Finance Committee on Feb. 19th, 2007

[Guy Legault]

Unfortunately, you would have to ask the Canadian Bankers Association that question. I cannot speak for the Association as to the reasons for that decision.

All I can say is that compensation is among the factors motivating this kind of policy.

[Pierre Paquette, Bloc, Joliette, QC]

I'm going to call them tonight.

Mr. Bouchard, you did not have the time to conclude. I saw your document which, unfortunately, we could not distribute because it was not available in both official languages.

Did you appeal to the Financial Consumer Agency of Canada or the FCAC?

[Richard Bouchard]

Yes. When I called the FCAC, I was told to file a complaint, which I did. However, this has been extremely frustrating.

On the first page, the FCAC describes its mandate as follows, "was established to protect consumers...". The Grand dictionnaire terminologique de l'Office québécois de la langue française defines consumer protection as follows:

Series of provisions intended to ensure and improve the respect of consumer rights. These provisions seek mainly to protect consumers in their contractual relationships with merchants, by offsetting inequality with respect to consumer rights and bargaining powers.

The FCAC is founded on that definition. After numerous appeals and arguments, I was told that I would need to file a request under the Access to Information Act in order to consult my file. So I did. Finally, the charming woman in charge of my file, Ms. Charette, told me that she was aware of my file and that the agency had not decided to investigate.

I then learned that the agency would only address this issue if it received so many thousands of complaints on that matter. However, I wanted the agency to confirm whether I was right or not. If I say that a company has violated its code of conduct, I want confirmation of the violation. I did not ask for any other information. Finally, I was told this was none of my business. It is extremely frustrating.

Earlier, Mr. Callon explained his mandate. He is convinced that if the agency was called the financial institution monitoring agency, I wouldn't have asked any questions. But, it is called the Financial Consumer Agency of Canada. There is something wrong here.

[Pierre Paquette, Bloc, Joliette, QC]

Obviously, in light of your experience, you believe that consumer banking protection is not sufficient.

[Richard Bouchard]

No. I have done a little research on the subject. Let's take the example of the Irish ombudsman. He falls under federal authority, he has coercive power and he is regulated by a board of directors, wherein consumers, public powers and industry are represented. Under the ombudsman's mandate, this board of directors can set various standards and regulations with respect to consumers. In Canada, codes of conduct have been developed by the Canadian Bankers Association. That's all very convenient.

[Pierre Paquette, Bloc, Joliette, QC]

Perhaps we could ask Mr. Callon to react to what Mr. Bouchard has just said. I invited Mr. Bouchard because he submitted his case to me.

Is this case an exception, or do you believe that our consumer protection system is sufficiently developed?

[Jim Callon]

First it's difficult for me to comment on a complaint that has been filed with the agency. Under the establishing legislation, the commissioner must treat all information in the agency's possession as confidential. So, the information we have received from Mr. Bouchard and the bank are confidential.

In my opening comments, I explained that there were two parts to consumer protection. On one hand, there is the regulatory system, under the FCAC, and on the other, the consumer and small business complaint resolution mechanism. It is the policy of the agency to always explain its mandate and the mandate of the Ombudsman for Banking Services and Investments to consumers. So, it is up to consumers to choose the best process for them.

[The Vice-Chair, Liberal, Massimo Pacetti]

Thank you, Mr. Paquette.

Mr. Norlock, seven minutes.

[Rick Norlock, Conservative, Northumberland—Quinte West, ON]

Thank you very much for coming this afternoon.

My first question--I don't know if it will be a quick question--will be to Mr. Lafrenière with regard to mutual insurance companies. Mr. McKay had some questioning along the same lines I'm going, as a matter of fact probably the same lines.

You say the advantage to insurance companies, their offshore holdings and the tax advantages to that...which are a disadvantage for Canadian-owned entities such as yours. Just so that we can help people who might want to read these proceedings and find out more about financial institutions in their home communities--I'm thinking of one particular mutual insurance company in my constituency--can you tell me, with regard to the regulations we're currently looking at, what changes you would like to see? And these would be changes that we can actually enact that would assist you in being more competitive in your market.

[Normand Lafrenière]

It would be that everybody would be treated the same way. We're not asking to be more competitive, we're asking to play on a level playing field.

The way to do so is to allow everybody to set up a reserve to better face catastrophes. It would be an amount, maybe 5% or 10% of profits, that they could put aside. That money would be put aside and taken out only when major catastrophes occur. It would be up to the government to decide what a major catastrophe is. Basically, that money is set aside to avoid situations where we have three years backwards and seven years forward of taking money out of profits in order to pay for catastrophes.

Right now, this is the situation. If you don't have a catastrophe or a loss in a given year, your profits are considered as profits. We know that over a ten- to twenty-year period, we're bound to have a catastrophe. We don't have the money set aside to pay for that catastrophe.

I'm not saying that financial institutions are weak. OSFI and our provincial governments are doing a very good job of making sure we are solid. But we don't have the kind of solidity, if you will, that foreign companies do, and even Canadian companies with offshore companies do.

