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EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, October 3, 1995

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[English]

The Chairman: Ladies and gentlemen, I am delighted that we have such a good turnout for our business today, both of regular members and interested persons who have appeared. Before we get into the subject-matter at hand, let me just review what we are doing today, in my understanding.

We're hearing from our colleague Mr. DeVillers for about fifteen minutes on the subject of credit cards. The purpose of this is to understand better the case for our undertaking a study of the issues he raises.

This part of the meeting will be an open session, so we have our friends from the media here. I would then propose that after we have satisfied ourselves that we fully understand what is being asked, we would move into an in camera session, which would allow us to consider Mr. DeVillers' request and then decide what action we would take based on what we have heard.

To do a little bit of housekeeping, there are a few items we have to sort out that have perhaps altered our itinerary since we last met, but it's good to get them out of the way and to move on to the report, again in camera, on performance benchmarks.

We have a report you haven't received, or are just receiving now, so we'll have to figure out a way of dealing with this expeditiously. We may take what is called a gavel break and allow you to read it, or we can walk through it, or we can do a combination of both.

That is the proposed order of business for today - first part open, second part in camera.

I propose that we move right along then and welcome our colleague, who has, in the name of the consumer, really undertaken a tremendous piece of work here. I think we have all received his submission, but it might be useful, Mr. DeVillers, to walk us through it and leave a maximum amount of time for comments and questions. Welcome.

Mr. Paul DeVillers, MP (Simcoe North): Thank you, Mr. Chair. I appreciate the opportunity to appear before the committee. That's exactly what I propose to do: go through the submission. I think it should take me about fifteen or twenty minutes and then I would be happy to respond to questions.

Early in the 35th Parliament I introduced a private member's bill, Bill C-233, An Act to provide for the limitation of interest rates, of the application of interest and of fees in relation to credit card accounts.

On June 7, 1994 - almost a year and a half ago - I had the occasion to debate Bill C-233 at second reading. Since the bill was not deemed votable, it was slated to die after its first hour of debate. However, the parliamentary secretary to the Minister of Industry was able to obtain unanimous consent of the House to have the bill withdrawn and the subject-matter referred to the standing committee here.

I am here today to present my arguments as to why I believe your committee, Mr. Chair, should take another look at the credit card industry.

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As a result of complaints and concerns from my constituents - and this goes back into my 20-year law career as well - I decided to address the more contentious issues surrounding credit cards, such as the interest rate charged and the method of calculating interest, through legislation because I believed that the time for further regulation in this matter was long overdue.

During preliminary research I quickly realized that a lot of good work had already been done by previous committees on this issue. In fact, within the last nine years three parliamentary committees have examined the credit card market in Canada. The finance committee issued a report in 1987, and the consumer and corporate affairs committee issued reports in 1989 and 1992. Each investigation placed a slightly different emphasis on the credit card market, such as the extent of competition, the availability of information for consumers about rates, and the problems with calculating interest charges. However, the primary focus of each investigation was the high credit card interest rates and the tendency for those rates to remain high when other rates fell.

Given the number of studies already carried out by parliamentary committees in this relatively short period of time, why would I want your committee to look at this issue again? The answer is simply that many, if not all, of the concerns and recommendations that were made by previous committees have been ignored.

Examples of important recommendations that were completely ignored are as follows. Recommendation number 4 of the 1987 finance committee stated:

Recommendation number 6 of the 1989 consumer and corporate affairs committee stated:

Also ignored was that same committee's recommendation number 9:

This recommendation was subsequently reversed by recommendation number 4 in the 1992 committee report.

Recommendation number 1 of the report of the consumer and corporate affairs committee was also ignored. It stated:

[Translation]

Here are some issues surrounding credit cards which deserve the committee's attention. Namely, interest rate caps, disclosure profits, method of calculating interest and disclosure of information to consumers.

