Bill S-5 (Historical)

Financial System Review Act

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 reinforcing stability and fine-tuning the consumer-protection framework; and
(b) 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 Canada Deposit Insurance Corporation Act, the Canadian Payments Act, the Winding-up and Restructuring Act, the Office of the Superintendent of Financial Institutions Act, the Payment Clearing and Settlement Act and the Financial Consumer Agency of Canada Act.

Financial System Review Act

[Kelly Block, Conservative, Saskatoon—Rosetown—Biggar, SK]

Mr. Speaker, when it comes to the approval of foreign acquisitions being returned to the minister, we know our financial system is a model for countries around the world. It is something that happened in the past. Many of the quotes that I gave during my speech support this move. This simply requires ministerial approval when a federally regulated financial institution acquires a major foreign entity that significantly increases its assets by more than 10%.

[Glenn Thibeault, NDP, Sudbury, ON]

Mr. Speaker, it is an honour to once again rise and speak to this bill.

It was just over one month ago that I stood in this House to speak to this bill. In my speech, I warned the government that the biggest failure of this bill was in fact what was omitted, specifically a provision to ensure that banks were mandated to participate in the Ombudsman for Banking Services and Investments dispute resolution mechanism.

There has been a lot of talk on this side about the consumer protection plan. Avoiding and ignoring this piece completely leaves consumers in the cold. The Conservatives talk about the voluntary code, but they have done nothing to address the online or e-commerce need for the voluntary code. They talk about what they have been doing on credit card interest rates. However, making the font bigger on a bill does nothing to help the consumers. What it does is it lets them know how long it is going to take to pay it off. The Conservatives are doing nothing to actually support consumers with this. It is mind-boggling how they can say one thing and do another.

Two weeks ago today, I participated in a finance committee hearing on this bill. Witnesses from Option consommateurs and the Canadian Community Reinvestment Coalition echoed the testimony of Doug Melville, ombudsman and chief executive officer of OBSI, that the economic regulatory system that Canadians rely on has been negatively affected by the government turning a blind eye to banks leaving the OBSI system.

In his opening statement, Jean-François Vinet from Option consommateurs said:

Option consommateurs is highly preoccupied with what Mr. Douglas Melville mentioned earlier—that the banks not only choose but pay for the dispute resolution business that tries to resolve the complaints that consumers send against them. The lack of independence of such a structure, and the conflict of interest between banks and the business hired to resolve disputes against them by consumers, doesn't guarantee consumer protection in Canada and access to a neutral party.

He went on to say:

We're asking the government that all financial institutions that are federally regulated be obligated to offer OBSI for complaint resolution by consumers.

That's our key message. We hope government will understand this, and that it is common sense.

Unfortunately, sometimes there does not seem to be common sense coming from that side of the House.

Tyler Sommers from Canadian Community Reinvestment Coalition recommended that the government “ensure that all federally regulated banks are required to use the Ombudsman for Banking Services and Investments to ensure consistency and independence in the resolution of customer complaints”.

What was the government's response in what was meant to be a systematic review of legislation governing the banking system? The Parliamentary Secretary to the Minister of Finance complained that the witnesses were addressing issues that had been missed by the legislative review. Apparently the government did not want to hear how to further improve the banking system. It only wanted to hear witnesses tell the committee what a wonderful job it had done.

The problem is that is not true. Unfortunately, due to the government's decision to make the system review a technical bill with a very narrow scope, the government stopped parliamentarians from bringing forward the amendments required to make this bill the type of banking review that will help consumers, help small businesses and help the economy as a whole.

Today, business sections in some of Canada's top media outlets are reporting that OBSI's board of directors has approved a scenario for winding down operations if the government continues to allow banks to opt out of the OBSI system. The board is worried that its credibility as an independent ombudsman is being undermined by banks leaving the OBSI system if they disagree with OBSI decisions. The closure of OBSI's banking arm would be dreadful for consumers and for small businesses in this country.

The problem with allowing banks to choose their own firms to manage dispute resolution is that the banks become the firm's customers. As the old adage goes, for any business to thrive, the customer is always right. How can consumers trust any decision made by a private firm when they know that the bank is the one writing the paycheques?

As Mr. Melville very eloquently put it when he appeared before the committee:

A service hired by the bank and that consequently has the bank as a client creates the perception, if not the reality, of a loss of that critical independence on which we function. The service will know whom it is they need to please in order to keep the business, and it's not the individual making the complaint. It's a clear conflict of interest.

