Bill C-37 (Historical)

An Act to amend the law governing financial institutions and to provide for related and consequential matters

This enactment amends a number of Acts governing financial institutions. It also amends legislation related to the regulation of financial institutions. Notable among the amendments are the following:
(a) amendments to the Bank Act, the Cooperative Credit Associations Act, the Insurance Companies Act, and the Trust and Loan Companies Act aimed at achieving three key objectives:
(i) enhancing the interests of consumers,
(ii) increasing legislative and regulatory efficiency, and
(iii) adapting those Acts to new developments;
(b) amendments to the Bills of Exchange Act to provide for the introduction of electronic cheque imaging; and
(c) technical amendments to the Bank Act, the Cooperative Credit Associations Act, the Insurance Companies Act, the Trust and Loan Companies Act, the Bank of Canada Act, the Bills of Exchange Act, the Canada Business Corporations Act, the Canada Deposit Insurance Corporation Act, the Canadian Payments Act, the Financial Consumer Agency of Canada Act, the Green Shield Canada Act, the Investment Canada Act, the National Housing Act, the Payment Clearing and Settlement Act and the Winding-up and Restructuring Act.

Bank Act

[Thierry St-Cyr, Bloc, Jeanne-Le Ber, QC]

Mr. Speaker, I am pleased to address the House on the subject of Bill C-37, which we are debating today.

Every time it has to decide whether to support a bill or not, the Bloc Québécois considers its value for Quebeckers. If the bill offers real benefits for them, the Bloc Québécois supports it; if not, it does not.

We have examined Bill C-37 closely and, after weighing the pros and the cons, we have concluded that we support the principle underlying the bill.

What factors did we take into consideration in our analysis? There are several. First, the bill would implement mechanisms to transmit information to consumers, which would enable them to make more informed choices about banking services. Second, the bill would implement a regulatory framework to permit electronic cheque processing, which would reduce the time during which institutions hold cheques, thereby addressing an issue our citizens have often raised. I will come back to this later on.

Third, this bill would reduce the regulatory burden on foreign banks, credit unions and insurance companies, thereby making the regulatory approval régime more efficient.

We have also found a fourth advantage: Bill C-37 would change regulations governing mortgage loans, thereby enabling more people to take advantage of that financial tool. That is very good.

Last, the government would increase the equity threshold from $1 billion to $2 billion, thereby making it possible for a single shareholder to wholly own a bank, thus encouraging new entrants and promoting competition.

The Bloc Québécois supports the bill in principle, but we have some reservations. As members of the Standing Committee on Finance, my colleague from Joliette and I will work to ensure a number of things.

We will begin by ensuring that the regulations are changed, and we will make certain that those changes do not allow the kind of uncontrolled mergers and acquisitions we have seen before in the banking sector.

We will continue to insist that any change to the moratorium on bank mergers be in the best interests of the public, and not made just to satisfy the financial market. To that end, the Bloc Québécois will be ensuring that the Standing Committee on Finance will hear the appropriate witnesses. We will also be proposing the amendments that are needed for this bill to pass.

The Bloc Québécois will also be stepping up the pressure on the federal government to adopt the necessary measures to protect people’s savings, in particular by appointing a federal ombudsman for the financial sector. The ombudsman will have the powers needed to defend the public based on Canadian banking law and thus enable members of the Canadian public to exercise their rights without having to go through the endless and tedious legal battles that the banking institutions wage. We therefore believe that this is a flaw that must be remedied, and we will be working to persuade the federal government to create such an ombudsman position.

That is our stand on the bill that is before us. Nonetheless, it might be worthwhile to consider the context here and recall why we are dealing with this bill today.

Every five years, to ensure that the banking system has a degree of flexibility while remaining stable, the government must hold consultations leading to the review of the financial institutions statutes.

October 24 was the date on which the financial institutions legislation expired. The government extended the sunset date for the legislation to April 24, 2007, so that Parliament could examine the matter.