Canadians have gone more and more accustomed to credit cards ever since their introduction in 1968. In 1994, there were an estimated 58 million credit cards in circulation in Canada compared to 55 million in 1993, and the numbers continue to increase. By April 1995, interest bank card rates varied anywhere between 9.90% to 18.9% a spread of 2% to 11% between the Bank of Canada rate.

Retail credit card rates have remained virtually unchanged in the past decade, all of them charging an identical amount of 28.8%. The spread between the Bank of Canada rate and these types of cards is currently over 20%. At an annual rate of 28.8%, if a person were to pay the minimum monthly payment of 5% on their retail card balance, it would take that person 32 months to pay off their card.

This outrageous behaviour on the part of retailers did not escape Industry minister John Manley's attention. On February 17, 1994, the minister wrote to the president of the Retail Council of Canada urging him to convince his members to bring down their credit card rates.

[English]

I refer you now to document number 1, which is Mr. Manley's letter addressed to the Retail Council of Canada. He's urging them to reduce the rates. Unfortunately, the Minister's request was completely ignored and retailers are still charging an indecent 28.8% rate of interest of their credit cards.

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[Translation]

In January of this year, the ``Association coopérative d'économie familiale de l'Outaouais'' and I requested a meeting with the Minister to further discuss the retailers disturbing behaviour. In his response of March 13, the Minister thought best, and I agree, that further discussion on this matter should be carried out by your committee given the complexity of the issue at hand.

[English]

I refer you to document number 2, which is Mr. Manley's letter back to l'Association coopérative d'économie familiale de l'Outaouais.

Contrary to popular belief, interest rate caps on credit cards are not unheard of. In fact, over thirty U.S. states have some sort of regulated interest limit for all types of consumer cards. I now refer the committee to document number 3, which is a 1987 list of the states and the types of caps they had at that time.

In Canada, regulation of interest does not fall within federal jurisdiction. Some questions have risen as to the constitutionality of the federal government regulating retail credit cards, so I've obtained a legal opinion that clearly establishes the federal government's right to act in this matter. That would be document number 4, which is the letter dated June 6 that was obtained from the legislative counsel.

Currently the only federal law that indirectly deals with credit card interest rates is section 305.1 of the Criminal Code. However, its applicability to loans advanced under a credit card is remote and unrealistic given the definition of criminal interest as an effective annual rate of interest that exceeds 60% of the credit advanced under an agreement or arrangement.

There is as yet no consensus on the potential advantages and disadvantages of imposing a maximum amount of interest a credit card issuer could charge. As mentioned earlier, the consumer and corporate affairs committee recommended a floating cap in its 1989 report, but subsequently reversed that decision in its 1992 report.

Not surprisingly, any mention of imposing a cap on credit cards was met with strong opposition by the people who issue the cards. Bankers, for one, insisted that any such move would force them to deny plastic credit to their less well-off customers. These arguments did not sit too well with the committee members at the time, especially when the banks' own figures suggested that people on low incomes were more likely to avoid interest charges by paying off their card balances each month than were people with higher incomes.

Representatives from the Canadian Bankers Association also argued vehemently that caps were not necessary because in reality bank cards were not really very profitable to them. This was a little difficult to believe at a time when Canadian banks were reporting record profits. When asked to provide figures to prove their claims, bank officials were quick on their feet, claiming that if they released that type of information, it might put them at a competitive disadvantage.

Throughout my research I referred to a book probing the credit card industry in Canada and in the United States, entitled Card Tricks. In one of the chapters, authors Ann Finlayson and Sandra Martin describe how one of the bigger financial institutions in the U.S. used profits generated by its credit cards to offset heavy losses in other areas of their operations. The institution in question was Citicorp. We discover that Citibank, Citicorp's consumer and credit card division, returned a profit of almost $1 billion, half of which was used to offset losses in Citicorp's other divisions.

