Finance Committee on Feb. 19th, 2007

[Pierre Paquette, Bloc, Joliette, QC]

So basically the ombudsman deals with specific cases but not with practices.

[John Lawford]

An ombudsman sometimes makes recommendations to Parliament, known as translaws. That is done in Australia for Telecom. In my opinion, that could be useful here.

[Pierre Paquette, Bloc, Joliette, QC]

If I had a little more time, perhaps you might like to speak to this.

[Duff Conacher]

In the meantime, I simply say that I agree.

[Pierre Paquette, Bloc, Joliette, QC]

You know that the Bloc Québécois, in the person of Réal Ménard, introduced a bill on community reinvestment. I do not know whether you are familiar with that bill.

Is that the type of approach that you would like to see? Could that be included in changes to Bill C-37?

[Duff Conacher]

I hope so, but perhaps not, since—

[Pierre Paquette, Bloc, Joliette, QC]

We have until tonight to introduce amendments, so—

[Duff Conacher]

Exactly, and the parties have already supported the bill at second reading. So you cannot change the principles of the bill at this point.

However, I think that changing the whole legislative regime for federal financial institutions should be a priority in the future.

[The Vice-Chair, Liberal, Massimo Pacetti]

Merci, Monsieur Paquette.

Mr. Dykstra, and then we have Judy Wasylycia-Leis.

[Rick Dykstra, Conservative, St. Catharines, ON]

Thank you, Mr. Chair.

I have a question for Mr. Macdonell.

One of the things you commented on in the report, or in your submission actually, was about the original concern you had with respect to the federal government proposal to eliminate the statutory requirement for residential mortgages exceeding 75%. You went on to comment about the impact in terms of bringing the concerns around that forward.

Could you provide a little bit more detail around that, in terms of what you did do to certainly assist in the change, and second to that, how responsive the ministry was to that request?

[Winsor Macdonell]

Certainly.

In terms of our submission, we actually engaged two academics to research this issue for papers. One was a known Canadian real estate economist by the name of Frank Clayton, and the other, Dr. Susan Wachter, was a specialist on real estate finance out of the Wharton School of Business.

Their research concluded that the mandatory mortgage insurance requirement itself benefited Canadians by creating a large pool of insured risk that lowered the premium for all Canadians, and thereby allowed Canadians, notwithstanding their credit history or geographical location, to enjoy the same access to credit across the country. That was a very strong point, and that was where we saw the mandatory mortgage insurance requirement playing an important role in the Canadian economy.

When it comes to the threshold, obviously when you reduce the size of the pool, you take away from that. You end up with more people on the outside--who may be in a geographic area that's not an urban centre, or have worse credit--finding higher costs as a result of being pulled out of the pool due to the mandatory mortgage requirement.

[Rick Dykstra, Conservative, St. Catharines, ON]

Thank you.

Mr. Phillips, you mentioned, and your report certainly lays out, a number of things that you were impressed by in terms of broad support for the bill and for the amendments to the act; you're supportive of them. It did mention there were a couple of things that you would like to address. You mentioned that you may not say them during your speaking time, but you piqued my interest. I wondered if there were one or two you could point out that you think we should be paying attention to from a Bank Act perspective.

[David Phillips]

I think one of the issues is the restriction on commercial lending powers in the Cooperative Credit Associations Act. These are quite restrictive in comparison to the Bank Act, and certainly something that we would like to see some loosening of. There is regulatory authority in OSFI to increase the lending limit to a certain extent, but we think this is an issue.

To the extent that provincial organizations have broader lending powers than what's available in the Cooperative Credit Associations Act, it makes it a comparatively less attractive option than just sticking with the provincial charter.

[Rick Dykstra, Conservative, St. Catharines, ON]

Not to put you on the spot, but Mr. Conacher brought up some pretty important points with respect to the five big banks. I wonder if you could comment, more from a credit union perspective across the country, on how you may have been able to address some of the issues that he's brought forward, or if there are some concerns that you feel we should think about in the long term.

I think his concern was around the oversight of the five big banks and the difficulty we have of actually being able to address concerns within the system itself. I don't want to put words in his mouth, but it sounded like there wasn't that direct oversight of the big banks here in Canada that there might be, necessarily, in the United States. I didn't hear him include the credit unions in his opening remarks, so I thought you might want to comment from that perspective.

[David Phillips]

Our concern, really, is with the Cooperative Credit Associations Act. I hesitate to enter into the area of banking regulation. I think there are some important issues there. We obviously share some of those same issues, but....

I think I'll defer an answer to that direct question, if you don't mind.

[Rick Dykstra, Conservative, St. Catharines, ON]

I guess you're allowed to do that. I did open up the opportunity for you to brag a little bit, but that's okay.