Bill C-37 follows on the document entitled “Proposals for an Effective and Efficient Financial Services Framework”, released in June 2006, and the document entitled “Advantage Canada” published by the government at the time of the latest economic and fiscal update. Unfortunately, that document says nothing about the fiscal imbalance. We understand, of course, that this is not the topic of debate today, but I find it hard not to mention this serious omission in the economic update.

The object of Bill C-37 is to put in place new mechanisms to improve the efficiency of the Canadian financial system. There are three main components to this bill. The objectives of those components are, first, enhancing the interests of consumers; second, increasing legislative and regulatory efficiency; and third, adapting this regulatory framework to new developments.

I would now like to analyze the bill in more detail. Of course, I will come back to the three components I have listed.

The first component is enhancing the interests of consumers. This bill provides for a set of measures, the first of which is to improve the rules for disclosing information to consumers.

In order to allow consumers to make informed choices among their investment vehicles, the government will raise the standards concerning disclosure of charges, obligations and penalties relating to different accounts and investment vehicles. That is important because people often make that comment to us, as well as people with savings who are making choices. Later, when they realize the consequences, the charges and the penalties associated with their choice, they are often angry and feel that they have been betrayed by their financial institution. In fact, they were not in a position to have the full details of the information that would have allowed them to make proper choices.

The government will require those institutions to clearly disclose that information by means of the Internet, in all their branches, and in writing for any person who makes that request.

In the same vein, there is a second measure. This one will change the regulatory framework to enable the introduction of electronic imaging in the processing of cheques.

This bill will establish a regulatory framework to enable the introduction of electronic cheque imaging to facilitate processing and reduce the hold time in banking institutions.

That is a good example—I mentioned it previously—of the necessary evolution of the Banking Act. It is understandable that with the development of new technologies, the regulatory framework must also evolve to enable the use of digital imaging in processing cheques. We will have a legal financial framework for that, thanks to this bill.

Another measure involves the reduction of the time that banking institutions can hold a cheque. Following publication of the 2006 financial institutions legislative review, the government made a commitment to reduce cheque hold times to make life easier for small businesses and other Canadians.

Bill C-37 gives the superintendent the power to set cheque hold times. The white paper proposed an immediate reduction of the maximum hold time to seven days, and to five days once the digital cheque imaging system is in place.

Cheque holds affect not only consumers who need to have access to those funds to pay their bills, but also small and medium businesses that must pay their employees and keep the business operating out of the funds they deposit.

In addition, the government wants all users of the payments system—including, obviously, consumers—to benefit from the increased efficiency resulting from the Canadian Payments Association initiative that involved changing the payments system to facilitate electronic imaging of cheques.

In my opinion, this need for faster processing of cheques may be seen quite concretely in the explosion of small businesses that cash cheques quickly and that are proliferating throughout our towns and villages. This clearly shows that there is a need and that people want to use the money available to them quickly, but that they cannot do so in the standard banking institutions, because their money is held for several days.

Probably everyone has already experienced something like this. It has happened to me personally to make a withdrawal and for it to be drawn on my line of credit instead of on my regular account, even though the money was in my account. The money was simply being held while waiting for the necessary checks to be made. It is a bit frustrating when we pay interest on funds that are already in our bank account. This is a real problem and if these delays can be reduced, it will be to the great advantage of consumers. So I was talking about the first objective, pertaining to consumers.

The second objective is to increase legislative efficiency. In this section, a first measure consists of lightening the regulatory burden on foreign banks so as to facilitate their access to the Canadian market and stimulate competition. This measure arises from the concerns expressed during the consultations pertaining to the review of the Financial Institutions Act. The Canadian market is already fairly open to foreign competition in the banking field. But certain problems were raised concerning the regulations governing foreign banks doing business in the Canadian market.

Bill C-37 aims to clarify the measures applying to foreign banks operating in Canadian territory by refocusing the regulatory framework on the chartered banks and simultaneously excluding the near banks. The near banks are companies that offer banking-type financial services. Unlike chartered banks, near banks cannot change their basic money supply, that is, they cannot borrow money from or lend money to the Bank of Canada to make new deposits or new loans.

