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

[Jim Flaherty, Conservative, Minister of Finance]

moved that Bill C-37, An Act to amend the law governing financial institutions and to provide for related and consequential matters, be read the second time and referred to a committee.

Mr. Speaker, I am pleased to lead off the debate, at second reading, of Bill C-37, which amends the legislative framework governing financial institutions operating in Canada.

This proposed legislation is significant for a number of reasons.

First of all, it will go a long way toward improving our entrepreneurial advantage in Canada, one of the five advantages at the core of our government's new long term economic plan for Canada, called Advantage Canada.

Advantage Canada sets out to create several advantages for our country: a tax advantage, a fiscal advantage, a knowledge advantage, an infrastructure advantage, and, as I mentioned, an entrepreneurial advantage for Canadian families, students, workers and seniors.

To gain an entrepreneurial advantage, we must build a more competitive business environment by reducing unnecessary regulation and red tape and improving services for consumers, so this bill is significant for another reason as well. It will have a positive impact on one of the most important drivers of our economy, and that is the financial services sector. This sector is one of the key foundations on which our economy, indeed any modern industrial economy, rests.

On a broader scale, this important sector plays a unique role in ensuring financial stability, safeguarding savings and fueling the growth that is essential for the success of the Canadian economy.

Moreover, the financial services sector plays a significant part in the daily lives of Canadians. Beyond those of us who use their services, the financial services industry employs about 700,000 Canadians in good, well-paying jobs. It represents about 6% of Canada's GDP and is a leader in the use of information technology.

We can no doubt appreciate the importance of ensuring that the framework governing this important and influential sector is current and effective.

Canada's new government is committed to doing just that with the proposals contained in this bill before the House today.

Before I outline the proposals in the bill, I would like to make a few remarks about the consultation process that led to this review of the financial institutions statutes and the legislation before the House today.

A representative number of stakeholders have shared their comments on the 2006 review of the financial sector legislation.

Overall, stakeholders generally agreed that no major overhaul is needed, but many believe, as we do, that some steps could be taken to refine the legislative framework.

Stakeholders also made specific proposals for technical amendments. Those submissions in the consultations resulted in a white paper issued by the Department of Finance this past June, entitled “2006 Financial Institutions Legislation Review: Proposals for an Effective and Efficient Financial Services Framework”.

For the most part, the white paper is the basis for Bill C-37, which contains the government's proposals to amend the legislative framework for financial institutions. These proposals are aimed at achieving three key objectives: first, improving service for customers; second, increasing legislative and regulatory efficiency; and, third, adapting the framework to new developments.

Together, these objectives will contribute to a modern and competitive financial sector framework in which businesses of all sizes and consumers from every corner of the country will continue to be well served.

I would now like to briefly outline the intent of the three objectives contained in Bill C-37.

The first is improving service for customers.

Consumers are taking greater responsibility for their financial affairs. At the same time, we are seeing an increase in the breadth and complexity of financial products, service providers and delivery channels. Clearly, this means more choice for consumers. At the same time, it makes it more difficult for them to make informed choices in the marketplace.

That is why Canada's new government is acting to ensure that services are improved and customers are adequately protected. The government believes that the best approach to improving services for consumers is through competition and disclosure.

On the one hand, competition provides more choices to consumers and allows them to find financial products and services that best suit their individual goals and needs, at competitive prices. Disclosure, on the other hand, ensures that consumers and businesses alike have the relevant information they need to make the best decisions in light of the choices available to them.

As we all know from newspaper and TV ads, the range of financial services and products offered to consumers continues to evolve. In order to assist consumers to make choices, the disclosure regime for our financial institutions framework needs to stay current to accommodate the different types of products and services in the marketplace.

The proposed changes to the framework contained in this bill reflect that principle.

One example of consumer protection measures in the bill is with respect to online disclosure. As we know, federally regulated financial institutions must disclose in their branches information on the products and services they provide to their customers and the public. Many Canadians today are opting for the convenience of the Internet to meet their banking needs and current disclosure requirements do not extend to the online world.

To ensure that consumers have sufficient information, the bill proposes, first, to harmonize online and in branch disclosure requirements to allow consumers to compare products more easily and, second, to ensure adequate disclosure is provided to customers conducting transactions online.

The intent of this proposed measure is to provide consumers with the information they need in order to make informed decisions.

The second major objective of the bill is to increase the efficiency of legislation and regulations governing the Canadian financial sector.

The regular review of the financial sector statutes allows this government to amend the framework as necessary so that financial sector legislation and regulations continue to be both effective and efficient.

Bill C-37 addresses a number of key areas identified in the review to achieve increased legislative and regulatory efficiencies.

One such area that is quite relevant to many Canadians is the area of residential mortgages. Mandatory insurance for high ratio mortgages was introduced over 30 years ago as a prudential measure to ensure that lenders are protected against fluctuations in property values and associated defaults by borrowers.

Of course, the marketplace has changed since then. Among other things, the risk management practices of lenders have improved significantly and the supervisory framework for federally regulated financial institutions has been strengthened significantly. This means that some homeowners may be paying more for mortgage insurance than they need to.

The proposed amendments to Bill C-37 reduce the cost of mortgages for some families by raising the loan to value ratio requiring mortgage insurance from 75% to 80%. This will lower the mortgage down payment consumers are required to make before the law requires the purchase of mortgage insurance. This proposal will create an opportunity for mortgage cost savings and ensure that more young families can realize the dream of owning their own home.

Another key area identified in the legislative review called for improvements to the regulatory approval regime. Ministerial approvals are currently required for a broad range of financial sector transactions related to market entry, structure and competition, as well as financial institution ownership.

There are, however, transactions that the minister reviews that are routine and do not raise significant policy issues. Bill C-37 proposes measures to streamline the regime to ensure that these transactions are dealt with more expeditiously.

As we know, the rate of change in the financial services sector has increased dramatically in recent years. Financial institutions must be able to respond to developing trends such as globalization, convergence, consolidation, and technological innovation. This adaptation to market changes often results in the creation of new products and services and innovative ways of doing business.

