Credit card issuers elbowing in on more transactions

I've just received a friendly message from my bank that I can now set up pre-authorized payments against my credit card. Pre-authorized payments have been available for decades through cheque-based accounts. My bank is now making it easier to do the same for credit card accounts. By making this available online, or by phone, it seems to be even easier than from my chequing account (which for most vendors seems to still involve the provision by snail mail of a void cheque and written authorization).

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This all looks great for the consumer, which I'm sure it's intended to. What's interesting is that my bank has not offered the same convenience for my usual chequing account. After all, there isn't much in it for them, whereas they can ding these service companies being paid through a pre-authorized credit account a percentage of every one of those transactions. If it was a debit account, that would be perhaps $0.35 per transaction; if it's a credit card, it's 2% or more of the value of the transaction, and if the poor credit card holder hasn't paid off their account, then there will be plenty of interest at 18% per annum on top of that.

Such services work hand in hand with the current trend towards travel, points or cash-back cards. High net worth credit card customers are encouraged to have one or more of these in their wallets or purses, and to use it as much as possible in order to maximize their awards each month. Not only do such cards encourage a larger percentage of consumer spending to be made with costly credit cards instead of the inexpensive Interac debit system, but those transactions are more expensive than transactions with a no frills credit card. That extra cost is, of course, kicked back to the card holder as points or just "cash back". They are being bribed to use their credit card with their own money (as well as a chunk of what all of the other customers pay as well, since vendors are not allowed to charge their credit card customers more and so have to spread the cost across all of their customers).

While I have not seen any comprensive estimate of the costs for servicing credit cards in our economy, there is no doubt that it's significant, and that it is increasing as we use credit cards for more transactions as well as finding more opportunnities to get something back for our purchases. This all fits well into obvious though not often stated policies of our neo-liberal economic system:

• Look out for #1.  Do what benefits you and don't worry about what it might cost anyone else.
• Don't interfere with anyone trying to make a profit. The "right" of corporations to make profits has become sacrosanct. It's embedded in the "investor rights" provisions of the free trade agreements we've been signing, and it's extremely unusual for our government to interfere with whatever schemes corporations come up with to find new profit streams.

If our government was really interested in an efficient economy, they would provide some effective cap on the cost of us using plastic payment methods. The Interac model demonstrates that the actual transaction cost is really quite insignificant, but credit card issuers are permitted to charge whatever the market will bear. The main opposition to date against even higher transaction fees has been from the vendors themselves who pay  those costs and so see them directly (whereas consumers don't see them and seem trained to ignore them).

What we're seeing is effectively an unregulated tax on commerce, with the credit card issuers (mostly the banks) skimming off a few percent of whatever comes their way, kicking back a bit to some customers as points or cash-back, and keeping the remainder after paying their processing and perhaps a bit of interest to carry the payment until the cardholder's next bill payment.

Give back the pennies

Finally, our Canadian penny is being retired. Having served us for many years. it's been decades since it would actually buy anything. In my youth I could by a double-bubble bubble gum for 2¢. As a teenager I might buy a penny book of matches that actually cost 1¢. These days, nada.

Merchants have been given a choice by government; they can round cash purchases up, down or to the nearest nickel (non-cash purchases are still to be charged to the penny). The recommendation is to round to the nearest nickel. To an accountant, once they've gotten past the shock of not being able to receive the exact amount, rounding to the nearest nickel seems to be the fairest choice. 

This doesn't give the full picture, though. If the customer was not paying in cash, then they must be paying by debit or credit card (or very rarely by cheque). All of these options have costs to the retailer, some quite significant. Debit cards are usually the cheapest for the merchant, at perhaps 20¢ and a fixed cost. (The credit card companies are trying to change that, by issuing their own debit cards and charging a percent of sale as they do credit cards). Credit cards are charged a percentage of purchase, at one time 2% to 4% but the rates are increasing as credit card companies try to out-compete each other with cash-back and points cards. They seem free to the card-holder, but they are paid for through the fees charged to the merchants. There's no such thing as a free lunch. 

Merchants can't charge a debit or credit card customer more to cover these fees. Their vendor agreements don't permit that. It works well for the credit card companies, and not so bad for credit card users either. The fees are generally dumped into overhead by the merchants, so all of their customers pay a little bit more for the convenience of a few. Most merchants have to accept credit and debit cards, since their customers want the convenience and most or all of their competing merchants are accepting them as well. 

