Bill C-229 (Historical)

An Act to amend the Bank Act and the Statistics Act (equity in community reinvestment)

Housing

[Brian Masse, NDP, Windsor West, ON]

Mr. Speaker, today is National Affordable Housing Day.

Since the government came to power we have seen a steady systematic dismantling of federally funded social housing programs. It is now to the point where the government has virtually removed itself from the business of supporting affordable housing.

Earlier this week we heard a lot of talk, with the release of the government's urban strategy, the so-called “Blueprint for Action”, about the need for a national housing program. I want to point out that the NDP and thousands of Canadians have been calling for such a program for years.

However, it was only talk because yesterday in the House, during the debate on Bill C-229, an act to amend the Bank Act, members of the government had the opportunity to stand up and be counted and they did not. What they did was they stood behind the banks and that is unfortunate because the U.S. has this legislation and it has increased its affordable housing.

The next time one of the Prime Minister's staff calls anyone in the U.S. a moron, maybe that person should consider reflecting on our own policy and direct that comment where it is more justly deserved.

Banking Act

[Inky Mark, Canadian Alliance, Dauphin—Swan River, MB]

Madam Speaker, I am pleased to take part in the debate on Bill C-229. I begin by congratulating the member for Hochelaga—Maisonneuve on his persistence. Initially Bill C-229 was Bill C-289 and then Bill C-428.

The bill amends the Bank Act. It provides that certain branches of a bank must take measures to facilitate access to credit to persons who have a residence or a place of business located in an electoral district where the monthly unemployment rate as established by Statistics Canada has been on at least one occasion during the preceding calendar year equal to or higher than the national average.

Furthermore, the bill provides that certain banks must pay 5% of their profits in certain years into a special fund that would be used to lend to people in districts that qualify.

Also, it provides that certain bank representatives under threat of a $50,000 fine must meet with community representatives to discuss implementation measures adopted or associated with community investment.

As well, certain banks are to keep statistics on to whom they lend money and they are to prepare an annual report providing information relating to the community reinvestment initiative. In other words, there are requirements on how the banks operate if these amendments are made to the Bank Act.

Equity in community banking is very important. Reinvestment in the community certainly does help attain the balance needed between local residents and their banks. It is important for financial institutions to meet the local community's credit needs in the form of loans granted to individuals, businesses and community organizations.

The principles espoused by the bill are indeed laudable. The overall goal of achieving equity through community reinvestment by encouraging banks to grant loans to persons living in areas having above average unemployment, by studying the loans granted under the act through a reporting system and showing support to small borrowers within the community is a commendable goal to aspire to.

As previously mentioned, making credit more readily available to areas that for one reason or another may be disadvantaged at a particular time is certainly a worthy cause. This is indeed what the U.S. did when it passed the community reinvestment act.

It is also worthy to note that in the housing sector, the U.S. saw improvements. Since 1993 mortgage loans to Afro-Americans have gone up 47.5%. Mortgages granted to Hispanics have gone up 36%. Mortgages given to low to mid-income earners have risen 22%. These are all excellent statistics.

However, one must be careful before adopting any type of wholesale changes to the Canadian legal system and regime. This is what the bill does. It seeks a U.S. style approach to achieve community equity reinvestment by adopting the U.S. community reinvestment act. Sometimes U.S. style reforms may be good or even welcomed, but one must be cautious of exactly what reforms Canadian amendments attempt to adopt.

As noted, the bill is modelled after the U.S. community reinvestment act. However, the community reinvestment act really is an omnibus bill. A major portion of the U.S. bill that brought in the community reinvestment act also amended the housing and community development act of 1974. Perhaps more important, it extended the urban homes program. The United States at the time was suffering from a substantial crisis in urban decay.

Jointly, the community reinvestment act, the housing and community development act and the urban housing program all combined to produce the increased mortgage numbers.

Obtaining statistics like that is something that can be aspired to, but all the legislative tools have to be in place, not just one or two of them.

When we bake a cake we need all the ingredients. We cannot leave out the flour or the sugar and expect the cake to look like the baker's down the street. However, Bill C-229 in proposing the amendment to the Bank Act may not produce the intended results that were indeed attained in the U.S. because it has left out some of the ingredients.

The real estate and financial service sectors in Canada are vastly different from those in the U.S. The regime involved in the chartering of banks is different. The real estate industry is different. There are different players involved in Canada.

I realize that this amendment is not votable, however, if it were, the proposed legislation would need a little more work done to it. For instance, the legislation would have to be explicit if it was intended to facilitate just business growth or would homeownership through mortgages like the U.S. also be targeted? If granting mortgages was an intended result, then obviously the Canada Mortgage and Housing Corporation would play a role.