The government needs to ensure that the framework regulating financial institutions is up to date to allow them to respond to these changes so that they can evolve and grow. At the same time, the government is also committed to protecting consumers and small businesses adequately while maintaining the overall safety and soundness of the financial system.

Bill C-37 does that and more.

One way that this bill will improve our financial system is by allowing for the implementation of electronic cheque imaging. Currently banks process about one billion paper items, mostly cheques, annually valued at over $3 trillion.

The process of clearing a cheque includes the physical delivery of the cheque to the paying or issuing financial institution in order for it to decide whether or not to make the payment. This process is more labour intensive, time consuming and costly than necessary, particularly given today's developments in technology.

The proposal in this bill to allow for the implementation of electronic cheque imaging will result in significant efficiency gains, saving time and resources currently dedicated to the transport of cheques. This will allow banks to keep their costs down, a benefit that needs to be passed on to customers to ensure that the efficiencies derived from electronic cheque imaging will be shared by all users of the payment system.

Another proposal in this bill relates to cheque hold periods. For most large banks, the maximum hold period on cheques deposited with tellers is 10 days. While the government recognizes the importance of cheque hold periods for risk management, a concern remains about the length of time that consumers may be subject to these hold periods. Cheque holds not only affect consumers who need to access funds to pay their bills, but also small and medium sized businesses that need to pay employees and operate their businesses out of the funds they deposit.

While the proposed legislation would be facilitating the establishment of a limit on the time that banks can hold a cheque, the government is finalizing the agreement with the banking industry. The agreement will reduce the maximum hold period immediately to seven days and reduce it further to four days once electronic cheque imaging is fully implemented.

This change will be a significant improvement over the current maximum hold period of 10 days or more. It is a major step forward for consumers and businesses. It will increase efficiency and free money up more quickly, having a positive impact on the Canadian economy overall.

In summary, the measures proposed in this bill will amend the legislative framework governing financial institutions in order to achieve three key objectives.

First and foremost, the bill proposes steps to improve services for consumers. Second, Bill C-37 would increase legislative and regulatory efficiency and contribute to a framework where financial institutions could grow and prosper in the global marketplace. Third, the proposed amendments in Bill C-37 would allow financial institutions to adapt to new trends in the industry by providing a framework that is up to date and, above all, dynamic.

I urge all members to give Bill C-37 careful consideration.

[Roy Cullen, Liberal, Etobicoke North, ON]

Mr. Speaker, I have a couple of specific questions for the Minister of Finance.

The white paper mentions the need to deal with some measures that would allow foreign banks greater access to the Canadian market. I also see a number of technical areas in the white paper that I think have been, to a large extent, incorporated in the bill.

When our government looked at the Bank Act and the financial sector during our mandate, one of the objectives was to increase competition through credit unions and through the foreign banks. For the foreign banks there were some limits because of what we used to call the bricks and mortar advantage that Canadian chartered banks have. Therefore, a lot of foreign banks were not inclined to get into the retail market in Canada but to get into the wholesale level and others.

First, does the Minister of Finance see that these measures would realistically allow more competition from foreign banks in Canada and, in so doing, give Canadian consumers greater access and more product choice?

Second, one provision in the white paper refers to data processing outside of Canada. It basically says that the proposal is to eliminate the superintendent approval for processing information or data outside of Canada. As the minister knows full well, there were some issues, I think, last year with respect to outsourcing of data processing by Canadian financial institutions that raised certain privacy concerns, particularly with respect to the Patriot Act in the United States. It seems to me that this might be moving in the wrong direction. I wonder if the minister has followed through with that in the bill and if that is the right direction to go, given some of the privacy concerns of Canadians.

[Jim Flaherty, Conservative, Whitby—Oshawa, ON]

Mr. Speaker, the question raised by the hon. member is a good one and engages us in the reality that the financial services sector is a global business and we want it to be a global business. This is one of the great sectors of the Canadian economy. It is a pillar of the Canadian economy. We want our insurance companies, our banks and our major financial institutions to be global players and to grow globally. They are doing a good job at that and that is good for Canada.

Being global sometimes involves using data sources outside the country. We know that because that was part of the strength of Ireland when the Celtic Tigers started in the west of Ireland processing data for companies in New York, in Canada and so on, subject always to the privacy rules and the jurisdiction of the Privacy Commissioner.

The member opposite raised the point that earlier this year there was a concern about data and privacy, on which the Privacy Commissioner exercised her jurisdiction and looked into on behalf of the people of Canada. We need to be mindful always of those important privacy concerns.

[Pierre Paquette, Bloc, Joliette, QC]

Mr. Speaker, one of the objectives in the bill introduced by the minister is to enhance the interests of consumers and improve the system for disclosing information to consumers. We are obviously very pleased with that.

I want to ask the minister whether it would be possible to appoint a federal ombudsman who would have the necessary power to defend people based on law. He could also represent them when they have disputes with financial institutions. A great number of people are unable to defend their rights in legal situations with banks because they do not have the financial means.

Would the idea of appointing a federal ombudsman for consumers who feel duped by a banking practice be a possibility in this bill, or another bill?

[Jim Flaherty, Conservative, Whitby—Oshawa, ON]

Mr. Speaker, there is substantial consumer protection with respect to financial institutions. Perhaps we view things somewhat differently on this side of the House.

Competition creates choice and disclosure creates knowledge. This bill emphasizes the encouragement of competition in the Canadian banking system among Canadian financial institutions, not just banks but also credit unions that play a very important role across Canada as members of the financial services sector.

We want to encourage competition that gives Canadians choices, selections and opportunities to exercise their own judgment. However, to exercise their judgment in an informed way, there must be disclosure of various options, not only in-branch but also online, and this bill includes provisions to accomplish those goals.

[Diane Ablonczy, Conservative, Parliamentary Secretary to the Minister of Finance]

Mr. Speaker, one of the frustrations that the businesses and individuals have is that when they make a deposit to a bank they often cannot negotiate a cheque or an instrument for up to 10 days, which is a real hardship for many people.

I think it would be helpful if the minister were to remind Canadians of the positive changes in that regard that will be coming in this bill.