The authors point out that they were unable to use a Canadian example because of the softness of our disclosure laws. Following the savings and loans scandal in the U.S., the Federal Deposit Insurance Corporation Improvement Act spelled out stringent new guidelines for, among other things, bank lending and reporting requirements. If the committee were in the U.S. it could get a much better idea of how much money is being made on bank cards and which sectorial losses they are covering.

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It seems to me that if we are to settle this issue once and for all, it is essential that we obtain profitability figures from the banks, exactly in the same way this committee needed to obtain figures on lending activities to small businesses to help the members make fully informed recommendations.

In the end, I believe that Canadian credit card holders have the right to know if they are being used to offset losses banks may be incurring in other sectors.

Bill C-233 also attempted to implement important recommendations dealing with the method of calculating interest on credit cards. Bill C-233 would have created one standardized method of calculating interest charges and a mandatory grace period for partial payments on all types of credit cards.

Very few Canadians realize they are not being credited for partial payments on their bank credit cards. The formulas used are very complex and amount to what I consider to be unfair practices.

The finance committee's 1987 report best summarized this issue:

[Translation]

The final point I want to address is disclosure to consumers. Previous committees studying the credit card market devoted much of their time to this because of the important impact information has in competition. It is a much accepted notion that the more informed consumers are about available choices, the more competitive the market will be. Indeed full disclosure of a supplier's good or service is essential to the market's wellbeing.

The U.S. Fair Credit and Charge Card Disclosure Act of 1988 is an excellent example of strong and effective disclosure rules. Under the terms of this Act, card issuers must provide early disclosure of credit card terms and all applications and sollicitations in a uniform table known as the Schumer Box.

[English]

This is the fifth document in the package. Mr. Schumer was a U.S. congressman who promoted this application model that now bears his name. It sets out exactly what the terms are on the card. It's standardized so consumers know exactly what they're dealing with.

[Translation]

One of the strong points of this legislation is that it forbids card issuers to advertize one feature of their cards while ignoring all others. These measures were designed to put a stop to sollicitations that are truthful but incomplete and therefore misleading. In the end, the rules give consumers a fighting chance when deciding which cards to carry.

Unfortunately, instead of recommending progressive disclosure laws of this nature, the Standing Committee on Consumer and Corporate Affairs opted for timid new rules that were, for the most part, completely ignored by the government of the day. In my opinion, the committee sent a disturbing message that as consumers we were on our own.

[English]

Past parliamentary inquiries on the credit card industry in Canada came when rates on other kinds of bank loans were declining rapidly while the rates on cards remained high. Each time the banks managed to persuade consumers they had met the committee's concerns by the simple tactic of lowering the interest rate on their cards. Even though bank card rates are currently not as bad as they used to be, nothing can guarantee they won't climb back up again. Retail credit cards, on the other hand, seem to be a hopeless case, charging an identical 28.8% for over ten years now.

The banks claim that their cards are not especially profitable and their card operations are not covering losses on other loans, but they are not prepared to prove it. Adequate disclosure laws requiring that our financial institutions report their card profit activities would rectify this serious flaw.

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As a result of commitments made in the June 1994 Agreement on Internal Trade, federal and provincial governments are working towards the harmonization of credit cost disclosure laws in our country. Unfortunately the proposals I have seen to date pertaining to credit cards fall short of existing U.S. laws such as the Fair Credit and Charge Card Disclosure Act.

In conclusion, let us keep in mind that the debt-to-income ratio in this country is reaching alarming proportions. While increased mortgage rates are largely the cause of this ratio, it is important to note that the credit card debt appears to be responsible for an increasing portion of the consumer debt, growing from 12.4% in 1985 to 19.5% in 1994, with corresponding declines for other forms of consumer debts. Debit cards and service charges of all kinds from financial institutions also play into this scary equation.

We have a duty as elected officials to make sure that Canadians are not bearing the brunt of unfair practices in the credit card industry and the banking industry. I therefore strongly suggest that this committee revisit these and other questionable practices in the credit card industry for the good of Canadians.

