:
Thank you, Mr. Chairman and members of the committee, for inviting the Competition Bureau to take part in the committee's hearings on credit and debit card issues.
My name is Richard Taylor and I am deputy commissioner of civil matters branch at the Competition Bureau. Joining me today is Martine Dagenais, the assistant deputy commissioner of civil matters branch.
[Translation]
l would like to begin with a few words about the Competition Act and our role at the bureau.
Competition is a valuable and creative force in our economy. It can foster innovation and lower prices, it can increase efficiency and can allow for greater consumer choice. Through the Competition Act, Parliament has identified and prohibited a number of activities that undermine a competitive marketplace. The Competition Bureau is an independent law enforcement agency that is responsible for administering and enforcing the Competition Act.
[English]
Among other things, the act prohibits anti-competitive practices such as price fixing, abuse of dominance, and deceptive marketing practices that are likely to have a significant negative effect on competition. The act also gives the bureau the mandate to review mergers to determine whether they would result in a substantial lessening or prevention of competition and to take action if we conclude they do so.
As a statute of general application, the Competition Act does not regulate individual transactions between buyers and sellers. Rather, the act seeks to develop and maintain the conditions necessary for a competitive marketplace. It is important to note that under the act businesses are generally free to set their own prices at a level the market will bear. For the bureau, high prices or fees are a concern only when they are the result of a contravention of the act, such as price fixing or abuse of dominance. In the case of abuse of dominance, the courts have confined the law to prohibit only those anti-competitive acts by a dominant firm or firms that are designed to exclude competitors and lessen competition significantly in a given market.
[Translation]
I want to stress that the bureau takes very seriously the possibility of any contravention of the Competition Act. We do not hesitate to take action when warranted. Recently, we negotiated the divestiture of 104 retail gasoline stations in southern Ontario to resolve our concern that, in the absence of such a divestiture, the Suncor/PetroCan merger would have resulted in a substantial lessening of competition, meaning higher pries for consumers at the pump.
[English]
In a separate matter, there have been a number of guilty pleas and fines totalling nearly $3 million to date in a major gasoline price-fixing case in Quebec that we investigated and referred to the Department of Public Prosecutions for prosecution. In another area of our work, in October a man was sentenced to three and a half years in jail for operating an employment opportunities scam involving counterfeit cheques. This was the result of an extensive investigation by the bureau in cooperation with a number of domestic and international enforcement partners. These and other examples show that we take seriously our role to enforce the act.
[Translation]
The bureau receives and reviews upwards of 15,000 complaints a year. Since the beginning of this year, courts have levied over $19 million in fines resulting from bureau criminal investigations. These are some of the measurable results of the bureau's work.
[English]
Having said that, I would now like to turn to the issue at hand today.
The committee heard this past spring from a number of witnesses who are concerned about the current state and future of the credit card and debit card markets in Canada. These are very complex markets, with many stakeholders and few easy answers.
Let me first address the issue of credit cards. At this time, the bureau's investigation into the interchange fee is ongoing. This investigation is to determine whether there has been a breach of the act. During a spring appearance before the Senate banking, trade and commerce committee, I confirmed that the bureau was looking at possible contraventions of the act regarding credit card fees. Specifically, we are examining interchange fees and the rules applicable to merchants who accept credit cards and whether there may have been a contravention of the price maintenance or abuse of dominance provisions of the Competition Act. As I noted earlier, these are complex investigations involving significant amounts of data and detailed analysis by numerous bureau staff and outside economic and industry experts.
[Translation]
The price maintenance provision is contained in section 76. This section was recently amended by Bill C-10. Price maintenance may occur when a supplier by agreement, threat or promise, influences upwards or discourages a reduction in the price of a product or service. It may also occur when a supplier refuses to supply a customer or otherwise discriminates against him or her because of a low pricing policy.
[English]
Section 79 is the abuse of dominance provision of the act. This section prohibits dominant firms from engaging in the practice of anti-competitive acts that have in the past, present, or future the effect of substantially preventing or lessening competition in the market. That being said, the size of the business, even one that dominates a particular market, is not in itself a cause for concern under the Competition Act. As I mentioned, the courts have limited the definition of an abuse of dominance to those actions that are designed to exclude competitors and harm competition.
I would note that we are not alone in looking at the way interchange fees are set to determine whether there is a violation of competition laws. Of course, we are following developments in the credit card industry in Canada, but we are also monitoring private litigation in the United States and investigations by foreign competition and regulatory authorities around the world. We have followed the deliberations and proceedings in both the House and the Senate on this issue. It is quite apparent that there is a great deal of interest and concern in Canada and around the world on the issues the committee is studying. We are committed to deciding on a course of action with respect to the current inquiry in the coming weeks.
[Translation]
The second issue we have been asked to address today, namely the debit card market, has certainly been of general interest, particularly in light of the recent entry of Visa and MasterCard into the market.