Still in the same section, a second measure aims to streamline the regulatory approval regime. This measure is designed to simplify the process pertaining to routine transactions not having any implication for public policies. Thus the power to approve or refuse certain operations or transactions will be transferred from the minister to the Superintendent of Financial Institutions.

The Bloc Québécois is really concerned about this and it is a part of the bill that will need further study in committee to ensure that only decisions that have no public policy implications are put in the hands of the superintendent. In other words, we will not agree to any hint that the minister is allowing operations with public policy implications to be de-politicized.

The purpose of the third measure is to loosen the federal framework governing cooperative credit associations. In order to make it easier for new associations to emerge, the government will reduce the number of establishments needed to constitute a cooperative credit association to two.

At the present time, 10 cooperative credit associations are needed to form an association under the terms of the Cooperative Credit Associations Act. However, in light of the new commercial possibilities offered by retail associations and the continued consolidation in the credit union system, the current requirement places too high a threshold for new entry. A lower requirement would add flexibility to the federal framework for the credit union system, improve the system’s capacity to adapt to new developments and enable it to better serve consumers and mall businesses.

That was in regard to the second aspect.

There are a number of measures as well in the third aspect. The first consists of increasing from 75% to 80% the loan-to-value ratio for which insurance is mandatory on residential mortgages.

Mandatory insurance on mortgages with high loan-to-value ratios was instituted more than 30 years ago—quite a while ago—as a precautionary measure to ensure that lenders were protected against fluctuations in property values and possible defaults by borrowers.

The threshold was originally set at 66.7% or a two-thirds ratio. It was then increased to three-quarters or 75% following the Porter Commission in 1966. Markets have obviously continued to evolve ever since and we know, first, that lenders’ risk-management practices have improved considerably and second, regulatory risk-based capital requirements have been implemented. Financial markets have evolved and stabilized, and the supervisory framework for financial institutions under federal government regulation has been strengthened considerably.

It seems that restriction no longer plays the same prudential role it once did and, accordingly, a legal requirement by which borrowers must contract mortgage insurance at a fixed loan-to-value ratio of 75% could mean that some consumers are paying more for their mortgage than is justifiable on a prudential basis.

I know that because this summer I bought a house in Verdun—which is one of the most beautiful places in Quebec, and even Canada, as everyone knows.

[Some hon. members]

Oh, oh!

[Thierry St-Cyr, Bloc, Jeanne-Le Ber, QC]

Not all my colleagues agree, but that is a matter for discussion.

This experience allowed me to learn a little about the mortgage market. People are being given mortgages at increasingly lower rates—with a 5% or 10% down payment, and less in some cases. It is easy to get a mortgage. One might wonder why insurance would be mandatory with a down payment of up to 25% when the minimum down payment might now be decreased to 20%. This is only normal evolution.

The purpose of the second measure is to readjust the levels of equity capital to allow sole ownership or to force wide ownership. In 2001, a new size-based ownership regime was implemented. Under the new regime, the equity threshold above which a bank is required to be widely held was set at $5 billion to capture the largest banks whose potential failure would have the greatest impact on the Canadian financial system and the economy.

Medium-sized banks with equity between $1 billion and $5 billion can be closely held, but are subject to a 35% public float requirement, unless a ministerial exemption is obtained. The threshold for small banks, which can be wholly owned by a single shareholder, was set at $1 billion to encourage new entrants.

Bill C-37 would therefore change the equity thresholds in order to account for the new reality of the considerable growth in the banking industry since 2001. The equity threshold allowing sole ownership would be raised to $2 billion, or doubled.

Banks whose equity varies between $2 billion and $8 billion must henceforth have a minimum of 35% of their voting shares listed on the stock market. Banks whose equity is greater than $8 billion must be widely held, which means that no single shareholder can hold more than 50% of the voting shares.

The last measure in this section involves increasing the limit, which is currently one third, on the number of foreign members permitted on the board of directors of Canadian banks. As announced in the Advantage Canada plan—which, I would remind the House, says almost nothing about the fiscal imbalance, but that is not the topic of my speech here today—Bill C-37 amends the Bank Act by proposing a new measure that would make the boards of directors of Canadian banks subject to a new Canadian quota.