So, it's rare indeed that merchants have a chance to encourage customers to pay by cash (saving the merchant a bit in transaction fees). They should not pass this opportunity up. Even though the customer will save only a couple of cents on a transaction, it's a symbolic saving and one that will encourage a few more cash transactions and a few less on the credit card. This will save everyone, except the credit card companies, money.

For a merchant, this seems to be a no-brainer. By foregoing a couple of pennies on cash transactions, they will be saving much more, sometimes a few dollars, on credit card fees. Usually, of course, the pennies won't be a big influence on the cash-or-credit decision, but a few consumers will look at that two cents per transaction and see a case of beer at the end of the year. It will influence behaviour, if just a bit.

Perhaps a bigger consideration is customer satisfaction. Even though it's just pennies, many customers will be ticked off when the register says $6.38 and you're insisting they pay $6.40 . If instead they see that they're consistently paying a few pennies less, they will be your friend; they'll see that you're on their side. That can't hurt, especially if a few of your competitors are doing the same. They'll shop at the store that doesn't steal pennies from them.

So, give back the pennies. It's the right thing to do.

Senate attacked by Paper Sign

Well done, Brigette DePape. Your audacious interruption of the Throne Speech today has certainly caught the attention of Canadians. As you pointed out in a later interview, a clear majority of Canadian voters did NOT vote for Mr. Harper. In our system, of course, that's quite normal, but your actions have hilighted just how out of step the Harper government is with what most Canadians value.

It's typical of the current government to label this as a "security threat". An embarrassment, yes. It could even be disrespectful of parliament, as many have called it. But a security breach, as Senate Speaker Noël Kinsella describes it? What danger is there in a paper sign?

Once again, our government is using "security" as a bludgeon to suppress freedom of speech, simply because the actions of an employee did not conform to the party line. At least Ms. DePape isn't (yet) threatened with jail time, as protesters at the G20 summit were when their protests were deemed a "threat to security". (Some quite possibly were, but the vast majority of those arrested were quickly released and few were charged; most were no threat).

Can we expect strip searches of pages in the Senate now? Metal detectors don't work too well for paper. Or, will the senate office need to be (much) stricter in its selection process to weed out any possibility of dissent in the ranks?

It seemed a bit ironic to me that the CBC chose to interview Peter Kent, Minister of the Environment, for his comments on the debacle. He, also, was most concerned about the "security lapse". The lack of action on climate change was one of the failings of the Harper government that Ms. LePape was protesting, and of course Mr. Kent is now the point man for continuing the campaign to avoid actually taking action while communicating to their base that they are doing a good job of it. The CBC sound bite didn't catch any comments on climate change. (It was also not something considered important enough for the throne speech either).

This small protest was, no doubt, disrespectful to our parliamentary institutions. However, it wasn't simply some stunt to gain points with friends; it was an action designed to draw attention to a growing disconnect between our new Conservative government and the needs and desires of many Canadians. Rather than blame their "lax security", the current government should be asking itself what it is about its plans and policies that would so upset the citizenry that one of them would feel that such an audacious act was seen as necessary.

Will he or won't he? It doesn't matter

Stephen Harper still won't clarify what he would do in the hypothetical (but quite possible) situation in which the conservatives are the front-running party in a minority parliament, but he fails to hold the confidence of the house and the Governor General asks the second place party to form a government.

In fact, it doesn't matter what Stephen Harper thinks. The rules are clear. If the leader of the second place party, or an "unacceptable, reckless" coalition, accepts the request from the Governor General then that party or coalition can form the government. These are all valid outcomes, and Stephen Harper cannot veto the Governor General's actions or that of any of the other party leaders should they accept a request to form a government.

Mr. Harper got a lot of mileage out of his assertion that the election "forced" upon him was not one that the citizenry wanted; after all, he could go another two years or more if the opposition would just co-operate (e.g. by supporting all of his legislative agenda, and ignoring anything contemptible e.g. his failure to disclose the costing of his crime legislation). So, it seems a bit hypocritical that he might want to force another election within months of the last.

That seems to be exactly how "Harper's Rules" (that only the party with the most seats can form government) would play out, however. The real rules of Canada's constitutional monarchy permit an orderly transition to a new government without an election in this case. While Mr. Harper wouldn't like the outcome, it certainly seems a better alternative than entering into a new election immediately (or at least it would to anyone who isn't opposed on principal to a non-Conservative government).

