Opening Remarks by George Addy, Senior Deputy Director of Investigation and Research

Standing Committee on Consumer and Corporate Affairs
and Government Operations

Ottawa, February 18, 1992

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Good afternoon Mr. Chairman, members of the Committee. My name is George Addy. I am the Senior Deputy Director of Investigation and Research in the Bureau of Competition Policy.

I am pleased to have this opportunity to appear before you this afternoon to answer any questions that you may have with respect to the issues that you are currently examining concerning competition in the credit card industry. I will try to keep my opening comments brief.

I would like to begin with some general comments about the Competition Act. As you will recall, the Competition Act was substantially amended in 1986. It is a law of general application which applies to the activities of all sectors of the Canadian economy and consequently affects service, resource and manufacturing industries. As a result, all business activities in Canada are subject to the law, with the exception of a few activities specifically exempted under the Act, such as collective bargaining activities and amateur sport, or some activities that are effectively regulated under other legislation.

Under section 10 of the Act, the Director of Investigation and Research is required to commence an inquiry whenever he has reason to believe that the Act has been or is about to be violated or grounds exist for the making of an order by the Competition Tribunal. He shall also commence an inquiry whenever he is so directed by the Minister of Consumer and Corporate Affairs or whenever he receives an application by six residents of Canada under section 9 of the Act.

Before turning to the application of the Competition Act to the financial sector, I would like to take time to draw two important issues to your attention. Under subsection 10(3), all inquiries under the Act must be conducted in private. As well, pursuant to section 29 of the Act, communication by the Director of any information obtained during the course of an inquiry is restricted. A breach of this provision is a criminal offence. The purpose of these clauses are to ensure the privacy of the Director's inquiries, particularly in light of the sensitive and serious nature of his work. As a result, I am prohibited from commenting on any specific inquiry which the Director may be conducting.

The second aspect that I would like to draw to your attention relates to the role that the Director has in the marketplace. The Director has no authority to regulate the activities of any person or business. He does not have the authority to regulate the pricing activities of market participants. His role is to monitor Canadian business markets and to actively pursue any matters which he believes may give rise to an offence under the criminal provisions or that provide grounds for the issuance of an order by the Competition Tribunal. The test he must satisfy before commencing an inquiry on his own initiative is to have "reasonable grounds" to believe an offence has occurred.

I would like to now turn to the subject of the application of the Act to financial markets. The Competition Act contains a number of provisions relating to agreements and conspiracy. With respect to financial markets, the general conspiracy provisions as set out in section 45 of the Act, and the provisions relating to agreements or arrangements among banks, as set out in section 49 of the Act, are the most germane.

As noted earlier, the Competition Act is a general law of general application and as such it applies to the activities of all financial institutions1 whether provincially or federally incorporated. Subsection 49(1) of the Act now prohibits agreements or arrangements among banks that relate to the rates of interest on loans and deposits; charges for loans and services provided to customers; the amount or kind of a loan provided to a customer; the kind of service provided to a customer and; the person or classes of persons to whom the banks provide a loan or other service. Various exceptions to these types of agreements or arrangements are set out in detail in subsection 49(2).

It should be noted that the banks face a more strict environment than other industries which are subject to the general conspiracy provisions. Unlike the general conspiracy provisions, section 49 does not require the Director to show that the agreement or arrangement has had the effect of unduly lessening competition. Consequently, banks that participate in a prohibited agreement or arrangement commit an offence regardless of the effect of the agreement. They are currently subject to a fine not exceeding five million dollars or to imprisonment for a term not exceeding five years or both.

As well, I would like to note that the recent amendments to the various pieces of financial sector legislation that are currently awaiting royal assent (such as the Trust and Loan Companies Act and the Insurance Companies Act) contained amendments affecting the application of section 49. Following proclamation of these pieces of legislation, this section will apply to not only banks but also to the activities of federally incorporated financial institutions, as will be defined in the section. The penalties for the section will also be increased to ten million dollars and ten years imprisonment.

Turning to non-bank financial institutions, they are currently subject to the general conspiracy provisions as set out in section 45 of the Act. In this regard, they are prohibited from entering into any agreement or arrangement with another person that prevents or lessens, unduly, competition in the market. A specific reference is made in subsection 45(1)(c) to agreements or arrangements to prevent or lessen, unduly, competition in the price of insurance on persons or property. Subsection 45(7.1) provides that banks are not subject to the general conspiracy provisions in regards to agreements or arrangements which are described in section 49.

A final area in which the Act specifically applies to the business activities often carried out by financial institutions is set out in the price maintenance provisions, found in section 61 of the Act. Under that provision, "no person .. who extends credit by way of credit cards or is otherwise engaged in a business that relates to credit cards ..." shall attempt to influence upward or to discourage the reduction of the price at which another person sells a product, or shall refuse to supply a product or otherwise discriminate against another person because of the low pricing policy of that person.

All of the provisions that I have described are very serious offenses dealt with in the Criminal Courts. Obviously, any allegations that such an offence has or is about to occur would be closely examined to determine if the allegations have a basis in fact. For example, prior to the commencement of an inquiry under any of the conspiracy provisions, the Director would have to have specific evidence that the parties have entered into an agreement. The jurisprudence in the conspiracy area has held that the mere fact that the parties have similar or parallel pricing policies is not sufficient to show agreement.

I have limited my comments this afternoon to a general nature. I understand that the Committee members have a number of specific issues that they would like to discuss and I am more than willing to provide whatever information that I can. While we may not be able to answer all of your questions, we are willing to provide you with whatever insights that we might have into this industry.