[The Acting Speaker, Andrew Scheer]

I just noticed that the hon. parliamentary secretary was not at her seat when she asked the question but I did not catch it, so I will allow the Minister of Finance to respond. However, in future I would ask all hon. members to be in their proper seats when they ask questions or make comments.

The hon. Minister of Finance.

[Jim Flaherty, Conservative, Whitby—Oshawa, ON]

Mr. Speaker, the parliamentary secretary has worked hard on this bill and on her duties as parliamentary secretary in finance.

This is a big step forward, especially for small businesses in Canada. It is a problem when people deposit a cheque and they must wait 10 or more days for the cheque to clear. If the bills are not paid, the interest mounts up. This is a good step forward, particularly for small and medium sized enterprises and for individuals in Canada, that we will be moving forward with reducing that 10 day holding period down to 7 and then ultimately to 4 days. There does need to be a holding period based on the present state of affairs, but we can certainly reduce that by more than 50% down to four days over the course of the next while.

[Roy Cullen, Liberal, Etobicoke North, ON]

Mr. Speaker, I want to go back to my earlier question for the minister, which he did not have time to address, dealing with foreign bank entry and competition from foreign banks, which has the opportunity and potential to increase consumer choices and product lines for Canadians. The advantage for some of the Canadian charter banks is that they have retail branches across Canada.

I am wondering what changes he is proposing in Bill C-37, in lay terms, that he thinks will make a difference and allow more foreign bank competition in our financial markets.

[Jim Flaherty, Conservative, Whitby—Oshawa, ON]

Mr. Speaker, actually the foreign banks are doing well in the Canadian markets and growing. Their participation in Canada is welcome for the same reason that we want our banks to grow globally, be competitive around the world and help Canadian businesses expand their businesses abroad, whether it is in China, India or in other of the emerging economies.

There is a change in the bill though that relates to the composition of the boards of directors of financial institutions. The bill would allow additional foreign directors to be on the bank boards. Canadian representation would be maintained as boards of directors would still be required to have a majority of directors who are Canadian residents. The Canadian majority requirement will still be there but adding some additional foreign directors is something that the banks are interested in doing because it helps them connect and expand their businesses globally.

[Roy Cullen, Liberal, Etobicoke North, ON]

Mr. Speaker, I am happy to speak to Bill C-37, An Act to amend the law governing financial institutions and to provide for related and consequential matters.

Last June, the Department of Finance released a policy paper on which much of the bill is based. The policy paper was commissioned by the previous Liberal government in preparation for the statutory five year review of the Bank Act.

The title of that white paper was “2006 Financial Institutions Legislation Review: Proposals for an Effective and Efficient Financial Services Framework”.

Given that it was inspired in large part by the white paper, the government's bill mirrors Liberal policy. The white paper stated that competition and disclosure are the best ways to protect the interests of consumers.

Consequently, we are seeing some positive measures in this area.

Bill C-37 would ensure that financial institutions provide greater and more timely disclosure to consumers in areas such as deposit type investment products and complaint handling procedures.

What these measures would ensure is that when a customer opens something like a savings or chequing account they are provided with all the information they require to make an informed decision. I think that little could be more important for consumers than ensuring that they have the appropriate information specific to the type of product they are purchasing.

The bill also makes some routine changes that need to be addressed every few years. The prime example of this is readjusting the equity thresholds that determine the size of financial institutions. When the Bank Act was last reviewed in 2001, it was determined that large institutions would be considered those that hold over $5 billion in equity.

Times do change, however, and as a result this bill proposes to increase that threshold to $8 billion to reflect growth in the sector and the general cost of living and inflation factors, small as they are.

Additionally, it would set a new threshold for what is considered to be medium sized institutions. These will be those institutions that hold between $2 billion and $8 billion in equity. As I said, these are some routine updates, but they are important nonetheless.

The bill also has a section devoted to electronic cheque imaging, something that we had asked to be addressed in the white paper. It would require banks and financial institutions to exchange electronic images of cheques, rather than physically exchanging them among themselves. Let us try to picture some five million cheques being transported from one financial institution to another every day, some of which must travel clear across the country.

Advances in recent technology means that this drawn out process is no longer required. Electronic images of the cheques can now be scanned, captured and transmitted in a safe and secure manner between banks. This saves time and it reduces the administrative burden. It is already used by several financial institutions and we have seen great results.

This measure will be very advantageous for both consumers and businesses because cheques will clear quickly. Once electronic cheque imaging becomes widespread, cheques will no longer have to be held for more than four days.

Our previous Liberal government was constantly searching for new technologies to make business and government more efficient. For instance, last year the Canada Revenue Agency began a move toward 2D bar coding for corporate tax returns which would allow tax software to generate a bar code that could be affixed to a company's tax return. When it arrives at the Canada Revenue Agency processing facility, all that is required of the CRA is to scan in the bar code and all of the data contained in the return is transferred electronically into the CRA's computers. This not only would allow for faster processing time but would significantly reduce the occurrences of human error that often goes hand in hand with manual data entry.

This was just a small aside, but I think it illustrates the point that we need to be cognizant of new technology and seize the opportunities that they present us with. I am glad that the Conservatives are following our lead on this particular issue.

I am also in favour of the section in the bill that would make it easier for credit unions to establish cooperative credit associations as a means of expanding their business opportunities. Currently, the Cooperative Credit Associations Act requires a minimum of 10 credit union members in order to form a cooperative credit association. This is a fairly high threshold that precludes many credit unions from forming cooperatives. I am happy to see that the minimum number will be reduced.

When our government reviewed the financial sector in 2001, there were key initiatives that we pursued when bank mergers were on the radar. We wanted to ensure that if bank mergers were ever proposed and were deemed in the public interest that there would be the opportunity for more competition and more products, services and choices available to Canadians through credit unions and foreign banks.

In questioning the minister earlier, I alluded to the fact that foreign banks, while they have an interest in doing business in Canada as the minister indicated, are doing well in certain areas. Most of their efforts are in the wholesale banking side because of the dominance in terms of retail branches across Canada that are maintained by Canada's chartered banks. However, I would encourage any measures in Bill C-37 that would create more opportunities for foreign banks to more aggressively enter the Canadian marketplace. This would give Canadian consumers more choice and more opportunities to shop around for different options and that is good for consumers and the Canadian economy.