Leaving the mortgage aspect aside, I note that this is the third time the bill has been before the House. As I mentioned earlier, it has a very good goal in mind. However, if it comes to the House a fourth time, there may be some utility in dissecting not only the U.S. community reinvestment act, but also the housing and community development act and the urban housing program to see if any of the provisions found there might be helpful to Canada.

Finally, there are two brief comments that should be made about the bill as a whole. First, in a time when governments should be trying to reduce regulatory red tape and bureaucratic stifling, the bill seems to add a few more components to the already highly regulated banking sector. Meetings must occur and reports must be written with 13 or more components by bank representatives. These reports must be given to the superintendent. The superintendent must give the reports to the minister. The minister must lay the reports before each House of Parliament.

Sometimes reports and meetings are not needed but it is not to say reports would not be needed in these types of situations if this bill were ever passed. However, if legislation of this type were ever votable, then care must be taken to ensure that the statutorily dictated meetings and reports were properly administered.

The last point deals with the offences and penalties section under subsection 627.16 and 627.17.

If requested, the branch of a bank must meet with community representatives who have requested a consultation concerning the assistance the bank is giving to community reinvestment and any implementation measures developed or undertaken by the bank to achieve that reinvestment.

Paragraph 627.16(2) says that any person, and it is assumed that any person means the bank even though it does not say so explicitly, who does not meet, if requested, is liable to a fine not exceeding $50,000. Also, banks could receive $5,000 fines if they do not comply with the reporting requirements. Yet if the banks violate subsection 627.4, which states that the bank shall implement equity community reinvestment, no offence will have been committed.

Therefore, at the end of the day we have this legislation that statutorily directs meetings with community representatives and directs that reports must be written outlining the banks reinvestment strategy, both under threat of substantial fines. However there is no obligation for the banks to actually implement community reinvestment. There is a $5,000 fine for not writing the report that says they did not undertake any community reinvestment measures.

In closing, this might not be the most helpful way to ensure that community reinvestment gets accomplished. As stated before, the goals of the bill are commendable but the drafters have not reasoned it out to the point where it could be seriously adopted in the House.

[Dick Harris, Canadian Alliance, Prince George—Bulkley Valley, BC]

Madam Speaker, the presentation made by the member for Hochelaga--Maisonneuve may sound like a good thing to a lot of people but it is fundamentally unrealistic to even consider a bill that would impose upon our banks an obligation for them to do business with people who have either no credit history, very little credit history or even a bad credit history.

Institutions like banks are not in business for that in the same way that other companies like Bombardier, Air Canada, Sears, Wal-Mart and caisses populaire credit unions in the province of Quebec are not in business for that. These companies are in business to make a profit for their shareholders or for the owners of a privately held company. They prosper providing they implement sound administration and financial management practices.

Bill C-229 is very confusing because it says that branches of banks to which this part applies, while respecting sound administration and financial management practices, should get involved in granting loans to people in many cases who would be poor credit risks to pay them back. To get into that type of experience is a conflict of sound financial management practices.

I also feel that this touches on some type of affirmative action where a company is required to do business with certain groups of people who under normal circumstances would not be part of its business day or its business plan.

It is simply not the government's place to impose this on a private or public business that has grown. Banks have grown to quite an enormous size by doing business in a sound financial manner. It is not the government's place to penalize them by telling them they have to deviate from the practices that brought them to where they are today. They pay dividends to their shareholders and dividends to pension funds that have invested in them. They cannot be penalized because they are successful and told that they have to do things in their business that they would never consider in a normal business practice.

I take exception to the fact that the member indicated that banks do not, as part of their normal practice, become involved in community reinvestment. Canadian banks and the financial services sector are probably the largest contributors to charities in every community across the country where they have branches. They also make hundreds of thousands of loans to small and large businesses in every community across Canada.

They take that money, expand, create more jobs, contribute to the local economy and improve the quality of life for people who work in small businesses which have been able to expand because they have received loans from financial institutions and have run their businesses well. Some started at zero and built their businesses up through sound financial management.

Banks already invest in communities in a huge way, far more than any other industry sector in the country, I believe. To suggest that they are somewhat lacking as community corporate partners is totally misleading.

I know that in the town of Prince George where I live, the Royal Bank, the Scotiabank, TD Bank and CIBC put tens of thousands of dollars into the community for numerous charities and projects in the city, and they do this as part of their corporate community responsibility. To suggest that banks are the big, bad guys with vaults full of money and that do not care about the communities they do business in is quite wrong.

