Media Release
DEMOCRACY WATCH CALLS ON INDUSTRY COMMITTEE TO QUESTION CREDIT CARD PROFIT MARGINS

Tuesday, February 11, 1997

OTTAWA - Today, as the Canadian Bankers Association testifies on credit card interest rates before the House of Commons Industry Committee, Democracy Watch called on the Committee to question the credit card profit margins and to recommend strict disclosure of the costs and revenues of credit card operations. The Committee is holding hearings this week on the issue, with testimony from bank and retail sector representatives, and consumer advocacy groups.

"In return for the protection and privileges banks have received for decades from the government, Canadians have the right to know whether banks are gouging consumers with excessive credit card interest rates" stated Duff Conacher, Coordinator of Democracy Watch.

Democracy Watch called on the Industry Committee to pose the following questions to the banks and retail companies:

In order to determine their profit margin from credit card operations

• What are the total revenues from their credit card operations (broken down by total interest revenues and fee revenues from credit card holders), and what are their total costs of those operations according to generally accepted accounting principles (broken down by general administration; operating costs; advertising; promotional costs; bad debts; fraud; and replacement of lost and stolen cards)?
  and
• What is the total amount they pay to merchants for charges made by customers to credit cards, and what is the total amount merchants pay to them in administrative fees on transactions? (the difference is the amount earned by credit card companies during the so-called "21-day interest free period" they claim they give to customers)

In order to determine whether low-interest-rate credit cards are easily available as the banks claim

• If they have a low-interest credit card, how many people apply for the low-rate card each year and how many are approved and how many rejected, as compared to the application and approval/rejection rates for higher interest rate cards?

"If the Committee does not demand answers to these questions from banks and retail companies" stated Duff Conacher, "The hearings will amount to only a public relations exercise for the credit card companies and the politicians."

Democracy Watch also called on the Committee to recommend to the federal government that credit card companies, especially banks, be required to disclose the information requested in the questions set out above each quarter as part of their profits reports. In addition, the Committee should recommend that credit card companies:

• be required to state the cost of credit fully, in advance, and in a uniform manner to their customers (as in the U.S.);
• be prohibited from practising tied selling;

In order to ensure that financial institutions comply with these measures, Democracy Watch called for the creation of a Financial Consumer Organization (FCO) as a key step toward helping bank customers hold banks accountable on issues such as service fees, credit card interest rates, deposit insurance, privacy, tied-selling, corporate governance and complaint handling mechanisms.

The FCO would be created by the federal government requiring federally-regulated banks, trusts and insurance companies to enclose a flyer when they mail out their bank statements, credit card bills, and insurance premium statements. The flyer would invite customers to pay an annual membership fee ($10-15) to join the FCO. This mechanism has been used very successfully to help residential utility ratepayers band together in four states in the U.S. to hold utilities accountable to their interests.

If only three to five percent of financial institution customers signed up, the FCO would have between 600,000 and one million members and an annual budget from membership fees of between $6 million and $15 million. The FCO would be governed democratically by the members and would represent financial consumers before the government, agencies and the courts. It would also provide consumer education services such as comparative price surveys on service charges, credit cards, and advice on questions to ask mutual fund and insurance brokers.

"The proposed Financial Consumer Organization would create a self-sustaining, broad-based and representative organization that will help financial consumers and encourage competition in the marketplace," said Duff Conacher, "at little or no cost to government, taxpayers or financial institutions."