I am glad to see that the minister is trying to deal with the credit unions as well. This is a great opportunity again for giving consumers more choice. I know the minister has indicated that there is no big appetite right now for bank mergers or cross-pillar mergers and I think that is a wise decision at this point in time. It is certainly providing clarity to the financial institutions with something that they were looking for.

However, at some point in time if the banks do come back, it would be important, for example, because certain branches of the credit unions would have to be divested and then perhaps foreign banks and others would be in a position to acquire those branches. In fact, the end result could be that consumers would have more choice, so I think it is important to try to build those institutions up in Canada so that Canadians do have more choice and more access to different products and services.

The minister talked about how the bill proposes to reduce the cost of mortgages for some borrowers by raising to 80% the loan to value threshold above which mortgage insurance is required by statute. The current threshold at which one requires mortgage insurance is 75%. Given changes in risk management practices and regulatory requirements, the white paper, which we commissioned under our government, made this exact recommendation. I am happy to see it included in the bill.

One area I am concerned about that did not receive enough attention in this bill is extending customer protection. Beyond the requirement I mentioned earlier that financial institutions provide greater and more timely disclosure to consumers in areas such as deposit type investment products, there is very little mention of helping other types of customers. The bill does not seem to offer similar types of protection for Canadians who take out a mortgage, for example.

June's white paper recommended that the government amend laws governing financial institutions to require them to give all consumers full access to their complaints process, either in their branches or online.

One of the central pillars of consumer protection is providing them with the information required to make the right initial choice of product and the information required to properly lodge a complaint and seek compensation if that product is defective. Yet, the bill has largely ignored this recommendation from the white paper.

I do not think the majority of Canadians are very familiar with what the complaints process is at their local banks and legislating information in that respect to be readily available would have been a great idea and is still a great idea. My riding and I am sure many of my colleagues' ridings receive calls and complaints about banks, service charges and a range of other things. There is a bank ombudsman and there is actually an ombudsman of all ombudspeople. That is a very useful mechanism.

I would be willing to bet that there are a good number of Canadians who do not even know that there is an ombudsman for banking services should they exhaust all the avenues available to them. The banking services ombudsman and his office do fine work. I have worked with them before on a number of issues. I would have liked to have seen a requirement for information about the services of the ombudsman be made readily available.

The white paper called for the streamlining of the ministerial approval process. Currently, there are numerous ministerial approvals required for a broad range of important financial sector transactions related to market entry, structure and competition, as well as financial institution ownership. There are also many routine transactions that require multiple ministerial signatures. This could be dealt with in a more efficient manner and this bill would ensure that happens.

The bill also contains a few items that go beyond the white paper. For instance, the bill proposes to reduce the number of resident Canadians who are required to sit on the board of directors at a Canadian owned financial institution. Currently, two-thirds of such directors must be residents of Canada. The bill proposes to reduce this requirement to more than half of the directors being Canadian.

I know this issue comes up when financial institutions in Canada look to merge or acquire assets in the United States by way of example. When they try to merge, very often the U.S. enterprise will say it will merge but it would like a stronger representation on the board of directors. Frankly, I would encourage our financial institutions to grow north-south. This would give them options beyond just looking to cross-pillar mergers in Canada. This is a positive step.

The two-thirds requirement worked well in the past, but these days, our financial institutions have added a major international component to their activities. Relaxing these requirements would promote the growth and enhance the competitiveness of Canadian institutions on the world economic stage.

I brought up with the Minister of Finance the question of data processing outside of Canada. The proposal in Bill C-37 says the approval of the Superintendent of Financial Institutions would be eliminated for the processing of information of data outside of Canada. While I appreciated the minister's remarks, I think that is in the domain of the Privacy Commissioner.

If a financial institution in Canada was proposing to outsource some of its data processing outside of Canada, keeping superintendent approval is probably still a wise thing to do because before the superintendent would give his or her approval, he or she would presumably ask whether the Privacy Commissioner had been consulted and whether the transactions would protect the privacy interests of Canadians. I am sure the superintendent and the Minister of Finance do not mean to pass this off to someone else to get out of a sticky situation. I am sure that is not the motivation.

Whatever the motivation, the government and perhaps a committee should look at whether this is a wise thing to do given the recent events where certain data processing activities in the United States came under the purview of the patriot act. The confidential information of Canadians was perhaps compromised.

As I said earlier, our government made changes to the financial sector framework in 2001 to set up the process where any bank merger would be required to pass a parliamentary committee test as to whether or not it was in the public interest. That was a good move.

However, in that period, the finance committee of the House of Commons did not review cross-pillar mergers. A cross-pillar merger would be, for example, when a Canadian bank wishes to merge with a Canadian insurance company. The minister has signalled that he is not interested right now in any sort of cross-pillar merger proposals, but if that day ever comes, the public interest criteria and framework that was set up for potential bank mergers needs to be looked at by the House of Commons Standing Committee on Finance because that work was not done for cross-pillar mergers.

Unfortunately, I am not at the stage where I could have proposed amendments to the Bank Act, but that may come one day. I just have to do more work on this particular issue.

An area of interest to me has to do with Internet betting. The Woodbine Racetrack is in my riding of Etobicoke North, and it is expanding at an incredible rate. It is developing its property to include the concept of Woodbine Live, which will have entertainment, hotels, shopping, et cetera. One of the issues that is of great importance to Woodbine is the growth in Internet betting which is actually taking some of its market share away. The irony is that Internet betting is illegal, but no one seems to want to prosecute. As a racetrack, Woodbine is regulated very carefully by the provincial and federal governments. It would be happy to get into the game of Internet betting if everybody else was doing it, but it is reluctant to do so because of the regulatory regime that oversees its operations. It could lose its licence.

I have looked at this from a number of different angles. I have tried to engage the RCMP and the Ontario Provincial Police. No one seems to really be interested in seeking prosecutions in this area. One way to come at it is to do what has been done in the United States where it is illegal for banks to accept cheques, debit or credit cards for Internet betting activity.

