Evidence of meeting #67 for Finance in the 39th Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was banks.
A recording is available from Parliament.
4 p.m.
Liberal
John McKay Liberal Scarborough—Guildwood, ON
Okay.
Have insurance products actually increased or decreased in terms of sales since credit unions have been selling insurance?
4 p.m.
President and Chief Executive Officer, Credit Union Central of Canada
I don't have statistics on that. What I understand is that this is seen as a good line of business for credit unions. Where they have the authority to get into it, they do so, and see this as a successful strategic direction for them.
4 p.m.
Liberal
John McKay Liberal Scarborough—Guildwood, ON
There are probably a couple of other financial institutions that see it the same way. Thank you.
Mr. Macdonell, what's your default rate for mortgages that are insured between 75% and 80% of appraised value?
4 p.m.
Senior Vice-President and General Counsel, Genworth Financial Canada
Mr. McKay, I do not know the exact number. It has been quite low with the economy being strong for the past few years, so the default rate has not been high. That area, though, historically does represent a level of risk in Canada. When you go back over the past 30 years, there have probably been five declines in prices, significant declines probably in the 20% to 30% range. Part of the mortgage insurance coverage is covering that long-term macro risk that happens.
4 p.m.
Liberal
John McKay Liberal Scarborough—Guildwood, ON
It would make sense that this would be your lowest segment of risk, I would think, and your highest profitability area.
4 p.m.
Senior Vice-President and General Counsel, Genworth Financial Canada
No, it's not, because the premium is much lower in that segment. The premium obviously goes up with the risk associated with the loan-to-value segment. As you put less money down, the premium goes up.
4 p.m.
Liberal
John McKay Liberal Scarborough—Guildwood, ON
Do you know how it compares between...when you go from, say, the segments 75% to 80% versus 80% to 85%? Do you know the differences in profile of risk and reward?
4 p.m.
Senior Vice-President and General Counsel, Genworth Financial Canada
I don't know the specific numbers. To generally characterize it, the 75% to 80% is a much smaller area of business for us in terms of what we underwrite coming through the door. Most people who do low down-payment mortgages generally put 5% or 10% down.
4 p.m.
Liberal
John McKay Liberal Scarborough—Guildwood, ON
I'm assuming Genworth and others gave advice to the government at the time with respect to whether the threshold would be raised. I'm a little surprised by your answer that you don't know what the risk and reward profile is, either between 75% and 80% or 80% and 85%. You seem to be happy with 80%, but could you be equally happy with 85%?
For consumers, this is just money drained directly out of their pockets. The minister argues that it's a $1,600 savings. Well, if it's a $1,600 savings, why couldn't it be a $2,000 savings, or a $2,500 savings?
So I wonder whether there is any information, and if you could you share it with the committee.
4:05 p.m.
Senior Vice-President and General Counsel, Genworth Financial Canada
One of the important things to think about in regard to the different brackets is that the mandatory nature of mortgage insurance is not just a cost put on consumers; it is actually a way of allowing low down-payment mortgages to obtain the lowest interest rate possible from the lender, because the default risk is transferred from the lender to the mortgage insurance company. As a result, in the 75% to 80% bracket, or 80% to 85%, a lender would have to make a risk evaluation of their risk associated with that mortgage to side with it.
Overall we think the current system works very well, cross-populating, and it brings Canada into the international realm in which 80% has been the threshold.
4:05 p.m.
Liberal
John McKay Liberal Scarborough—Guildwood, ON
The point is, though, that the 75% to 80% segment is low risk and high reward, while the 80% to 85% segment is slightly higher risk and possibly even higher reward, but we're without numbers to be able to compare.
The third question is to Mr. Lawford.
You encouraged the committee to adopt a U.S. electronic model with respect to the exchanges. I was surprised to hear that currently it's just a set of codes and voluntary agreements and things of that nature. When the minister was here, I raised a question with him about a completely electronic bank transaction in which money is removed from the account of the consumer but not applied to the account of the creditor simultaneously. It's almost the worst of all possible worlds: the consumer has lost the use of the money, but credit has not been added to the account they wanted it to go to. I take it that's the kind of thing you're driving at.
4:05 p.m.
