Committees from both the Senate and the House of Commons have recently undertaken to review Canada's credit and debit payment systems. The Senate Committee on Banking, Trade and Commerce commenced hearings on March 25, 2009. The House of Commons Standing Committee on Industry, Science and Technology will undertake a separate study and will produce a report on their review.
Initial reports suggested these federal parliamentary committees would focus on credit card interchange fees that are paid by merchants as well as the current state of the debit system and the possible future impact of the recent request by Interac to restructure to become a “for profit” entity.
However, early Senate Committee hearings have indicated that the Senate Committee's probe will be far broader than expected. So far, the hearings have had a distinct consumer protection air, investigating the financial literacy of Canadians, how consumers are using their payment cards and what package of measures might best protect the consumer from financial hardship. Surprisingly, these hearings have also uncovered that the federal Competition Bureau is investigating the payments industry for possible breaches of the Competition Act, specifically the "abuse of dominance" provisions in relation to interchange fees set by the major credit card companies, namely MasterCard and Visa.
New Regulation on the Horizon?
The federal government has not yet confirmed whether regulation will be forthcoming. The Senate Committee has indicated it will report no later than June 30, 2009. The House of Commons Committee has indicated that they will produce a report on their study, but has not yet indicated when such report might be tabled.
Liberal Senator Pierrette Ringuette’s explicit call for regulation cannot go unnoticed. While intended to be in the consumer's interest, industry participants take the position that regulation threatens to stifle innovation, competition and choice. Furthermore, such regulation will need to consider merchants and their relationship with consumers. In Australia, where steps were taken to regulate debit and credit fees, consumers did not benefit from regulated and reduced interchange fees in cases where merchants did not reduce their prices despite their lower costs.
How such potential regulation would be designed to protect the public interest while simultaneously fostering competition and innovation is yet to be seen. We will be monitoring developments and will produce further updates as these reviews progress.