Yesterday we debated a bill sponsored by my colleague from Bourassa with respect to video terminals in bars and restaurants. Young people could become addicted, and not just young people, but many people do become addicted. The reality is there are some people who sit in their homes, go online and play poker on their computers at poker.com, et cetera. I have never done it myself but I am told that in order to do that, people have to use a credit card or a debit card to create some credit authority.

If there were changes made to the Bank Act that the banks would not accept debit cards or credit cards associated with online Internet betting, this might be a way of trying to limit some of these activities. It would make sure that the playing field was level for organizations in my riding such as the Woodbine Racetrack, which has a very proud reputation in Canada. It hosts the Queen's Plate annually. It is a great institution and I am very proud of it.

In conclusion, I think that all parties can agree this bill contains some much needed updates for our financial institution legislation. I personally do not think the bill contains anything particularly contentious. I will be happy to provide it with my support, with the caveat that if it is referred to committee, the committee should look at a couple of the issues that I have raised today.

[Pierre Paquette, Bloc, Joliette, QC]

I am very pleased to participate in this debate. It might seem very technical, but it is extremely important, especially for consumers and all of our fellow citizens. We do business with financial institutions every day, especially with banks and near banks. Although these are private enterprises, they are for all intents and purposes public services.

Bill C-37 introduces certain changes to the banking system while ensuring its stability. The government is required to undertake consultations every five years to update legislation governing financial institutions. October 24 was the deadline for consultations on legislation governing financial institutions, but the government extended the application of these laws to next April 24 to enable Parliament to study the issue more thoroughly.

Bill C-37 follows the June 2006 publication of a document entitled 2006 Financial Institutions Legislation Review: Proposals for an Effective and Efficient Financial Services Framework, as well as Advantage Canada, which was recently published by the government during the economic and fiscal update. A lot of work went into drafting this legislation. Bill C-37 would implement new mechanisms to make Canada's financial system more efficient. This bill is aimed at achieving three key objectives. As I said earlier in my question to the minister, those objectives are to enhance the interests of consumers, increase legislative and regulatory efficiency, and adapt the regulatory framework to new developments. This is a sector that has seen a lot of technological, financial and service development over the past few decades.

On the whole, we are quite happy with this bill, because it meets a real need. Obviously, a number of things will need to be discussed in committee, and I will talk about those in my speech. We will therefore vote in favour of Bill C-37 at second reading, but we reserve the right to improve the bill, with the help of the other parties in this House, so that it better meets its objectives, which the Minister of Finance outlined earlier.

I spoke earlier of three key objectives. The first is to enhance the interests of consumers. This includes three main elements. The first consists in improving the system of disclosing information to consumers; the second consists in amending the regulatory framework to provide for the introduction of electronic cheque imaging; the third consists in reducing the hold period on cheques.

The first element of this first objective consists in improving the disclosure regime. As the minister has said, the intent is to help consumers make informed decisions about investment vehicles by providing them with more specific, more extensive, more easily accessible information. The government is therefore proposing higher standards for disclosure of charges and penalties that apply to various accounts and investment vehicles. It will also require institutions to clearly disclose this information on the Internet. Today, many Canadians use the Internet for their financial and banking transactions, paying bills and looking for information. Of course, not every household has Internet access yet, so this information will be available not only online, but also in all branches. That way, anyone who needs information will have access to it.

The second element of this first key objective of enhancing the interests of consumers is amending the regulatory framework to provide for the introduction of electronic cheque imaging.

Bill C-37 will establish a legislative framework for electronic imaging in order to facilitate cheque processing by financial institutions and to reduce the hold period on cheques. I believe that the technological developments to which I referred earlier, particularly in the area of financial management, make it possible to use this new tool.

The third element in the first key objective of enhancing the interests of consumers also results in shorter hold periods by financial institutions on cheques.

As we know, following the publication of the 2006 Financial Institutions Legislation Review, the government undertook to reduce hold periods on cheques in order to make life easier for everyone, particularly SMEs and the public.

A hold on a cheque makes our life very difficult. When we receive a cheque, we deposit it and have bills to pay or debt payments to make. We realize that our money or our assets are on hold. They are frozen, in today's language, by the bank for 10 days, even in the case of cheques from major companies or the government. The solvency of the issuer of the cheque is not in question. To manage risk and security, a hold is placed on these cheques for 10 days.

With Bill C-37, the Superintendent will have the authority to establish the hold period on cheques. In the white paper, it is recommended that the hold period be reduced to a maximum of seven days, and then five days once electronic cheque imaging, about which I spoke earlier, is implemented.

Cheque holds not only affect consumers who need to access funds to pay their bills and make debt payments or simply to do their everyday shopping, they also affect small and medium-sized businesses that do not always have a large cash flow margin. They need that cash flow to pay their suppliers and employees and to operate their businesses from day to day. They often do this out of the funds they deposit into their bank accounts from day to day.

I think that this is something that everyone will be pleased to see. As I said earlier, the 10-day maximum hold period for funds deposited is a source of irritation to virtually everyone.

As well, the government would like to ensure that the efficiencies that will be gained through the Canada Payments Association initiative to change the payments system to facilitate electronic cheque imaging will be shared by all users of the payments system, including consumers.

We certainly cannot object to this first objective and the corresponding elements, but in our view it does not go far enough.

I am sure that some of my colleagues in all parties in this House regularly receive letters from consumers these days, as I do, saying that they have been victimized by the practices of banking institutions, and in particular the big banks, and who feel that they simply have no recourse. Starting a legal battle against a financial institution that is a billionaire several times over is something that most of our fellow citizens cannot do. We need to find solutions for this problem so that consumers have some assistance in seeking remedies against financial institutions.

A few minutes ago I proposed that an ombudsman be appointed who would have more power so that he or she could take on a case and go to bat in court for consumers who have been harmed—or who think they have been harmed—by banking practices, so that consumers would not have to use their own funds to defend themselves.

I think that we need to consider, in committee, how we can achieve the ultimate goal of giving consumers more power in their dealings with financial institutions, in terms of compliance with banking legislation but also their rights as consumers.