[English]
The manner in which these developments engage the bureau is that Interac is seeking the bureau's consent before it files an application with the Competition Tribunal to restructure from a not-for-profit association to a for-profit entity. The tribunal issued the consent order in 1996 that addressed concerns the bureau then had regarding the activities of the members of Interac, mostly the large banks, who, at the time, controlled the debit network. The consent order provided for several measures to increase competition in the market for debit products, including easier access to the network. The consent order prohibits Interac from operating on a for-profit basis.
[Translation]
The original order was not entered into lightly and amending a consent order is no small matter, it should only be done after carefully reviewing the available facts. I should add that it is incorrect to say that the bureau will decide this matter. We need to decide whether, having examined all the evidence, we would challenge an Interac application to the Competition Tribunal to change the terms of the Consent Order. In any event, whether or not the bureau challenges such an application, it is the Competition Tribunal that will ultimately decide whether Interac is allowed to restructure.
[English]
We anticipate making a decision in the coming weeks on whether to challenge Interac at the tribunal. We will make our decision public at that time. The bureau understands the importance of this very complex industry to every Canadian. We are acting prudently, with the tools we have, to ensure a pro-competitive outcome.
[Translation]
And with that, Mr. Chairman, I thank you and your fellow committee members for your time, and I welcome any questions committee members may have.
:
Thank you, Mr. Chairman and all colleagues. I'm going to share the time allotted to me with Mr. Garneau.
[English]
Mr. Taylor, I'll try to do this as best I can with a bit of a broken voice.
I think for most of us here there is great concern that we may come to the point where we can't unscramble scrambled eggs and in fact put these things back together. One concern that has been raised, Mr. Taylor, is of course the dominant position of Visa and MasterCard on the credit side, which of course you're inquiring on from two perspectives: the price maintenance and the abuse of dominance provision. However, I am concerned that as we have these discussions here as a committee, and as your bureau continues its work in terms of making a determination on the Visa front, the debit card market is already changing, and changing rapidly.
Point of sale terminals are now being transferred, with priority routing going to either Visa or MasterCard. Interac cannot find itself in a position, without a change in the consent order, to be able to have a semblance of opportunity to compete, considering, of course, the structure of its mandate--who operates Interac.
I'm wondering, Mr. Taylor, from your perspective, if speed, if getting to this issue a lot more quickly, is not a priority. How do you proceed? How will you be able to ensure that there will be sufficient competition if in fact most of the details that we see now are already in place? Merchants, of course, will have already signed contracts if there is no formal regulation to prevent them.
Thank you for your presentation today.
You're right, trying to understand the debit market is a complex issue, when $168 billion, I believe, is the number Interac is helping to look after right now. I believe you said it was 99.9% of that market, so that's a significant amount of money that seems to be working right now.
I know it will be difficult to answer some of the questions, so I'm trying to phrase them to get more of your opinion.
Would it be fair to say that if Interac doesn't get the consent it needs, they're then put into an unfair advantage because they're going to be competing with Visa and MasterCard, which are coming in as for-profit companies, and Interac will be not-for-profit?
Does that make competition fair? I'm looking for your opinion on that.
:
Routing in the debit card context is one of the issues on which the Senate banking committee made recommendations in its report. As you're aware, there has been a request for an official government response to the committee's report, and this is an ongoing process. We cannot make specific comments at this time as to what action the government should take.
What I can tell you is that routing is not a simple or straightforward issue; it's highly complex, involving a number of actors in the market and an intricate web of interrelated issues. Routing in the debit context is a process by which a given network--Interac, Visa, MasterCard's Maestro--is selected to transmit the electronic message to authorize a debit transaction.
There are questions as to who should make that decision--the network, the issuer, the acquirer, the merchant, or the consumer. Depending on whose network the transaction is conducted on, the cost to the merchant may vary. We don't have a position on which one of those should be the one that chooses. I think there will be a government response to that.
Would you like to add anything, Martine?
Ms. Martine Dagenais: No.
:
I should say that we don't just rely on complaints. In fact, some of our better cases have come from the newspapers. Say we read that some company has a large market share; we may proactively look into that. Sometimes a complainant, a small business, will come in and tell us about a big company that is beating them up, and that will start a complaint. So there are various ways. Sometimes parliamentarians raise issues on behalf of their constituents, and we will seriously look at those, though unfortunately not every complaint that comes in meets the definition under the act.
So those are the ways that we could intake complaints. So we have various ways. We're not restricted in any way.
On abuse of dominance, to get to your second question, we can act before the company becomes dominant, when the company is dominant, or after the company is dominant. The wording of the section says that we have that ability.
To the third part of your question, what is abuse, abuse is really three things. The wording is not very helpful in understanding what abuse is. It was a former monopolization provision that was amended by Parliament in 1986 to make it more effective, and there are really three elements. You have to be dominant, i.e., you have to have market power. Market power is a large share of the market and barriers to entry. You have to have a practice of anti-competitive acts, which can be anything that excludes or harms competitors. And finally, you have to show that in that market there's a substantial lessening of competition. So it's a three-part test.