Harper Majority or risk separation? Let's remember how the Bloc Québécois came to be

Stephen Harper's latest scare tactic (here reported in the National Post) is that if his alleged Liberal-NDP-Bloc "coalition" comes into play, the country risks separation. Never mind that a "coalition" including the Bloc was never on the books (even in 2008, the Bloc was only proposed to "support" a Liberal-NDP coalition).

It's instructive to remember back to a time when the Conservative party (then the Progressive Conservatives) did quite well in La Belle Province. Brian Mulroney attracted widespread support in Quebec, largely by bring separatist-leaning politicians like his pal Lucien Bouchard into the Progressive Conservative fold. The 1984 election was a landslide victory for Mulroney. While he lost ground in 1988 he still had a solid majority, largely built on still substantial support from Quebec.

This was all to fall apart after Meech Lake, when Bouchard and others decided that the Mulroney Progressive Conservatives weren't the solution to Quebec's desire for nationalism after all. Bouchard left, and in the next election led many of the same politicians to official opposition status as part of the newly formed Bloc Québécois.

If Stephen Harper has his majority, will his Conservatives be any more successful in maintaining the kind of relationship with Quebec that will dampen its nationalist element? His record to date points to the same sort of duplicity that led to the explosive falling out between Mulroney and Bouchard. Harper and Gilles Duceppe were willing to put differences aside to replace Martin's Liberal government. In the current election, though, Duceppe is treated as satan by Harper, who misses no opportunity to warn against any possible association with the Bloc Quebecois.

Far from protecting Canada from possible Quebec separation, Harper's political opportunism is likely to push us closer to that event if he succeeds in getting the majority he is salivating over.

Another Prorogation in the works?

Stephen Harper is using the threat of "coalition" to sway voters to give him his much coveted majority. The tactic might actually work, though his own words from 2004 are coming back to haunt him. If the Conservatives do come back in with a minority again, though, his predictions might be fairly close to what actually unfolds.

First, I think we can assume that if the Conservatives get the plurality of votes, that Stephen Harper will take the helm once again. Even though his aids have occasionally left the impression that Harper is interested in a majority or nothing at all, when push comes to shove it's inconceivable that he would pass up the invitation from the Governor General to head up the country once again if he falls short of that mark.

If we are to believe Finance Minister Jim Flaherty, though, what will happen shortly after is that a budget just like the last will be brought in. This will put the opposition parties in a bit of a pickle. Having all declared that they could not support Flaherty's budget before the election, will any party now turn around and support it? I don't think so. A Conservative minority government therefore seems to be a short-lived one if all parties stand by their commitments (never a sure thing in politics, of course).

This would provide an opportunity for Michael Ignatieff to step in and form a minority government (one that Stephen Harper would denounce as illegitimate, of course, but there are precedents, and it's exactly what he was advising Adrienne Clarkson to do as Governor General in 2004 if the Martin government failed to maintain confidence in the house). I doubt this would be a formal coalition given the denials by Ignatieff in recent days and the effectiveness of Harper's campaign against the concept recently. It would instead be a minority government supported by the other opposition parties, as seems to be the norm in Canadian politics.

The other possibility, though, is that Harper might once again prorogue parliament and work out some sort of deal. Could it work for a third time? Possibly. As Harper's designate, David Johnston might co-operate. I suspect the opposition parties would be wary of co-operating once again. Much will likely come down to how effective Harper's rhetoric against a "coalition" (even an informal one) is. So far, it has worked surprising well.

Federal election is Harper's to call - no matter what he says

We're likely days away from another Federal election campaign. Jim Flaherty's budget was not to the liking of any of the opposition parties, making it a good bet that it won't pass the house of commons. In Canada's parliamentary system, that makes it nearly automatic that we'll be going to the polls.

Mr. Harper and his Conservatives are trying very hard to lay the blame for the failure of parliament on the opposition, and in particular the NDP since the Liberals and Bloc have been emphatic in their disapproval before even seeing the text.

The Conservatives seem to be of the belief that the opposition has some sort of "duty" to support Conservative party policy by voting with the Government. In fact, the opposition's duty is to support the voters who put their respective representatives into parliament.

It's Mr. Harper that has taken on the responsibility to maintain the confidence of the house, by requesting and accepting the office of Prime Minister at the start of the session. So, if we are going to the polls, it is Mr Harper's government that has lost confidence. Trying to shift "blame" to the opposition is simply complaining that the opposition isn't Conservative. That's because Mr Harper is leading a minority government, a small fact that he seems to have trouble coming to terms with.