I would add that the minister’s answer was not what I was looking for. Helping consumers to make informed choices involves more than just handing out more information.

Financial institutions are more familiar with the ins and outs of the financial system and the money market than consumers are. That is in fact why we have given consumers specific rights, to protect them, because the seller always has more information about what it is selling than the buyer does.

I think that the committee will have a lot of work to do in this regard. As I said earlier, we will be voting for the bill on second reading precisely so that we will be able to do that job. In recent days, I have assured some of my fellow citizens that the Bloc Québécois is eager to do this.

The second objective deals with increasing legislative efficiency. Obviously, this is a motherhood issue. There are three key elements. The first involves reducing the regulatory burden placed on foreign banks to facilitate their entry into the Canadian market and stimulate competition; the second is to streamline the by-law approval process; and the third is to refine the federal legislative framework for credit unions.

The reason I am interested in the first element of this second objective, increasing legislative efficiency, is that this measure, which will reduce the regulatory burden, is a response to the concerns expressed during consultations on the review of the Financial Institutions Act.

The Canadian market, as we know, is extremely concentrated and dominated by five major banks. Any legislation that aims to promote competition is desirable, in our opinion.

I know that, in the past, laws have been passed to promote competition, but we have to acknowledge that they have not produced many results up to now.

Moreover this is what caused the Standing Committee on Finance—I do not recall exactly in which month—in its report on bank mergers in 2004, to be extremely reluctant to lift the moratorium on bank mergers. A market that is already concentrated, with a merger of two large banks from among the five largest, would end up being even more concentrated. And when you have concentration, you have an oligopoly, and an oligopoly means that consumers are extremely short-changed.

This is the present situation in the Canadian banking system. I could give my region as an example. In the Joliette region, there are relatively few banks, so we are more or less at the mercy of those that are there. We do not have an unlimited choice.

Therefore a measure that would promote the introduction of foreign banks into the Canadian market is welcome. In that regard, as I mentioned, Bill C-37 would 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.

I do not need to define near banks but for the benefit of our audience, I will say that they are companies that offer financial services of a banking nature. 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 loans.

So this is an interesting measure. We will get a better idea, as the committee studies the bill, of the scope of these measures designed to increase competition in the Canadian market. As I said, previous legislation did not produce many results.

The second element is the streamlining of the regulatory approval régime. This measure is designed to simplify the process pertaining to routine transactions not having any effect on public policies. So Bill C-37 wants to transfer the power to approve or refuse certain operations or transactions from the minister to the Superintendent of Financial Institutions.

This is one aspect of the bill we would like to address in committee and study in depth because we have to ensure that only decisions that do not impact public policy, as provided for in the legislation, are in the hands of the superintendent. From that perspective, the criteria and characteristics will be extremely important. How do we define a transaction or an operation that has no affect on public operations?

The Bloc Québécois will not allow the minister to depoliticize operations that will have an impact on public policy. Those have to stay in his hands and also be subject to a democratic debate.

The third aspect has to do with relaxing the federal framework governing credit unions. This is a request that has been made a number of times by the Standing Committee on Finance. In order to facilitate the opening of new credit unions, the government would lower to two the number of institutions required to constitute a credit union. At present, a minimum of 10 credit unions is needed to establish an association under 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 SMEs. As I was saying earlier, the major banks are in the process of leaving several regions in Quebec and Canada and, generally speaking, credit unions are picking up the slack. In Quebec, we are well served, but this is not the case in all the Canadian provinces.

The last objective includes all the other measures—and there are three. The first is to increase from 75% to 80% the loan-to-value ratio for which insurance is mandatory on residential mortgages. The second is to readjust the equity threshold above which a bank is required to be widely held and below which it can be more closely held. The third consists in increasing the limit, from one third to a minority, on the number of foreign members of the boards of directors of Canadian banks.

I will quickly outline what these measures entail and what the Bloc Québécois thinks of them. We agree with the first measure, which consists in raising the loan-to-value ratio requiring mortgage insurance from 75% to 80% for residential mortgages. The mortgage market has changed dramatically and is now much better known. Mandatory insurance for high loan-to-value ratio mortgages was introduced over 30 years ago as a prudential measure to ensure that lenders are protected against fluctuations in property values and associated defaults by borrowers. The last time the threshold was increased was following the Porter Commission in 1965, when it was raised from 66.7% to 75%. The market place has changed since then. The risk management practices of lenders have improved significantly. Regulatory risk-based capital requirements have been implemented. Capital markets have changed and matured. The supervisory framework for federally regulated financial institutions has been strengthened significantly

The restriction may therefore no longer serve the same prudential purpose. As a result, a statutory requirement for insurance set at 75% loan to value ratio may mean that certain consumers are paying more for their mortgage than is justifiable on a prudential basis. It is also preventing some Canadians from owning their own homes, whereas they could afford to own a home if the ratio were increased to 80%.

The second measure adjusts the equity thresholds that allow banks to be wholly owned or force them to be widely held. In 2001, a new sized-based ownership regime was implemented. Under the new regime, the equity threshold above which a bank is required to be widely held—I will come back to this definition—was set at $5 billion to capture the largest banks whose potential failure would have the greatest impact on the financial system and the economy. This was another fear that the Standing Committee on Finance had expressed in its report on bank mergers.

If a major bank were to go bankrupt in Canada, in such a highly concentrated market, how would the Canadian economy be affected? To ask the question is to answer it. The result would be disastrous. We therefore have to make sure that these banks are on extremely solid financial ground.

Under the 2001 regime, medium-sized banks with equity between $1 billion and $5 billion can be closely held, but are subject to a 35 per cent public float requirement (unless a ministerial exemption is obtained). Thus, there is at least some distribution of assets. This ensures that, if one of the shareholders is having difficulties, the financial institution itself can overcome the difficulties. Furthermore, the threshold for small banks, which can be wholly owned by a single shareholder, was set at $1 billion to encourage new entrants.