As well, the member talked about the big, bad banks that closed branches to rationalize their business. Would any company in Canada continue to operate a branch in the event that it was losing money on a continuous basis? I think not. That is how companies become successful. They make good, sound business plans and they stick to them. When things are not working, they do whatever they can to turn it around. If it does not turn around, they have to take other steps, and sometimes that involves closing branches.

As the member pointed out, banks are under some responsibility to give notice and to try to implement whatever relief they can to ensure the impact will be as little as possible.

To suggest that the bank should pay into a special fund an amount equivalent to 5% of its income for the financial year is like another tax. That is totally unrealistic. That takes operating capital out of the bank. Banks are already hit with a capital tax. Unfortunately, the government has still not done away with it.

While the member believes in this bill, and I respect the fact that he does, I find it is quite unreasonable to consider implementing something like this.

Microcredit or microlending is not appropriate for banks. That comes more into the business realm of perhaps smaller financial institutions or companies that may see that as an opportunity. It might even be considered an entrepreneur's dream to someone who had $25,000 which they wanted to invest and they saw an opportunity to lend out $500, or $1,000 or $300. Given sound financial business practices, that could be an opportunity for someone who wanted to get into that type of business.

However to suggest that our chartered banks get into that business and that if they do and they violate one of the many rules in the member's bill, they would be fined or sanctioned or drawn and quartered in some way is not realistic.

We cannot accept this bill like our friends across the hall. Banks are there for a purpose. They are there to serve their investors. They are there to contribute through their dividends to pension funds. It requires that they be strong, that they be profitable, that they continue to operate under very sound, stable and secure business practices. Quite frankly, lending money to people who may not pay them back does not fit into that criteria.

[Bryon Wilfert, Liberal, Parliamentary Secretary to the Minister of Finance]

Madam Speaker, I rise today to discuss Bill C-229, an act to amend the Bank Act and the Statistics Act. The bill would require banks to report on investments made in electoral districts where unemployment is on par or above the national unemployment rate. It would also require that every individual bank branch set aside 5% of its income to further micro-credit financing in the electoral district where the branch is located.

In essence, the bill is an adaptation of the U.S. community reinvestment act, CRA, that the U.S. Congress passed in 1977. As such, I would like to remind hon. members that the community reinvestment act was enacted in response to concerns that American banks were redlining certain neighbourhoods; that is, accepting deposits but not authorizing loans in low and moderate income neighbourhoods.

I would like to remind all members that in 1998 the task force on the future of the Canadian financial services sector, the MacKay task force, undertook extensive research on this issue. It determined that the conditions that led to the community reinvestment act in the United States were not present in Canada. Both the House Standing Committee on Finance and the Standing Senate Committee on Banking, Trade and Commerce supported this view.

To quote the House committee, “In an industry that is continually evolving, the application of a Canadian CRA would be extremely difficult and costly”.

The Senate committee echoes this stating, “The Committee also believes that the CRA approach would be onerous, costly and a regulatory burden on financial institutions”.

Moreover, consumer groups such as the Consumers Association of Canada generally supported this view.

The bill, which on its face may seem reasonable, creates an onerous burden on financial institutions. Every bank will need to report for every branch the amount and the distribution of deposits, loan applications, loans granted and loan recalls. Furthermore, the requirement would entail that each branch break down the numbers into groups of $10,000 increments. To top it off, the bill would require that the terms and conditions of the loans, a private matter between contracting parties, be reported upon.

All of these measures are onerous and costly to comply with. The result of implementing the bill would, to quote the MacKay task force, “add substantial regulatory burden and cost to financial institutions and government”.

I must question what benefit consumers would derive from knowing in $10,000 increments what the lending practices of the branch had been. Moreover, this type of undertaking would require a lot of time to compile the information. Who will ultimately bear the cost? Consumers.

The potential costs to financial institutions are compounded by a proposal that requires every branch to reserve 5% of its income, not profit, but income to fund microcredit lending. That is pre-tax dollars. In this respect the proposed legislation goes well beyond what the community reinvestment act requires and it does not stop there.

The clause is worded such that every designated person who applies for a microcredit loan must be provided with one regardless of the merits of the proposal. This is simply bad public policy.

What is to happen if the applications for micro-credit exceed the legislated 5% requirement? Will banks then be required to take funds from their other investments to attain this legislative requirement? Alternatively, what happens if the sum total of applications is below 5%? Furthermore, on the question of loan quality, will we end up having to force a bank to shift money from prudently sound investments to high risk investments? Do we really want them to do this? What does this mean for the other customers?