I do not believe full-blown hearings are necessary, given the extensive studies conducted by past parliamentary committees. A simple review of the facts and past recommendations will no doubt allow you to conclude that the concerns and problems identified in this industry are passably the same and that they still need to be addressed. With a bit of political will from all sides, I am sure we can accomplish this necessary task.

Also, I have a list of potential witnesses I would suggest if the decision of the committee is indeed to pursue this matter.

The Chairman: Just as a matter of clarification before we turn it over, Bill C-233 is simply a part of what you're concerned about - it doesn't, for example, deal with disclosure issues - and it was deemed non-votable.

Mr. DeVillers: That's right. It's dead.

The Chairman: So what you're asking is that the subject-matter of this bill be examined plus the disclosure part, which was not the subject of this.

Mr. DeVillers: That's correct.

[Translation]

The Chairman: Mr. Rocheleau.

Mr. Rocheleau (Trois-Rivières): Good day, Mr. DeVillers. I first of all would like to congratulate you for the fight you have been leading for many years now not only in the interest of consumers but of the public in general. It reminds me of the biblical story of Goliath and David.

I would like to ask you a question that might appear naive. There is something that seems very obvious in what you are suggesting if we don't want to leave everything to the market forces and to sheer competition. How come such an obvious and logical idea has not yet been implemented by the authorities?

Mr. DeVillers: I have already said this on three occasions, that is each time the committee broached the subject. Each time, fairly good recommendations were made to the government, but unfortunately, the government did not act upon them.

Mr. Rocheleau: What are the opposing forces? Of course, there are the banks, but what motivates certain people no to recognize the appropriateness of this idea?

Mr. DeVillers: I don't know what official responses the governments have given, but I agree with you that we can ask ourselves why they haven't followed up on those recommendations. I can't give you a definite answer. I have some ideas but...

Mr. Rocheleau: I would like to hear them.

Mr. DeVillers: Banks and big business have a lot of power in this country. Maybe they've made representations to governments.

Mr. Rocheleau: Thank you. Good luck!

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[English]

The Chairman: Mr. Schmidt, do you have any questions?

Mr. Schmidt (Okanagan Centre): Thank you, Mr. Chairman. Yes, I have. First, I would like to add my congratulatory words to those already expressed by Mr. Rocheleau, because I think it's a very significant issue. I would like to ask you, why is it that people are prepared to pay this much interest?

Mr. DeVillers: The consumers?

Mr. Schmidt: Yes.

Mr. DeVillers: I know there's the argument that it's a free choice. They don't have to incur these debts at these rates, mainly in the retail areas. But I don't really think that's the issue. I don't think our role here is to judge why people incur debt or why they get into debt. I think it would be to look at how they're treated when that occurs. Regardless of why they make those purchases, I suppose there's an element of enticement. There are good ad campaigns that are at play here. Regardless of why they make those maybe not wisest decisions to incur these kinds of debts, I think it's still incumbent upon us to look at how they're treated when that occurs.

Mr. Schmidt: I don't disagree. I asked a question to really try to determine what is it and why, to what degree ought the government to intrude into the business world and into the whole competition area. I'm not suggesting that maybe the government shouldn't, but I'm asking why should the government protect the consumers to this degree? There are a lot of areas where they should. We've got bank rates. For example, the interest rates are floating rates now. There's not a ceiling on them. The intent of your bill would cap the interest rates.

So we're not doing it in the financial institutions on the one hand, yet on your side you're suggesting we should.

Mr. DeVillers: We have the same thing in seatbelt laws: we impose them. The government in its wisdom decides that people should wear seatbelts and they're imposed for our own safety, whether we agree or not. I suppose it's a similar function of the public role.

Mr. Schmidt: Would you go so far as to say that there should be a cap on bank loans, too, interest rates?

Mr. DeVillers: There is now, in the Criminal Code; it happens to be 60%. We're not inventing something new; we're just trying to get a little more reasonable with the rates.