The intent of Bill C-37 is to change the equity thresholds in order to adjust to the new reality of the considerable growth in the banking industry since 2001. Thus, the equity threshold for sole ownership, that is, a single shareholder, would be raised to $2 billion. Furthermore, banks whose equity varies between $2 billion and $8 billion, rather than between $1 billion and $5 billion, must henceforth have a minimum of 35% of their voting shares listed on the stock exchange. Lastly, banks whose equity is greater than $8 billion, rather than $5 billion, as in 2001, must be widely held. Of course, this is nothing new to anyone here, but once again, for our viewers, a widely held company means that no one shareholder can hold more than 50% of the voting shares.

Finally, to account for the reality that Canadian banks are purchasing more and more foreign banks, the minority would be increased, which means that the voting majority on the board of directors must be Canadian citizens, not necessarily by birth or nationality, but Canadian citizens, nonetheless.

[Judy Wasylycia-Leis, NDP, Winnipeg North, MB]

Mr. Speaker, this is an interesting debate for Canadians. This is a very major policy area that requires thoughtful deliberation and thorough debate.

I want to start by saying that we on our side of the House have no intention of speeding up the process around deliberations on this bill. Bill C-37 is a momentous moment for us, so to speak. This is the culmination of a review of our financial institutions that happens every five years. This is the moment when we actually reflect on how we are doing in terms of the Bank Act, what problems are outstanding and where we can still make a difference.

This is not a routine matter. This is not a quick overview and a resolution of a few outstanding issues. This is the time when we consider what is going on in the banking world and how we fix it. How do we change it? How do we make it better from the point of view of Canadians?

We are here today to talk about Canadians and whether or not they are served well by the Bank Act, whether they are served well by financial institutions, and let me tell members that coming from a community that has seen most of its banks up and leave in the space of less than 10 years, I can say that Canadians are not served well.

We look to this process and this legislative review opportunity to make changes that are necessary, so the first thing I want to do today is take some time to go over some of the situations my colleagues and I have experienced and that need to be addressed. I will say at the outset that while the issues in the bill may be necessary and while we may support them, my question is, just as it was for the last bill, where is the rest of it?

Where are the issues that Canadians have brought to the table? Where are the solutions to the problems that Canadians have identified? Why are we in slow motion in terms of an area that is so fundamental to the life of communities everywhere and to the health and well-being of Canadians?

This debate is not meant to be a boring, staid sort of dry discussion over technical details. This debate should be about whether or not the bill reaches out to deal with problems that Canadians have raised with the government and whether or not the government, once and for all, in fact is prepared to deal with some very serious situations.

We are at a moment when Canadians are feeling that their needs and concerns do not matter one bit and that all this government, like the past government, wants to do is defend the big banks, the big financial institutions and their profits.

Speaking of profits, let us look at the final quarter bank profits this year. Let us look at the fact that, by all accounts, on average we are dealing with record level profits for all major banks. Looking at some of the statistics, I see that for the Royal Bank in the last quarter profits were up by $1.4 billion, I believe.

[John McKay, Liberal, Scarborough—Guildwood, ON]

That's terrible.

[Judy Wasylycia-Leis, NDP, Winnipeg North, MB]

Oh, my colleague from the Liberals asks if that is not terrible, in a mocking way.

No one is saying that it is terrible to make a profit. We are talking about whether or not those profits are then used to serve Canadians. Surely the Liberals have some interest, finally, in serving Canadians. Did they not get a lesson at the polls? Did they not realize from the spanking they got that in fact it was time to start listening to Canadians and stop ignoring the everyday needs of Canadians right across this country?

I do not expect much from them. I have tried in the House on numerous occasions to get the former parliamentary secretary for finance to listen to these concerns so that he might get through to the former minister of finance, but it was impossible. We tried on numerous occasions to get the former government to actually address the concerns of enormous profits in the face of absolute negligence at the community level, but to no avail.

We are starting fresh. We are hoping that the Conservatives understand this issue. I am not going to give up just because the Conservatives and the Liberals so often seem like two peas in a pod. I am not going to give up, because there is too much at stake. What is at stake, in fact, are the health and well-being of communities that desperately need access to financial services.

My colleagues on the Liberal benches seem take some glee in the profits that banks make. The Royal Bank's total profits for this year are over $4 billion, as I understand it. The question we are asking is whether there is any way we can keep some of those profits in this country.

Why does so much of those bank profits go off to tax havens in the Barbados where banks do not have to pay any taxes on them? We have just dealt with that debate. Why are some of those profits not put back into the communities that were loyal to the banks over the years, instead of the banks up and abandoning communities?

I do not know if the members in the House who are smiling and laughing during this debate have any understanding of what it is like when an entire community loses every one of its banks, of what it is like to see 10 bank branches close in the space of a decade. I am not talking about just one riding, I am sure, but I can sure talk from personal experience, from the point of view of people in Winnipeg North, a community of older, inner city neighbourhoods.

I am talking about a huge area, if anybody knows Winnipeg, from the tracks to Inkster Boulevard in the north end and from Red River to McPhillips Street. If people know Winnipeg at all, they will understand that I am talking about a large, populated area, which has many small businesses, many families that are not wealthy, and many seniors who are not wealthy, who do not have cars to drive to the suburbs, who may find it difficult to access buses, and who do not have computers in their tiny apartments. Some of the people in my constituency do not even have phones, so access to a bank branch is a rather important necessity. It is a bread and butter issue that is part of one's day to day living and working experience.

We have seen communities like Winnipeg's north end deserted by banks. I want to see that addressed in this bill. I want the government to care about that situation. I would like to see some attention given to this matter.

This is the opportunity.

Back in 2000, when we agreed on the bill that set in motion the five year review with the opportunity to make changes as necessary, we put in place in that legislation, and we agreed with it, the Financial Consumer Agency of Canada, its purpose that of overseeing financial operations from the point of view of consumers, protecting consumer interests and speaking up when necessary. It was a place for consumers to take their concerns and have them addressed and it had some powers to oversee bank decisions in terms of branch establishments and closures.