At present, a minimum of two thirds of board members of Canadian banks must be Canadian residents. However, Bill C-37 would lower that threshold to a simple majority.

To justify this measure, the Conservatives argue that this new standard will foster the creation of international ties and open the Canadian banking sector to the rest of the world. Following the moratorium on all bank mergers in Canada, Canadian banks soon began acquiring foreign banks in order to increase their growth. Thus, a greater foreign presence on their boards of directors would allow Canadian banks to continue in that direction.

In closing, the Standing Committee on Finance still has a great deal of work to do on this. The Bloc Québécois will help with this work. For now, we support this bill in principle.

[Dennis Bevington, NDP, Western Arctic, NT]

Mr. Speaker, I come from a northern part of Canada where banking services are limited in many small rural and remote communities and limited to the extreme. In some cases, people need to air freight their cheque to another community and have it cashed there and then returned to them, which is a huge expense.

Within any amendments that are being made to the acts governing the banks, I would think that we would want to see some attention paid to ensuring that there is some universality in some of the basic banking services across this country, especially in rural and remote communities. It may be that it will require some amendments to the act that would allow banks to provide more online services. I would say that there are things that could be done.

Although we have competition in the banking field, we do have very large companies that dominate the market. The banking industry needs to have some responsibility toward Canadians to ensure their services are available in all parts of this country.

Could the hon. member comment on how these amendments to the act will help people in rural and remote communities?

[Thierry St-Cyr, Bloc, Jeanne-Le Ber, QC]

Mr. Speaker, I would first like to thank my colleague for his speech and point out that I believe his concerns are legitimate. I would even say that they are not limited to rural areas.

A few years ago, in the beautiful city of Verdun, in my riding—the city I spoke of earlier—the quality of service declined when a number of institutions closed. People are very concerned about this. I can understand that the impact may not be as serious as in a remote rural community. That is extremely disturbing. However, this is happening everywhere.

Earlier, I referred to the spread of instant cheque-cashing companies. Why should people have to pay fees that are often very high just to be able to use funds that should already be available to them? This is a real problem, and I think that some clauses of this bill will improve things, but will not solve the problem.

Of course, the whole problem of competition on the financial market remains. I also mentioned the importance of making sure that we do not go back to unrestrained bank mergers, that we impose a moratorium and that mergers always be made in the interests of consumers, which is often not the case, because too much attention is paid to financial markets.

[Wayne Marston, NDP, Hamilton East—Stoney Creek, ON]

Mr. Speaker, I am very interested in these new measures for the banking industry and particularly in the area of foreign directors. I am wondering if the member, in considering this document, was concerned at all whether there should be any restrictions applied to directors from other countries.

[Thierry St-Cyr, Bloc, Jeanne-Le Ber, QC]

Mr. Speaker, in the bill as it currently stands, the measures apply essentially to foreign membership in boards of directors. That is the issue at present. In our opinion, this is acceptable as long as a majority of the directors are resident Canadians. With regard to officers of institutions, I must admit that I have never considered whether a problem actually existed or whether this was something that could eventually pose a problem.

However, I am convinced that if this issue were to be brought before the Standing Committee on Finance, the committee would examine it carefully and consider whether amendments should be added to place certain restrictions on officers. We believe that the measure currently proposed for directors is reasonable.

[Pat Martin, NDP, Winnipeg Centre, MB]

Mr. Speaker, my colleague from the Bloc made reference to the blossoming of payday lenders and payday loan companies in his riding. I can tell him that the same applies in my riding of Winnipeg Centre where these outfits are sprouting up like mushrooms and where low income people, poor people I believe, are being exploited by these companies because they cannot find basic financial services anywhere else in the country.

Does my colleague share this view with me that the government should crack down on the payday lenders who are charging exorbitant usurious rates of interest, criminal rates of interest, and that rather than simply regulating the payday loan industry, it should prosecute people who charge more than 60% interest per annum?