Mr. Schmidt: But be fair. There was a time when the amount of interest a bank could charge, quite outside the provisions of the Criminal Code, was limited. It did not float, and it was well below 60%, as you know. The point here now is clearly, if protection is necessary in the one area, shouldn't there be protection elsewhere as well?

Mr. DeVillers: I wouldn't argue against it.

Mr. Schmidt: Well, that's what I wanted you to say, or at least find out where you're coming from.

Mr. DeVillers: As long as it's a reasonable rate.

Mr. Schmidt: So your position really is that government should be there to protect the consumer against the big financial institutions and people who grant credit cards.

Mr. DeVillers: I think a role of government is there to protect the public, yes, in this area as well as many other areas. We have regulations when we fly in airplanes and there are rules and regulations.

Mr. Schmidt: And you would put this in the same category.

Mr. DeVillers: Sure.

Mr. Schmidt: Okay. I just wanted to make absolutely clear that we know precisely what the rationale is here. What would your guideline be as to what constitutes protection?

Mr. DeVillers: Do you mean as far as interest rates are concerned?

Mr. Schmidt: Yes. What should it be?

Mr. DeVillers: Do you mean what rate?

Mr. Schmidt: Yes. Does it relate to prime, or...?

Mr. DeVillers: What I was suggesting in my private member's bill was a floating rate.

Mr. Schmidt: So related to prime -

Mr. DeVillers: Related to prime and lower in the banks, for instance, and higher in the retailers because their cost of money is more expensive. They have to borrow the money from the banks to finance their operations.

Mr. Schmidt: What differential do you think it should be? The one that's in the bill?

Mr. DeVillers: Yes, I think that's fair and reasonable.

Mr. Schmidt: Thank you, Mr. Chairman.

The Chairman: Ms Bethel.

Ms Bethel (Edmonton East): Good work, Mr. DeVillers.

I'm interested in what the Retail Council of Canada has said. Have you had any recent discussions with them in terms of why they're not more amenable to your suggestions here?

Mr. DeVillers: No, I have not had any discussions with them. I've had discussions with the Canadian Bankers Association. Their basic position when I met with them was if they were to cap interest rates on credit cards, they would have to increase costs of other credit to maintain their profits. When they're making record profits each quarter as we speak, I question that a little bit.

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Ms Bethel: I notice from the American experience that there are some states that have actually gone to kind of a floating rate based on prime, the federal rate. Would that be your suggestion?

Mr. DeVillers: Yes; that I think is the most equitable.

Ms Bethel: Do you have any advice for us on the process we should follow? I notice your list of potential witnesses doesn't include the Retail Council of Canada. Is there anyone on that side of the issue you think particularly we should talk to?

Mr. DeVillers: Oh, yes. I'm sure the Canadian Bankers Association would be another good one. You'd want to hear directly from them about their position.

Ms Bethel: Thank you.

The Chairman: Maybe I could just throw in a question at this point.

On the whole issue of disclosure, in a way the argument of the banks, at least as you present it, is not unlike that of the telephone companies, where there's a cross-subsidy of local service by long distance. The point you're making is that in order for us to understand that relationship or element of cross-subsidy, you'd like disclosure.

Mr. DeVillers: Right.

The Chairman: Their response is that's a competitive question, but presumably it's also a competitive question for the phone companies.

Mr. DeVillers: Yes. And it's a competitive question for the banks in the U.S., and they have a system with much more disclosure.

I also understand the bank's position; they have to make a profit. They are accountable to their shareholders and they're in the business of making a profit. I'm not bank-bashing; I'd just like to see a little fairness and equity.

The Chairman: Okay.

Are there other questions?

Mr. Murray (Lanark - Carleton): Again, I'd like to congratulate you on a job well done and a very good piece of research.

I was interested in why, in your bill, you differentiate between petroleum companies and retail operations in terms of limits on interest rates, giving 9.5% for petroleum companies and 11.5% for banks. I presume petroleum companies would also have to finance their operations. Is there a reason for that difference?