One of the things you mentioned, and one of the things that is in the bill, is the required incorporators, from ten down to two, from the credit union perspective.

Very briefly--I don't have a lot of time left, and I have one or two more questions--could you explain or expand a little bit on how that is a benefit in the country?

[David Phillips]

I'd be happy to.

The Cooperative Credit Associations Act is in many ways a work-in-progress. This act was enacted 55 years ago by the federal Parliament. For the first 52 or 53 years there were no institutions actually incorporated under that act. My organization was continued under it, and the other organization that exists under it right now, Concentra Financial, was also continued under the act. This act has been around for a long time, but really, only two organizations are regulated by it.

As we look at changes in the credit union system, we see that the federal charter, as an organizational option, is probably something the system will increasingly look upon with interest as a certain degree of consolidation takes place within the system. We're interested in creating that association under the act as an option that credit unions can look at in terms of their own strategic development. That doesn't mean they will go there, but it's an option for them to consider.

The difficulty we faced with the ten was that it was inconceivable that ten credit unions would ever get together and agree that they should go in this direction. Two credit unions, however, brings it within the realm of feasibility. Five years from now, I can't tell you if anyone will have taken advantage of that opportunity. I already mentioned the restrictions on commercial lending that may be a disincentive.

But I think what that change does is bring this within the realm of feasibility from something that was really quite impossible...the way it's drafted right now.

[Rick Dykstra, Conservative, St. Catharines, ON]

Thank you.

Mr. Lawford, very quickly, you mentioned in your written statement that the position you've taken is that we should, from a legislative perspective, legislate changes, because voluntary changes, from your perspective, aren't happening.

I just wonder if you want to do that inside a piece of legislation that would address the Bank Act, or if you feel that it should happen outside the Bank Act itself.

[John Lawford]

Well, I guess we're taking a little opportunism here to say put it in the Bank Act, because now is the chance to put it in the Bank Act, but the banks touch so much of the electronic payments that we thought it would be an appropriate place to start.

Ideally, it would apply to all financial institutions, of any kind, and any transaction. But to be honest, you're going to cover 85% if you do it through the Bank Act. So, yes.

[The Vice-Chair, Liberal, Massimo Pacetti]

Thank you, Mr. Dykstra.

We'll go to Ms. Wasylycia-Leis.

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

Thank you, Mr. Chairperson, and thanks to all of you for your presentations.

It seems to me that one of the most overriding concerns we're hearing from witnesses on this bill is what's not in the bill. It seems to me that we may have missed an opportunity to actually do some fundamental changes and improvements on the Bank Act.

First, given the fact that this only happens every five years, what happened in between the review process and this legislation? Was everyone consulted? Was it a wide-open consultation process? How does it work? How did we end up with such a narrow piece of legislation?

I know, Duff, that you said it's pretty hard now at the committee stage to amend it, but it was almost all we were left with once they brought in the limited legislation. I think we need to learn for the next time, five years from now, how we can really go at the Bank Act, without giving up on amending where we can over the next couple of days.

Maybe I can just hear some comments on what went wrong. How did we end up with such a narrow scope in the whole thing?

Duff, do you want to start?

[Duff Conacher]

It's really an imbalance of resources and, as a result, power. I mean, there are 100 full-time bank lobbyists. I spend a quarter of my time on banking issues, and I'm sure John doesn't spend much more, and there are a couple of others. So it adds up to one person. When you're outmatched 100 to one, the government hears 100 times from the one side and one time from the other side.

Again, the way to balance that is to form a financial consumer organization through the pamphlet method, at no cost to government and at no cost to the institutions. Then there would be many more lobbyists on the citizens' side. It's a very simple method to put in place.

Yes, it was an open consultation. We had a chance to put in our two cents to the Department of Finance at meetings, going back to June 2005, actually, because of the election. But overall, it's just an imbalance of resources.

Where does the money for the financial institutions to do their lobbying come from? From consumers. Consumers pay for the financial institutions' lobby. We're saying, use this pamphlet method to give consumers a chance to put their dollars toward a citizen group that would lobby for their interests.

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

Do you think we could amend this act to at least include the pamphlet idea?

[Duff Conacher]

You'd have to get the advice from the parliamentary counsel. Certainly the cheque-holds are within the bill, so you could change that such that people have a right to their funds as soon as the cheque clears, which in 98% of the cases would be the next day, as opposed to after four to seven days, which is all this bill is doing.

I'm not sure about other measures, given that the bill has had second reading. That's why I'm laying out more what needs to be done and what has really been ignored in the past five years and wasn't dealt with thoroughly and effectively in Bill C-8—which was a bit of a breakthrough, but had as many loopholes as it had rules.

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

John, and then Frank.