We discovered through this whole process of bank closures that in fact the bill we supported back then did not have enough teeth in it to ensure that the Financial Consumer Agency of Canada could actually hold a stick over big banks to make sure they were following some due democratic process in terms of communities they were serving. Those communities were loyal to them for decades, sometimes for over 100 years, before the banks up and abandoned entire communities. When the last bank branch turned off its lights and closed its doors in this particular area of my riding, Winnipeg's north end, the community had to do something.

I want to say that one big bank left a branch at the edge of that geographic area I described, and that is the Bank of Nova Scotia. We continue to work with that bank to make sure there is a good liaison between the bank and the people so that in fact that relationship stands us in good stead and that no corporate decision from Toronto will lead to the closure of that bank branch as well.

For this huge area, there are no banks. There are no branches. When faced with that alternative, the community did the right thing. The people of community stood up and said, “If the banks are not loyal to us, then we will not be loyal to them, and we will take things into our own hands”. Thank goodness for that kind of determination, perseverance and community spirit, because over the last several years that spirit, that perseverance and that determination have allowed for the establishment of an alternative community financial services centre.

That development occurred just a few weeks ago and officially opened on November 16, and in fact it is one way in which our community has been able to overcome this kind of neglect and abandonment by the big banks. I am here today first of all to give kudos to people in my community who made this happen and to actually acknowledge the fact that it did not happen because of some decision from government. It did not happen because of largesse from either government or the business community. It happened because local community members decided to fight back. They fought back until they got something, not everything, but something that will take the place of all those banks.

I want to acknowledge all of those people who fought so long and hard to get this centre, which is something that needs to be said in the context of this review of the Bank Act. It happened because of people like Jerry Buckland from the Winnipeg Inner-City Research Alliance. It happened because of his work and his studies, repeating the information over and over again and producing studies, including “The Rise of Fringe Financial Services in Winnipeg's North End”, “Fringe Banking in Winnipeg's North End”, and “There Are No Banks Here: Financial & Insurance Exclusion in Winnipeg's North End”.

Those studies clearly show that as the banks left, payday lenders moved in, and people were left at the whim of an unregulated sector. Fortunately, I believe and I hope, the government is moving on the legislation to actually close the loophole with respect to payday lenders and fringe financial services, but the point needs to be made that in fact there are still so few alternatives for people who have been left high and dry by our financial institutions.

It is important to recognize the work of a community like my own when it fights back and wins, so I want to acknowledge the work of Jerry Buckland, who helped produce all these studies, along with Nancy Barbour, who has since passed away and to whom we owe an enormous debt of gratitude.

We had hoped that in this legislation today there would be some amendments to put some teeth into the agency that is there overseeing consumers' interests. That does not appear to be in this package.

We had hoped that somehow the government would have realized the importance of emulating an initiative in the United States. We often point to initiatives from across the border, but in this case it is one that we should look at and consider seriously, and that is a community reinvestment act that requires big banks that choose to leave a community to put money made from that community back into that community to help with economic and social development.

That is an innovative proposition that needs to be seriously considered in this country. We need to ensure that there is some way to give back to the community that which has been taken out of it through long time loyalty to banks and the contribution to the kind of enormous profits we are seeing today.

Study after study has talked about consumers' interests in this regard. I want to reference a speech by Murray Cooke, who is with the Centre for Social Justice. He writes:

In terms of finance, we need to ensure that not only business has access to capital, but we need to ensure that all Canadians, including those living in rural and small town communities, including disadvantaged groups no matter where they live, have reasonable access to finance and basic financial services. While this is an issue of social justice, I think you could appreciate that there are also wider economic benefits involved in allowing and encouraging everyone to be economically active rather than economically marginalized.

On that note, it is important to point out, again, the impact of the government's decisions in closing Status of Women offices and shutting down programs that were helping in this regard. I refer specifically to a program entitled “Money & Women” , which was organized by the North End Women's Centre in Winnipeg in the heart of my constituency. It works on a daily basis with women to ensure they have the financial knowledge, information and expertise to handle their own banking, to access banking services and not to become dependent on payday lenders.

This is a valuable service that is no longer available because of the government's heartless cuts. This is a case of government money helping a community to help itself. It was a case of money going through a program and an organization to women directly to help them manage their finances and put themselves on a stronger financial footing.

How in the world can that be described as money for bureaucracy and money for administrative purposes? This is money that goes directly toward the benefit of women, and the government has totally denied women that opportunity. Shame on it for that kind of heartless, disgusting cutback that gets at the very soul of the community and the very heart of an individual's desire to play a meaningful role in society today.

People in my community and everywhere do not want to be a drain on society. They do not want to stay on social assistance if they do not have to. They do not want to be dependent on anyone. They want to be independent and they want to manage their own affairs. Surely the most important thing government can do is provide the resources to help people help themselves, to give them the tools through literacy, through bank projects, through volunteer initiatives that help people to help themselves.

I cannot think of a single reason, from the civil society point of view or any perspective from a civilized society, why the government would take that program away. I cannot understand why the government wants to resort to the law of the jungle and the survival of the fittest. I thought it was against people staying on welfare and being dependent on the state. I thought government was about giving people the tools they needed to help themselves. Yet it is taking away the very things people need in order to participate fully in our economy so they can get a job, pay taxes and contribute to this country. It is beyond any kind of understanding and comprehension.

Let me get back to the Bank Act. Another fundamental issue for people around the Bank Act has to do with disclosure. It has to do with access to information and accountability and transparency. I know the bill touches on this issue of trying to deal with some of the numerous briefs that were presented during the development of the white paper.

Bill C-37 falls far short of what is needed. It by no means addresses the real concerns of Canadians. Let us remember, we are talking about a very complex world that provides to citizens a dizzying array of products, choices and services, yet we are doing nothing to ensure that people get the full information they need.

Some very important suggestions were made on that front. I think about the role of Democracy Watch. I think about the role of the consumer advocacy groups and others that have tried to get the now government, and the one before it, to consider the idea of citizen participation, citizen boards as a vehicle for ensuring the proper flow of information between big financial institutions and consumer groups and individuals so people would be fully aware of what was happening and would have some say when there were those possibilities for decision making.

Bill C-37 fails Canadians on some key issues. We need to stop and reflect on what is missing in the bill, what Canadians heard during the process and how we can make a better bill.