Mr. DeVillers: Yes. It's related to the fact that they don't charge service fees. One group of retailers had service fees and others didn't. Also, they calculate interest differently. The petroleum companies give credits for part payments now, etc. So these were all taken into the reasoning. All those factors were reasons for the suggested interest rates.

Mr. Murray: Let's look at this phenomenon of the 28.8% interest rate that seems to be pretty widespread in the retail sector. I'm not a lawyer, and I haven't looked at the legal aspects of this. Perhaps you have. Is there any problem here in terms of price-fixing or collusion? I'm just wondering if there's pressure from that point of view.

Mr. DeVillers: There have been investigations under the Combines Investigation Act, but they've never found any evidence of collusion. I know the retail companies say most of their customers also have bank cards, so if the consumer doesn't want to pay 28.8%, they should use their bank card instead of their retail company card.

Mr. Murray: It's just that magic figure of 28.8%. It's a figure you could pick out of the air. I just wonder if they've justified how they reached 28.8%.

Mr. DeVillers: It's highly coincidental, I would say.

Mr. Murray: Okay. That's all.

Mr. Ianno (Trinity - Spadina): Once again I will go with the rest of you in terms of making sure Canadians are protected, and I think this bill goes a long way.

The question I have is why did you choose 9.5% over prime?

Mr. DeVillers: That had been suggested in previous committee reports, and it was something that seemed to be reasonable to allow a reasonable profit margin.

Mr. Ianno: I guess that's the question I have. How do you determine reasonable profit? Between 6%, 7%, 8% and 9.5%, how do you determine where...?

Mr. DeVillers: This is a cap. Hopefully market forces would work within the capped area. We aren't saying it should always be that rate; we're just giving that as a maximum.

Mr. Ianno: Thank you.

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[Translation]

Mr. Rocheleau: Mr. DeVillers, you're saying that if we had better laws in Canada and if banks were forced to divulge some information, we could have a clearer picture of the situation. You say our laws are far behind the American laws in this area. Could you compare our laws to the American laws and tell us what is expected of American banks?

Mr. DeVillers: The last time a committee studied the matter, banks answered they couldn't divulge their profits on credit cards and compare them to profits made on other kind of loans. The committee could not force them to do so.

In the United States, the bill that I mention in my opening statement forces the banks to divulge the profits made on credit cards and other types of loans.

Mr. Rocheleau: In that case, if there was a political will in Canada, we could simply imitate the Americans without fear of being called heretics.

Mr. DeVillers: That's exactly what I'm suggesting.

[English]

The Chairman: We presumably have the further advantage, not available in the United States, that because it's federal law that controls these matters, we wouldn't get the kind of flight from one state jurisdiction to another that has been described in some documents.

In other words, as I understand it, if you run your credit card operation out of a non-disclosing state such as Delaware, it doesn't matter where you live. You could live in Maine and you'd still have to pay the shot and not have all that stuff disclosed. So these disclosure laws in various U.S. jurisdictions are not as good as they look, because they can always headquarter their credit cards somewhere else.

Mr. DeVillers: Yes.

Back to dealing with that jurisdictional issue, in June of this year I wrote to the Minister of Consumer and Commercial Relations, the Honourable Norm Sterling, on the issue of interest rates. In his response to me on July 28, he basically refers me back to Minister Manley. He says:

So that is sort of an acknowledgement, I think, from the provincial minister that it is a federal issue.

Mr. Bélanger (Ottawa - Vanier): Mr. DeVillers, what would you want from this committee?

Mr. DeVillers: I'm recommending that the committee study the issue again and for sure come up with stronger recommendations in the area of what the financial institutions should disclose. There's also a strong case to be made for capping the interest rates and examining the methods of calculation. Those are basically the three things I would like to see the committee deal with.

Mr. Bélanger: In terms of capping, the 1989 reports of the consumer and corporate affairs committee recommend that there be a floating cap of 8% for bank cards and 16.5% for retail cards. Do you find those acceptable?