I cannot stand here and support the bill. Parliament determined that this type of legislation was unnecessary only a short while ago. Furthermore, the bill would create a very onerous financial and regulatory burden on financial institutions and could lead to a situation where banks are forced to use good money to chase riskier investments to the potential detriment of sound investments.

It is for these reasons that I cannot support this bill, and I urge my colleagues here today not to support it as well.

[Réal Ménard, Bloc, Hochelaga—Maisonneuve, QC]

moved that Bill C-229, an act to amend the Bank Act and the Statistics Act (equity in community reinvestment), be read the second time and referred to a committee.

Madam Speaker, I would really have liked to ask the hon. member for Mississauga West a few questions; unfortunately, there is not enough time, but I think we have here a rather eloquent example of the wrong way to carry out one's role as a parliamentarian, by not taking into account the positive work of the opposition.

Each of us, as members of Parliament, have financial institutions in their ridings. Each of us, whether in large urban centres or in rural areas, have in our communities people who have been poorly served by financial institutions.

The bill before us has had a long life, given that I had the opportunity to introduce it on three occasions and it was debated twice already. Each time, the government refused to consider that, while we live in a democratic society, while we have a Charter of Human Rights and while there is a Superintendent of Financial Institutions, it is possible nonetheless that, in reality, the way banks are behaving may be such a concern that there may be a need to look beyond the border to find solutions to the problems we are experiencing.

In 1998, I travelled to the United States to study the community reinvestment act. This is a piece of legislation that was passed by the U.S. Congress in 1977. So this is second generation legislation. It was reviewed under the Clinton administration. Unbelievable as it may sound, given that the U.S. does not have a society with a propensity for interventionism and that Americans are strong believers in private enterprise and market forces, they passed legislation making it possible to assess how well financial institutions, mainly but not exclusively banks, meet the credit service needs of all consumers, and the most disadvantaged in particular.

Those who are well off, who earn a respectable income, are financially solvent, have no problems with financial institutions. Today's debate concerns those who are less well off and who are met with prejudice when it comes to their ability to honour their financial obligations.

I remember the time, just before the MacKay report was released, when we had to ask questions in the House on a regular basis because financial institutions refused to even consider opening a bank account for a person if he or she did not have three pieces of identification. Clearly, if a person was receiving social assistance or was thought to be economically disadvantaged, it was extremely difficult to open a bank account.

I will acknowledge that the situation has improved somewhat. An agreement was reached between the Canadian Bankers Association and the superintendent of financial institutions; now the banks do not require three pieces of identification, only one, and it has been agreed that a bank account cannot be denied someone simply because he or she is on social assistance. However not all bank branches and not all financial institutions follow this regulation to the letter.

I would also like to applaud some of the residents of Hochelaga—Maisonneuve. The Parliamentary Secretary to the Minister of Health knows this, there is no room for defeatism in this riding. If there is one area where the residents are dynamic, where they believe in standing together and where there is no place for resignation in policy, it is indeed the riding of Hochelaga—Maisonneuve.

Guy Biron, one of the most involved citizens in Hochelaga—Maisonneuve, put together a coalition; he is the chair of the senior citizens issue table, but that is not all he does. He is also involved with ASTA at the SHDM in Rouville. He is a man whom life has treated very well: he has a happy home life, has had children and contributes much to his community.

In 1977, this coalition made the following finding in the riding of Hochelaga—Maisonneuve. We are not going back 75 years. We are not talking about before industrialization. At the time, there were close to 30 financial institutions, 27 to be exact. Today, there are only 11 left. These 11 financial institutions include five banks. This shows how financial institutions have deserted poor communities. Option-Consommateur, which is a non profit organization, estimated that, over the past 20 years, in the City of Montreal alone, 150 bank branches have shut down.

Of course, these branches did not give advance notice and they did not care about the future of their clients. They shut down to streamline their operations. These branches leave without being at all concerned about the impact on our communities.

In a society like the United States, this situation would have been much more difficult, not impossible but much more difficult to watch. Why? Because the beauty of the Community Reinvestment Act is that it ensures that there is someone in the system to monitor how financial institutions fulfill their responsibilities.

Take the example of a bank like the Morgan Citizens Bank of New York. If it does not meet the credit needs of the Hispanic community or of the poorest segment of the Afro-American community, everyone will know about it on March 1 of each year, when those responsible for implementing the law release a report in which they assess institutions by giving them an A, B, C or D rating. This is somewhat like in school or in university.

Of course, the beauty of the community Reinvestment Act is that it ensures that consumer groups follow this public disclosure exercise. Banks must provide explanations when they stop their activities in certain areas. Consumers take this into consideration when the time comes for them to choose a financial institution. Not only do consumers take this into account when the time comes to choose a financial institution, but the bodies responsible for enforcing the law also take this into consideration when the time comes to authorize mergers or any other related operation.

