Thank you for inviting the ÒõAPPµ¼º½ (CBA) to appear this afternoon to participate in the Committee’s study of credit card practices and regulations in Canada. My name is Darren Hannah and I am the Senior Vice President, Financial Stability & Banking Policy with the CBA. I am joined today by Charles Docherty, Vice President & Assistant General Counsel.
The CBA represents more than 60 domestic and foreign banks employing over 280,000 Canadians that help drive Canada’s economic growth and prosperity. We advocate for public policies that contribute to a sound, thriving banking system to ensure Canadians can succeed in their financial goals.
Canada has a well-developed payments system and payment cards are an important part of that. In 2023, Canadians made 21.7 billion payments transactions to individuals and businesses. Of that total, credit card payments accounted for 33%, or 7.2 billion transactions. They also play a central role in ecommerce, enabling retailers and small businesses to accept payments for online transactions from buyers across Canada and around the world.
Canadians use credit cards primarily as a payments tool rather than a credit vehicle. 71% of Canadians pay off their balance in full every month and therefore pay no interest. As a consequence, credit cards only account for 4.5% of household debt. For Canadians who do want to take advantage of the credit facility, most issuers offer low-rate cards designed for customers who want to carry a balance. In addition, many issuers now also offer innovative installment loan options where customers can elect to transform a card purchase into an installment loan, often at a lower interest rate, that pays off the purchase in full over a fixed term.
Canadian consumers like credit cards because they offer great value and real benefits. They are a secure payment mechanism, available at point-of-sale or online, with liability protections for consumers as well as features such as insurance or purchase security and warranties. They also provide tangible consumer rewards such as discounts for gas, cashback for groceries, travel benefits, or free movies or other entertainment options for the family. It also gives consumers the flexibility to take advantage of sales and store discounts to save money because they can buy when prices are low and pay later when they have money in their account.
The credit card business is highly regulated. Consumers with credit cards from banks are protected by Bank Act regulations that require, among other things:
• Clear and simple up-front disclosure of rates, fees, and terms printed in an easy-to-read summary box.
• A detailed statement of itemized transactions and charges along with the amount you must pay by the due date in order to have the benefit of a grace period.
• Rules on advertising.
• Limits on consumer liability in the event of fraud.
Beyond the legal requirements, cardholders are bank customers and Canadian banks have a long history of working with their clients during challenging times. Most recently, during the COVID-19 pandemic, Canada’s banks provided almost 1.3 million deferrals on credit cards, lines of credit, personal loans and auto loans, plus an additional 800,000 payment deferrals for mortgage clients.
For retailers, credit cards offer secure, assured payment, access to a huge cardholder base, the ability to accept payments online, and the ability to offer customers real-time credit for purchases so sales can happen when the customer is in the store without the retailer having to take on any credit risk. When combined with Canada’s low-cost debit card system, they form the foundation of Canada’s affordable, reliable, and innovative retail payments infrastructure.
In a world where the price of almost everything has been going up, the cost of card acceptance has been going down. The most recent agreements between the government and the credit card networks will reduce interchange fees for small businesses by up to 27%. Building on top of the prior agreements, the collective result is that interchange for small businesses has declined by more than a third over the last decade.
In short, credit cards offer security and value for consumers and retailers, and do so within a robust regulatory framework to give consumers peace of mind.
I want to thank you for inviting me here and welcome any questions you may have.