Mr. DeVillers: Yes, I think those are reasonable.

Mr. Bélanger: Was this not a unanimous recommendation of the committee at the time?

Mr. DeVillers: I don't recall. I don't have that information at hand.

Mr. Bélanger: I believe it was.

Mr. Schmidt: I believe so, too.

Mr. Bélanger: Thank you.

Mr. Schmidt: I have a question of clarification. It has to do with the four distinct levels of protection here: 6.5%, 8.5%, 9.5% and 11.5%.

I would like you to clarify why there is the difference in rates. I think I can presume the answer, but -

Mr. DeVillers: For different categories of cards?

Mr. Schmidt: Yes, exactly.

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Mr. DeVillers: The factors at play include the cost of money if the retailers or gas companies have to borrow money to finance their operations. Then I think they should be allowed a higher margin, as opposed to the banks that are the lending institutions themselves.

In making those suggestions, we were also taking into account the method of...whether there were fees or not. Some cards have fees. When you purchase the card and enter into the contract, you pay an administration fee. Some presently allow credit for partial payments and others don't. So those are the factors that were taken into account.

Mr. Schmidt: I think that probably illustrates the complexity of dealing with the subject.

Mr. DeVillers: Oh, yes. I'm not alleging it's a simple issue.

Mr. Schmidt: I'd like to ask you whether in your opinion this is also an increase in the credit risk. The least risky person is the one who uses the financial institution's card, and then you go up the list until you get to the retail card holder, who's probably the greatest risk. Is that part of the thinking here at all?

Mr. DeVillers: No, not really, because according to my information, the easiest cards to obtain are the retail cards, credit-wise.

Mr. Schmidt: Then they probably involve the greatest credit risks.

Mr. DeVillers: There is not as much of a credit check done on people obtaining them.

Mr. Schmidt: I think your basic position is really to get some kind of protection.

Mr. DeVillers: Yes.

Mr. Schmidt: To follow up on that, would you have the same kind of protection for everybody? It seems to me that the person who has the credit card with a financial institution has a greater amount of protection than the person who's in the retail industry here.

Mr. DeVillers: Do you mean protection against the interest rates?

Mr. Schmidt: There's a difference of 5%, so at the retail end of it a person's protection is 5% lower than the protection for the person who's borrowing, in effect, from the bank.

Mr. DeVillers: I think the issue is that there should be protection. I think there's still room for a variance in different categories of cards and types of credit.

Mr. Schmidt: I think what I'm concerned about here is the consistency of protection. It almost seems as if the person who elects to work with the banks will get better protection than the person who works with the retailer. That's my concern. If we're going to protect consumers, why wouldn't we protect consumers equally well regardless of where they get their credit?

Mr. DeVillers: Because we also have to allow for the retail companies' margins when they have financing costs that the banks or other financial institutions don't have. I think that's the reason for the variance. But I think we need a scheme of protection that accommodates the variance.

Mr. Schmidt: I understand very well where you're coming from. I also understand how it works. But by the same token, the consumer ends up paying. If he goes the retail route, he pays 5% more than if he goes the bank route. That's what happens. You think that's perfectly all right.

Mr. DeVillers: I think there's still room for that freedom of choice within the scheme.

Mr. Schmidt: I think you're violating the principle of protection here, but that's another issue.

The Chairman: Are there any other questions of clarification?

I just want to echo what the other members of the committee have said. We very much appreciate your taking the time to come before us. I think all of us appreciate the work that has gone into this and I think all of us feel we're better informed on this issue than when we walked into the room. Now we have to figure out how we should deal with it as a committee.

Thank you for coming.

We'll have a two-minute break before we move in camera for the rest of the morning. Again, thank you.

Mr. DeVillers: Thank you, Mr. Chair.

[Translation]

The Chairman: Thank you very much.

[Proceedings continue in camera].

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