Ottawa, April 17, 19, 2007. When MP Judy Wasylycia-Leis asked all the banks appearing before FINA and FINA whether anyone supported her draft bill to end bank ATM surcharges, there was laughter in the room and one heckler said "not even the competition bureau". That moment encapsulated the extent to which Canadian banks and Interac have cast the status quo in stone and short of an NDP government, no change appears imminent on this topic. Testimony by Richard Taylor of the Competition Bureau did not raise concerns over competition in today's banking services market, but instead reiterated the position taken by the Bureau in its 1996 consent order on Interac.

The full minutes of all FINA hearings on ATM fees and electronic payments are available on this page below this article.

One after another, Canada's big banks, CIBC, NBC, RBC, TD, BMO and BNS went under the spotlight of the House of Commons Standing Committee on Finance (FINA) to justify the status quo of levying surcharges on ATM transactions of non-customers. None of the witnesses who appeared before FINA who is invested in the current business plan of ATM machines had criticism of the surcharges that are disliked by most Canadians and have attracted the ire of the NDP under the leadership of MP Judy Wasylycia-Leis. A group of witnesses representing community organizations, such as the Canadian Community Reinvestment Coalition, the Canadian Consumer Initiative and Consumers Association of Canada complained about the cost of accessing cash to disadvantaged and rural Canadians as well as the lack of transparency on the part of the banks in disclosing the correlation, if any, between cost and pricing of ATM surcharges.

FINA also heard from a third group of witnesses in the form of Canadian payments entrepreneurs such as Joseph Iuso and Brian Crouzier of UseMyBank, an online payment facilitator and Susan Ransom of VisionCraft Development Corporation, a cheque imaging and EFT business. The entrepreneurs were less opinionated on ATM surcharges than the banks and community groups, but did have complaints concerning the lack of competitiveness in Canadian payments markets owing to bank dominance therein and the lack of accountability of banks in respect of preventing cheque fraud.

Cost and Competition

Each of the witnesses on the defense of the status quo on ATM fees sidestepped the question of how the amount of ATM surcharges, also known as convenience fees, are actually calculated and what relationship they bear to the cost of supplying the services. Wasylycia-Leis posed the question pointedly to the banks: "All of you, as banks, charge up to $5.15, if you apply every single cost. That is a mark-up of what, 500% or 600% or more? It seems to me that it's well beyond the notion of gouging. Gouging is after 15% or 20%, is it not?"

Responses to this line of questioning from the banks included the following:

TD: "The issue of fees and costs in particular, I know, are of interest to this committee, and it's a complicated question to answer. First, I'm not about to disclose my cost structure, especially with my competition sitting right beside me. That is proprietary information, and we do compete strongly."

BMO: "I will have to echo the comments made on that subject earlier. First of all, the matter of costs on any one service is a very challenging thing to determine, and we would not disclose it if we did have those costs."

BNS: "[…] So we don't look at this as one specific cost setter. It's part of an integrated part of opening up a new branch system. We don't divulge that for competitive reasons."

Interac: "Interac Association does not set or regulate fees charged by our members to consumers or merchants. In fact, as an association of competitors, competition law expressly prohibits us from setting or influencing this marketplace pricing. We are, however, committed to full and fair fee disclosure for consumers. Our regulations require ABM operators to display their fees, providing consumers with an opportunity to cancel a transaction if they do not wish to pay the fee."

The cost for a bank to supply an ATM transaction to a customer of another bank that is a member of Interac does not constitute a large portion of the typical $1.50 surcharge charged to Canadian ATM users. MPs observed that it is impossible to discern how the banks compete on the surcharge issue given that the surcharges are of uniform amount, usually $1.50. Banks were represented on this issue in the media and initially at FINA by the Canadian Bankers Association (CBA), evidencing at least some level of cooperation between banks on the surcharges issue. In another example of bank uniformity on the issue, five of the six banks that testified at FINA made a point of stating what percentage of their own customers' transactions were carried out at their own ATM machines. Here are the numbers:

BNS 75%
TD 80%
CIBC 90%
RBC 80%
BMO 85%

According to testimony of the CBA, ATM fee revenue to Canadian banks is about $153 million and as a percentage of bank revenues that would be some very small fraction of 1%. The 10% to 20% of transactions carried out by customers at machines that are not of their bank therefore constitute all of the $153 million in ATM fee revenue.

UseMyBank

UseMyBank, that was profiled in Issue 5 of the FT, had three principal points to make to the committee. The first was a demand that regulators, by amendment to Rule H-6, treat the Canadian banking system as an infrastructure operated by the banks, to which access should become a matter of right rather than privilege for non-FIs such as UseMyBank. Iuso, of UseMyBank, cited access to telephone infrastructure as a precedent for this kind of promotion of healthy competition. The second was a call for a change to Rule E-2 such that electronic payments need not be initiated by the bank's website, thereby allowing third parties to participate in the payment process. The current rule creates a monopoly for the banks on initiation of electronic payments.

Finally, UseMyBank, leaning on the infrastructure status of banks in Canada, called for an extension of the Bank Act regulation requiring banks to open accounts for almost any individual to include rights of access to banking services for corporations.

VisionCraft

On the subject of bank liability for fraudulent cheques, Susan Ransom of VisionCraft Development Corporation testified that the CPA 006 standard is currently implemented, "consumers are being subjected to excessive cost and risk and VisionCraft sees these increasing in the future. The portion that dealt with cheque scanning in Bill C-37 is one page. The equivalent U.S. legislation, which is generally called Check 21, is 18 pages plus a 144-page final rule, which provides recourse to consumers in the face of mistakes and losses caused by scanning. Check 21 does not require scanning or truncation of cheques. It is voluntary. The banks are acting as a cartel in this matter, and no one is being given a choice. This is directly in contravention to what's happening in the U.S., where the universal commercial code requires that all cheque issuers put as many fraud features as possible on their cheques or they risk liability should a fraudulent cheque be passed.