Counsel, Public Interest Advocacy Centre
That is one of the things we're driving at. Actually a separate piece of U.S. legislation did address that very problem some years ago in the United States. I can get you the name of it; I just forget it offhand. It reduced the time, because it recognized that the payment system, now that it has been made electronic, works more quickly than in the horse-and-buggy days. The ten-day rule is much more that vintage.
4:05 p.m.
Liberal
John McKay Liberal Scarborough—Guildwood, ON
I suggested that in fact we're updating to the 20th century when we should be updating to the 21st century--
4:05 p.m.
Liberal
John McKay Liberal Scarborough—Guildwood, ON
--and I think the point you made is quite a good substantive point.
My final question is to Mr. Zinatelli. We're going to hear this afternoon from the Mutual Life folks. Their argument is that they support the amendment to the Insurance Companies Act to recognize the audit work done by an actuary who is not the actuary of the company.
Do you take the same position as the Mutual folks?
4:05 p.m.
Vice-President and Associate General Counsel, Canadian Life and Health Insurance Association Inc.
There's an amendment in the legislation that allows the auditor to refer to audit work done by an actuary other than the actuary of the company. That's what I imagine they're alluding to. We of course indicated this amendment to our member companies, and they have not expressed a problem with that particular provision.
4:05 p.m.
Liberal
February 19th, 2007 / 4:05 p.m.
Bloc
Pierre Paquette Bloc Joliette, QC
Thank you, Mr. Chairman.
Thank you for your presentations.
I would like to begin with Mr. Lawford. I read your brief with interest. Regarding the liability of consumers, we know that major credit cards have a limit of $50.
When Mr. Dupont appeared, he raised this issue, and he told us that it was under provincial jurisdiction.
In terms of the consultation on the Bank Act, what can we do to ensure, as you are calling for, that consumer liability be limited to $50 at most, or even $0? I completely agree with your arguments.
4:05 p.m.
Counsel, Public Interest Advocacy Centre
I agree that this raises a jurisdictional problem.
We hope to have good arguments. Take the example of our approach to electronic commerce. This involves federal jurisdiction over commerce. Yes, I know it is difficult. The provinces have already been moving ahead on this. However, I have not looked into the issue closely.
4:10 p.m.
Bloc
Pierre Paquette Bloc Joliette, QC
That is why I raise the issue. There will be consultations on electronic payments, and that question will have to be explored.
The departmental officials said that, given that this was under provincial jurisdiction, since provinces are responsible for consumer issues, it is not possible to have a regulatory code. There can only be voluntary codes because those around the table have to follow regulations that come partly from the federal government and partly from the provincial level.
So this seems to me to be a valid argument. If you want more of a mandatory code, we need to find a solution.
4:10 p.m.
Counsel, Public Interest Advocacy Centre
Yes, I see.
All the banking processes are now electronic. There are other issues, such as when there are debit problems. This comes from the banking institution and not from the provincial jurisdiction.
4:10 p.m.
Bloc
Pierre Paquette Bloc Joliette, QC
I simply want to point out that, despite all the good will of the world on my part, there really is a problem and a solution needs to be found.
4:10 p.m.
Counsel, Public Interest Advocacy Centre
All the payments involve the banking system.
4:10 p.m.
Bloc
Pierre Paquette Bloc Joliette, QC
Provincial jurisdiction must be respected, as you know. That is an extremely important point for us.
With respect to the ombudsman, an earlier witness, Mr. Bouchard, told us that he felt that he was not well-served by the banking ombudsman. He is proposing that this function be jointly regulated.
Mr. Conacher, you agree with that idea. I would like you and Mr. Lawford to develop that line of thinking. What would the ideal system be? The people from the banking association are saying that they paid for the system, that there is only one representative from the banking industry and that the banking ombudsman's ruling is enforced. If the government wants to pay for it and take responsibility for it, they do not have any problem with that.
What ombudsman system do you feel would provide adequate protection for consumers?
4:10 p.m.
Counsel, Public Interest Advocacy Centre
According to studies of other ombudsmen in the areas of privacy and telecommunications, an ombudsman with adequate powers... There is a problem right now with firms that are the subject of ombudsman decisions but that have never made any changes to their processes. So the same problems are still there two years later.
If fines could be imposed by the ombudsman and if there were reports to Parliament, that would help.