The problem with the government not addressing the issue of the banks leaving OBSI is that this is entirely a problem of its own making. In budget 2010, the government announced that the banks would be required to be a member of an approved third party dispute resolution mechanism, but it did not explicitly state that it must be OBSI. As such, both RBC and TD took this as a carte blanche to pull out of the OBSI system and move to a private dispute resolution system. Without the appropriate regulations or legislation being brought forward by the government, both the banks and OBSI have been in regulatory limbo for the last two years.

The government has had many suitable opportunities to bring forward the required changes, most notably during the financial review that we are currently debating. Now is the time for the government to own up to its mistake and make the OBSI participation mandatory.

Customers at TD and RBC are already paying the price. These customers are being turned away from the new private dispute resolution provider. They are being told their complaint is not within the firm's mandate. They are being discouraged from making their complaint or their complaints are simply not properly followed up.

If OBSI is to shut its doors to banking complaints, all bank customers in Canada will be subject to this level of misinformation and diversionary tactics in order to ensure the happiness of the private dispute resolution provider's customers. Guess who they are? They are the banks.

The irony, of course, is this. Where do Canadians who have complaints with TD and RBC turn to for help with bringing their concerns forward? It is to OBSI.

Unfortunately, I will be supporting this bill, as it needs to be passed by April 20 in order to ensure compliance with the Bank Act and to ensure we do not add increasing insecurity to the economic and financial markets within Canada. However, it is with a heavy heart that I will be supporting this bill, not because of what is in it but because of what could have been. This bill is truly a missed opportunity.

In closing I would like to repeat the words of Mr. Melville in his opening statement before the finance committee:

Should banks be permitted to choose their own provider of dispute resolution, in essence to hire and pay for the organization that will judge and rule on their market conduct? I ask you this. If the banks were given the choice of being regulated by the Department of Finance, or some private for-profit body of their own choosing, whom do you think they would choose?

It is very obvious.

The government has a role in ensuring the stability of the financial systems. The only way to ensure the stability of the banking sector is by increasing consumer and small business confidence, which was shaken by the financial crisis. If consumers and small businesses do not believe they have access to an impartial ombudsman if they have a complaint with their bank, there will be no way to guarantee their confidence. The government needs to act now to ensure this is not the case.

With that, I look forward to answering questions.

[Hélène LeBlanc, NDP, LaSalle—Émard, QC]

Mr. Speaker, I would like to thank my colleague from Sudbury for his speech, his passion for defending the rights and the protection of consumers, and the admirable way he represents his constituents in Sudbury.

I would like to ask him how consumers will be protected, given that there is no independent organization that deals with complaints against the banks, such as the ombudsman’s office, which he referred to.

[Glenn Thibeault, NDP, Sudbury, ON]

Mr. Speaker, I would like to thank my hon. colleague for all of her great work on the industry committee and many other places. We recently discussed e-commerce, mobile payments and how the voluntary code is not reaching into those areas yet.

OBSI was created approximately 15 years ago at the request of the government of the day, because the industry at that time was not protecting consumers and small businesses. Consumers and small businesses had nowhere to go when they had a complaint. The government of the day created this great organization and it is in place. Now because the government has chosen not to act, not to put the legislation in place to keep it around, it is going to disappear.

This is not about someone who has lost $50 in a bank account, this is about when a mistake was made on a mortgage. This was created when a mistake was made on retirement savings, and what we can see happen on the far end of the spectrum is people losing their homes and losing their retirement savings because the government is choosing not to act.

[Scott Simms, Liberal, Bonavista—Gander—Grand Falls—Windsor, NL]

Mr. Speaker, he talks about OBSI, but what about the role of FCAC as well? Would that not be beneficial for many of the multiple providers to the system?

[Glenn Thibeault, NDP, Sudbury, ON]

Mr. Speaker, of course, FCAC provides a very positive role to consumers and the banking institutions. However, we are talking specifically about protecting small businesses and consumers and giving them an avenue to ensure they are not being taken by the banks. It provides those necessary rules and regulations. FCAC is looking at competition and making sure there is fair competition in the market. However, a mistake being made by the bank has nothing to do with the competition aspect. OBSI offers resolution when a bank makes a mistake.

The average small business or consumer does not have the deep pockets to take on TD or RBC, or any one of the large financial institutions. Therefore, the consumers need an organization that has those deep pockets, to challenge these guys in court, if need be, and to make sure there is some fair resolution. That is what OBSI does. That is why the government is dropping the ball in protecting consumers.