It would not be that hard to have something similar to the community reinvestment act in Canada. Why is the government against such a bill? For a number of reasons. First, as we know, banks have one of the best lobbies on Parliament hill. Also, banks make large contributions to the Liberal Party's campaign chest. I certainly hope it is not the only reason for the government's action, although I am sure it has something to do with it.

As members of Parliament, we have to realize that we cannot fight poverty if we are not willing to instruct financial institutions to grant credit to each and every segment of society.

I regularly go over the reports of the Canadian Welfare Council, an organization set up to advise the Minister of Human Resources Development. Our society has not gotten any richer.

In 1968, Prime Minister Pierre Elliott Trudeau, as head of the Liberal Party, campaigned for a just society. There were concerns about poverty. Now, over three decades later, we realize that there are more and more poor people and an increasing concentration of wealth.

There is a paradox in my riding of Hochelaga—Maisonneuve. Although it is very poor, it is expanding economically. It is thought to be the next Plateau Mont-Royal. And as you know, Madam Speaker, you who are so well connected, the Plateau Mont-Royal is where artists meet and things happen in Montreal.

Hochelaga—Maisonneuve is said to be the next Plateau Mont-Royal. It is the place with the third-highest number of building permits, particularly where I live near the Olympic stadium. Young couples are abandoning the suburbs, abandoning the downtown core, and coming to settle in Hochelaga—Maisonneuve. That is understandable; anyone who lives there knows it is a great place to live.

There are four metro stations. We have rue Ontario. We have a good public transit system. There are a lot of strong community groups. Anyone who lives there knows it is a great place to live .

I can give one couple as an example. Jannie Beauchamp, a master's student, and her partner, also a master's student. They wanted to settle in Hochelaga—Maisonneuve and make it their home. They made a lot of preparations. They phoned 32 different insurance companies and all refused to insure them, as if Hochelaga—Maisonneuve were a disaster area.

This is exactly the practice that was used in the United States in the 1930s, 1940s and 1950s. It was called “redlining”; the financial institutions took the map of the States and circled certain areas in red, hence the name. These institutions systematically refused, regardless of the details in the file, regardless of the merits of the case, to lend money to people who lived in those areas.

We in Canada want to believe this is not so, not possible, but it is exactly what is happening. The financial institutions, the banks, practice systematic “red lining” style discrimination. As long as the legislator does not take the necessary steps to force the banks to explain themselves, to admit why they are totally deserting certain communities, the situation will continue unchanged.

There is no point in having a securities commission, no point trying to bolster the financial institutions if they do not acknowledge their responsibility to meet the credit needs of our entire population. Once again, this is not an excessive measure.

My bill recognizes, because it is just common sense, that banks cannot be asked to lend to people who are not creditworthy. They cannot be asked to adopt measures that would place them at a competitive disadvantage. We are just asking them to give people the tools they need to improve their well-being.

I will give you an example. In Hochelaga—Maisonneuve, within our community economic development corporations, these cooperation bodies that were created in the early 1990s, there are micro-credit circles, also known as borrowing circles. It means that people vouch for one another. If someone's washing machine breaks down at the end of the month and that person cannot easily find $300 or $400, he or she can have access to this kind of cooperation. If someone wants to start up a business and needs $300,000, $400,000 or $500,000, it is not so hard to find. But when a person needs $5,000, $6,000 or $7,000, it is complicated because financial institutions are not in that market.

These are examples where equity measures on the part of banks could enable them to invest in micro-credit activities. We are not talking here about billions of dollars. There are cases where partnerships could be formed with community groups, which is rarely done. I did not say never because, in Hochelaga—Maisonneuve, one bank gave its head office that had become vacant to a community group called L'Avenue. There is also the Caisse Maisonneuve that gave its head office to the Chantier de l'économie sociale. However, these examples seem to be exceptions in the sad track record of banks and financial institutions.

I will rise again later to conclude this debate, as I am allowed to do under the rules of this House. I hope that the government will agree to make my bill votable and that my bill will find support in each party.

Bank Act

[Réal Ménard, Bloc, Hochelaga—Maisonneuve, QC]

moved for leave to introduce Bill C-229, An Act to amend the Bank Act and the Statistics Act (equity in community reinvestment)

Madam Speaker, this bill is modeled on a piece of legislation that has been in force in the United States since 1977; it will ensure that every consumer in every region of Canada has access to credit in a timely manner and without discrimination.

(Motions deemed adopted, bill read the first time and printed)