[Thierry St-Cyr, Bloc, Jeanne-Le Ber, QC]

Mr. Speaker, I would like to clarify something. Perhaps what I said was misinterpreted. My riding does not have a problem with payday loans because they are prohibited in Quebec. The practice exists in the rest of Canada, but not in Quebec. Honestly, I hope that Quebec can continue to regulate the market to keep them out forever.

I was talking about people who receive cheques from their employer, businesses or individuals. They want to use the money right away, but they cannot. Once they deposit the cheque in the bank, they have to wait a week or two to get access to the funds. In my riding, there are businesses where people can take their cheques to get the money right away. The businesses charge a commission, which can sometimes be quite high. I used that example to show that there is clearly a problem.

When communities have a number of businesses whose revenue comes mostly from instant cheque cashing, that is because there is a need and a problem. People have money that they cannot use right away. That was what I was trying to explain. As for interest rates, it is true that the criminal interest rate is currently 60%. I think that is very high, and we should ensure that the limit is complied with. People who lend money at usurious rates exceeding 60% per year must be charged. If we did that, we would prevent a lot of exploitation. Unfortunately, it is often society's poorest people who have limited access to credit and good credit terms. Their debt eventually spirals out of control and they are trapped.

Personally, I really hope that the federal government will not interfere with provincial jurisdiction so that Quebec can continue to prohibit payday loans and enforce compliance with the criminal interest rate already provided for by law.

[Pat Martin, NDP, Winnipeg Centre, MB]

Mr. Speaker, I am pleased to have this opportunity to enter the debate on Bill C-37. I thank my colleague for answering my questions and clarifying the view in the province of Quebec on some of these issues.

This is a massive piece of legislation affecting many consequential amendments and many pieces of legislation and acts. I may be proven wrong, but at first overview of the bill, I am afraid it may fail to address the single most compelling concern that we have about our financial and banking institutions and that is basic access to basic financial services for all Canadians.

I represent a low income riding in the inner city of Winnipeg. I can tell the House that there has been a flight of capital from the core area of the city of Winnipeg. My colleague from Western Arctic in his questioning of previous speakers told us today that there is a problem finding basic financial services in the rural and remote areas of Canada's north. This is a complex problem that is bigger than just an inconvenience.

In the core area of my riding of Winnipeg Centre, 15 neighbourhood bank branches have closed in the last five years. These branches have been there for 10 to 50 years. The bank that my parents banked at since 1948 when they were married and bought their first home also closed. This is a vote of non-confidence in the inner city.

Let me remind the House that our chartered banks are granted the exclusive monopoly on some very lucrative financial transactions, such as credit cards, in exchange for providing basic services to all Canadians even where that might not be the most profitable thing for them to do. That was the trade-off under which we granted their charters.

The Government of Canada should revisit these charters to ensure that our partners are in compliance with their obligations. In an era of record profits, I defy banks to justify why they are closing branches on every street corner in the inner city of Winnipeg. My colleague from Winnipeg North, who spoke before me, indicated that there had been 13 bank closures in her community.

Winnipeg Centre and Winnipeg North are venerable ridings with old established neighbourhoods full of hard-working people. These people trustingly trudged to the street corners year after year to cash their cheques at their banks. This is a thing of the past. I think it is a breach of trust. Banks have broken their contracts with Canadians because they are making record profits quarter after quarter. Every time we open the financial pages of newspapers we read about banks making record profits. We read in community newspapers about bank closures in the inner city of some major city or in rural Canada.

[Dawn Black, NDP, New Westminster—Coquitlam, BC]

In New Westminster too.

[Pat Martin, NDP, Winnipeg Centre, MB]

In New Westminster too, my colleague from New Westminster--Coquitlam tells us.

I do not know if Bill C-37 satisfactorily addresses the one compelling issue facing Canadians and that is access to banking services. This has led to the proliferation of payday lenders. Every single vacancy in every strip mall across the country is being filled with another Money Mart or Payday Loans, et cetera. Why? Because they can charge 1,000% to 10,000% interest per year. Show me another business enterprise that receives 1,000% interest. Selling coke for God's sake does not provide 1,000% interest. Prostitution or any other illegal activity does not provide 1,000% interest.