[Mathieu Ravignat, NDP, Pontiac, QC]

Mr. Speaker, I congratulate my hon. colleague on all the work he has done to protect consumers. As a New Democrat, I have an issue when concentration of power is too high. Financial institutions, according to the bill, would now be subject to ministerial approval, rather than approval of the superintendent of financial institutions. I wonder if these decisions risk being partisan, instead of being without political interference?

[Glenn Thibeault, NDP, Sudbury, ON]

Mr. Speaker, I would like to thank my hon. colleague from Pontiac for his involvement on this file. We have talked about things that we can do to help his constituents and other issues related to consumer protection.

I have been talking about OBSI quite a bit because of the serious ramifications that could result from the government's inaction on this file. To start to see control being taken away from non-partisan, independent organizations right across the country is truly worrisome. At the end of the day we want to ensure that there is fair, independent resolution for consumers and small businesses. I do not know if we will see that when we start involving partisan decisions. Therefore, we need to ensure we are bringing forward organizations like OBSI.

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

Mr. Speaker, as the member of Parliament for the riding of Renfrew—Nipissing—Pembroke and the beautiful upper Ottawa valley, it is my pleasure to have this opportunity to highlight some of the very important measures in the legislation before us today, Bill S-5, the financial system review act.

We are fortunate in Canada to live in a country with a stable democracy governed by a political party and a Prime Minister who have created a climate in which Canadian businesses can thrive, generating profits and jobs. We respect average Canadians who pay their taxes, work hard and play by the rules, something they expect leaders in public office to do. We are not afraid to stand up against big business or big labour when they break the rules or the laws. We take the time to communicate regularly and honestly with the people of Canada. We have a realistic and uplifting vision of the future of this country, one that respects those who present opposing positions, while at the same time ensuring that individual human beings are treated with dignity.

It is important to keep what we have, that which makes Canada the best place to live in the world today. That includes the public institutions which govern our society. We are fortunate in Canada to have a strong and safe banking system, a system that has been declared the safest banking system in the world for the past four years in a row by the World Economic Forum. The international Forbes magazine has ranked Canada number one in its annual review of best countries with which to do business. Five Canadian financial institutions were named in Bloomberg's most recent list of the world's strongest banks, more than any other country.

The measures in today's legislation would further ensure that our financial system remains a Canadian competitive advantage and that consumers receive the highest possible standard of service. Bill S-5 includes measures that would: improve efficiency by reducing the administrative burden on financial institutions and adding regulatory flexibility; expand the consumer protection framework, including enhancing the supervisory powers of the Financial Consumer Agency of Canada, or FCAC; and update financial institutions' legislation to promote financial stability and ensure Canada's financial institutions continue to operate in a competitive, efficient and stable environment.

The act would facilitate: clarifying that Canadians are able to cash government cheques under $1,500 free of charge at any bank in Canada; improving the ability of regulators to share information efficiently with international counterparts; reducing the administrative burden for federally regulated insurance companies offering adjustable policies in foreign jurisdictions by removing duplicative disclosure requirements; and promoting competition and innovation by enabling co-operative credit associations to provide technology services to a broader market.

As the member of Parliament for Renfrew—Nipissing—Pembroke, a geographically large rural riding in eastern Ontario, one of the issues I deal with on a regular basis is the lack of service in rural areas. Several years ago I found it necessary to contact FCAC regarding the closure of a rural bank. The branch was in the community of Whitney, South Algonquin township, which is east of Algonquin Park.

The closing of the only financial branch in the area represented extreme hardship, particularly for residents without vehicles. Those with vehicles faced a 70 kilometre trip in all kinds of weather to Bancroft, where their accounts were to be transferred. Access to basic financial services is something that most Canadians take for granted. By working together in the community, we were able to come up with an acceptable alternative. A credit union set up a satellite branch in a local grocery store, a location that has better hours and a more accessible location than was previously the case. That arrangement is still working today.

I mention this as an example because the legislation before us today expands the supervisory powers of the Financial Consumer Agency of Canada. In my experience, I appreciated the ability to turn to the agency. I support that capacity and the continuing need to protect financial consumers in Canada.

The determination to continually strengthen our financial system has served this country well. It helps explain why our nation's economy has remained solid and sustainable under recent global stress. However, Canadian banks must also understand that they operate in a highly competitive environment and must be prepared to respond to the specific needs of Canadian consumers.

Our government is committed to ensuring that consumers are protected in their dealings with financial institutions. With the growing array of financial services offered to and used by consumers, making sure that Canadians have the tools and knowledge necessary to be confident in their financial decisions is a priority that we take seriously.

