great.

The meeting is adjourned. Thank you.