The province of Manitoba did a study on payday lenders in my riding of Winnipeg Centre. One case study documented 10,000% per annum interest on some of the loans as a result of a series of surcharges and fees and roll-over loans. No wonder the Hells Angels are involved. No wonder terrorists are looking to this kind of activity to launder money. I trace it back directly to the banks and the abrogation of their duties to provide basic financial services. By abrogating their duties, they left a vacuum for these rip-off outfits to spring up.

Without getting too over the top on what these reprehensible companies are doing in my riding, one thing they are doing is charging to cash cheques. If people knew their banking rights and if the charter banks were living up to their obligations, people should know that the banks have to open a bank account for them. If people have one piece of ID, even if they do not have any money, a bank has to open a bank account for them. It is in the Bank Act.

Yet poor, low income people do not know this, so they get maybe a government cheque and have no place to cash it because they do not have a relationship with a bank because the bank has abandoned their community. They wind up at a payday loan outfit where they are charged 3% or 4% of their social allowance cheque to cash it. It is illegal to charge to cash a government cheque. Another thing people do not know about their banking rights, and the present and past governments have made no effort to tell them.

Governments have allowed this burgeoning mini-industry of preying on the misery of poor people by taking a chunk of their meagre paycheques to provide basic financial services. I am not overstating it to say that it is morally and ethically reprehensible to be in the payday loan industry. It is morally negligent for the government not to police this industry and not to prosecute anybody who would exceed the usury laws in the Canadian Criminal Code and charge 1,000% per annum. They should be locked up. They should be led away in handcuffs. They should be dragged away in a paddy wagon and locked up, and the key thrown away because there is no lower form of animal in my view than someone who would prey on human misery by exploiting the poor and the desperate in the inner cities.

I am no big fan of the big banks. We do not need to do a tag day for the big charter banks in this country, but we should be holding their feet to the fire and make them live up to their basic commitments, their basic obligations under the Bank Act.

Bill C-37 would have been an opportunity to remind the charter banks of their obligations. In the inner city of Winnipeg where I live and at the corner of Portage and Arlington where I had my campaign offices two elections in a row in two different vacant buildings there are six payday lenders on that one intersection within a half a block in any direction and they are open all the time.

For low income people in my riding, because these firms have been around for almost a decade, people carry their Money Mart card in their back pocket as if that is their ID. That is a poor man's credit card today which is a licence to cheat that person. It is not a credit card. It is not even an ATM card where people can get money using it. It is their identification because payday lenders are smart. They have nice clean tile floors, they are well lit and illuminated. People are treated with some dignity because they want to cheat them. People are sucked in that way, but that used to be the type of service that banks offered legally to neighbourhoods and communities. They were big clean places too where people could go with their paycheques and be treated with some dignity. All that is gone.

We have to remind our charter banks that there was a reason why we gave them the exclusive monopoly on certain very lucrative financial transactions and that was so that they would provide basic services whether we were in Plum Coulee, Manitoba or New Westminster, British Columbia, or in the heart of downtown Toronto, or wherever they are needed.

[An hon. member]

Tuktoyaktuk.

[Pat Martin, NDP, Winnipeg Centre, MB]

Let's not forget Tuktoyaktuk.

The deal was not that they could run those banks as long as they were profitable. The deal was that overall this would be one of the costs that they would assume in their overall activity, namely providing basic financial services. It seems to me the banks do not want ma and pa business any more. They are pawning it off to the credit unions.

There is this idea of the right wingers, the Conservatives, the neo-conservatives in this place. The right wing neo-conservatives have this idea that they should privatize the profits and socialize the losses. That seems to be their basic philosophy. They should privatize all that they gain and let the big banks have all the real good paying business, and they should pawn off the less profitable services such as mortgages, basic banking services, and let the credit unions have those. Somehow the non-profit sector can have all that non-profitable stuff and that will streamline our activities.

[Jeff Watson, Conservative, Essex, ON]

Just nationalize it.