Earlier this month, for example, the Minister of State (Finance) announced that the government is moving forward with several measures to protect Canadian consumers and help them achieve greater control over their own finances. These measures, part of budget 2011, include a proposed ban on unsolicited credit card cheques and a new shorter cheque hold period, taking effect on August 1, 2012 and giving Canadians more timely access to their own money.

The fact is that credit card cheques are considered to be cash advances, which generally incur higher interest rates and fees and do not offer an interest-free grace period. The proposed legislation, the regulations banning the distribution of unsolicited credit card cheques, would amend the credit business practices regulation to require federal financial institutions to receive the express consent of borrowers before distributing credit card cheques. This would help to ensure that Canadians understand fully the terms and conditions of using these credit instruments and the obligations and implications entailed from both a payments and household budget perspective.

At the same time, a new code of conduct on mortgage prepayment information was also announced. The Financial Consumer Agency of Canada, or FCAC, has come out in support of these proposed changes, saying it welcomes the changes the government is proposing to the FCAC act. The changes are technical amendments or clarifications to existing provisions. FCAC would monitor adherence to the code and participating institutions would provide a link on their website to the agency. Lenders would make available a toll-free number so that borrowers could speak to staff members who are knowledgeable about mortgage pre-payments.

This improved disclosure would give Canadians important new details to help them make well informed financial decisions. Mortgage lenders would provide details on any obligations or penalties home buyers might incur when paying down their mortgages. That would include prepayment privileges, an explanation of the charges, a description of factors that could alter charges over time and customized information about the borrower's own mortgage. Most importantly, the code requires this information when consumers are making key decisions, such as at renewal and in annual statements. After all, if people do not understand the information provided to them by financial institutions, we can never accomplish our goal of empowering financial consumers. These regulations would not sit and gather dust on a shelf; instead, they would be overseen by the FCAC

[Pierre Nantel, NDP, Longueuil—Pierre-Boucher, QC]

Mr. Speaker, I heard the member opposite mention that Canada's banking system had proven that it was quite safe during the financial turmoil that, in recent years, affected the whole world.

In her opinion, do the consultations and the provisions in this bill really favour consumers? Do they not instead favour the big lobby of financial institutions?

Unfortunately, we saw that in the United States, the financial institutions asked for a great deal of freedom with respect to their activities, which led to the 2008 debacle, among other things. I would like the member's opinion on this.

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

Mr. Speaker, in the reviews that were done and at the stakeholder meetings, information and recommendations were taken from consumers. Consumers held the highest priority.

I want to speak a bit more about the FCAC. In doing so, the FCAC will continue to do its part to help inform financial consumers in Canada by developing plain-language educational material on a wide range of financial products and services. This is something that was requested during the consultations with consumers.

[Dany Morin, NDP, Chicoutimi—Le Fjord, QC]

Mr. Speaker, my NDP colleague touched on that a few minutes ago. We know that stock market speculation is largely responsible for the economic turmoil we have been experiencing in Canada since 2008. That is why I was disappointed that the Conservative government did not introduce more banking regulations in this bill.

The Conservative government is refusing even to consider regulatory policies that would restrict unproductive speculation on the financial markets and stock exchanges that does not create jobs but increases financial sector volatility.

We know that many retirees have seen their savings evaporate because of financial speculation.

Why did the Conservative government not include more regulations covering stock market speculation in this bill to regulate financial institutions?

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

Mr. Speaker, we are continuing to work on the aspects of securing the speculative market.

Furthermore, at the request of consumers, the FCAC has also developed innovative approaches such as a mortgage calculator that quickly determines mortgage payments and the potential savings resulting from prepayments. It has also introduced online tools that help consumers shop for the most suitable credit card and banking package for their needs.

The FCAC also created two tip sheets to help Canadian consumers looking for more ways to save money. One is on choosing the right banking accounts and another is on keeping the service fees low.

[Hélène LeBlanc, NDP, LaSalle—Émard, QC]

Mr. Speaker, I thank my colleague for her speech and her work as a member of the Standing Committee on Industry, Science and Technology. Committee members work well together. I know that she is focused on protecting consumers and ensuring that they get the straight goods.

Does the government member believe that this bill really addresses consumers' concerns, particularly in terms of transparency with respect to the bank fees they have to pay? Does she think that this bill goes far enough?

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

Mr. Speaker, I thank my colleague for her kind comments about the industry committee. In one of our recent studies we heard a great deal of testimony on the subject of credit cards. Thanks to the new measures recently announced, the upsetting practice in question and others are coming to an end. That is in addition to other recent changes as well, such as requiring a customer's consent before raising credit card limits. The government has shown a commitment to improving banking regulations in Canadians' favour. I believe this is welcome news to my colleague opposite.