[Rick Norlock, Conservative, Northumberland—Quinte West, ON]

Thank you.

Ms. Dickson, would you agree or disagree that advantaging mutual insurance companies to the extent that Mr. Lafrenière feels we should would have a destabilizing effect, or would it be a matter of a regulatory requirement on the part of the government?

[Julie Dickson]

We do require that all property and casualty insurance companies have a reserve in place to guard against catastrophes or earthquake risk. We focus as well on the types of modelling they might do to try to predict this risk. We also look at whether there are other ways they could build up these reserves. They can buy reinsurance, for example.

I think one of the issues you are raising is a tax issue, whether the government would be prepared to provide a tax incentive to set up these reserves. That would be a question for the Department of Finance. Obviously they would want to look at the implications. It's not a new issue. I think that issue has been raised before.

[Rick Norlock, Conservative, Northumberland—Quinte West, ON]

Thank you.

To Dr. Callon, earlier today we had some testimony from another witness, Mr. Conacher, with regard to protecting consumers and enabling them to exert their influence on government. Obviously yours is a government agency. You mentioned that you like to inform the customers--in this case Canadian citizens--as to the services you provide.

I've done a quick survey of my confreres here, and three members of Parliament have never heard of your agency before. Mr. Conacher mentioned that if Canadians were to receive a letter from his organization, they would be advantaged to the extent that people would then be able to access someone to advocate on their behalf. It seems to me that you're mandated to advocate on behalf of Canadians in their relationship with financial institutions. Wouldn't you say so?

[Jim Callon]

No. Our role is not to be an advocate for consumers; our role is that of an enforcer of the laws. Mr. Conacher is an advocate.

With respect to knowledge of the agency, the agency was only started four or five years ago. It is a fairly new agency. We've made major efforts to try to get awareness out there, but we are not on consumers' minds every day until they actually have a problem.

We have worked with the CRA in the past two years. We've sent out over 12 million or 13 million inserts in government cheques to advise people of our existence. We also have worked with the media. We are in the media three or four times on a weekly basis as a source of information and as a resource for the media in terms of issues they are trying to deal with through their own journalistic articles.

[Rick Norlock, Conservative, Northumberland—Quinte West, ON]

Thank you. To carry this a little bit further, would you say you have a very good relationship with the banks?

[Jim Callon]

We have a professional relationship.

[Rick Norlock, Conservative, Northumberland—Quinte West, ON]

A cooperative relationship?

[Jim Callon]

The industry is a responsible industry. That's not to say they don't make mistakes.

[Rick Norlock, Conservative, Northumberland—Quinte West, ON]

So you do have a good relationship, meaning that you converse back and forth.

I might as well come right out and mention this. Mr. Conacher had a good idea about communicating with all the people who utilize the services of financial institutions. My suggestion to you is that perhaps you could work with the banking associations, insurance companies, and others...that you enforce the regulations.

Perhaps they wouldn't mind inserting the same information you provide to the Government of Canada, through issuing of their cheques. I'm sure the banking association would be willing to cooperate with you to inform their customers that, should they have a dispute with them, here is someone who is independent from the government who can act on their behalf.

Do you think that would be a good idea?

[Jim Callon]

We have done that. We've asked the association to do that. If you were to refer to all the complaint-handling brochures the institutions have, you'd see the FCAC mentioned on the complaint-handling brochures that most of the major banks have.

[The Vice-Chair, Liberal, Massimo Pacetti]

Thank you, Mr. Norlock.

Next is Ms. Judy Wasylycia-Leis.

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

Thank you very much.

I'm sorry I wasn't here for everyone's presentation before. I had to run off and deal with a panel on the next budget.

I did hear your presentation, Mr. Callon. I do want to focus a lot of my remarks around the Financial Consumer Agency of Canada, which, as you've mentioned, is a relatively new entity that came about as a result of the previous review of the Bank Act and that was put in place as a vehicle to deal with consumer issues and to uphold the act, in terms of clients of the banks and other financial institutions.

I think if there are any concerns today about this whole area, it's not so much with the work of the FCAC as with the legislation that guides you. I think that's why we're disappointed that the proposed legislation today doesn't have some more teeth in it. From my experience in dealing with bank closures, of which we've had many, there are really no teeth in the act to force banks to actually consult with the community, to hear the concerns of the community, to provide advanced information, to have a due process around this.

Mr. Norlock and I were talking about this earlier. I have the case of an inner city riding that lost, in the major part of that riding, all of its bank branches. The citizens fought back tooth and nail, but we couldn't stop a single bank closure. In the end, with the help of FCAC, we did force the last bank to leave, CIBC, to have a more meaningful meeting. That didn't stop the bank from closing, although they did, I must say, put some money in to study an alternative financial services centre, which is now a reality in Winnipeg.

That's the good news, that consumers and citizens out there are ready to stand up for some rights in this whole area, but this legislation isn't going to help them one bit.

Here is my question to you, Jim. We are going to try to move an amendment that would at least make the holding of public meetings around bank branch closures mandatory. Do you think that's possible within this bill? Secondly, will it help in terms of some of the issues you're dealing with on a day-to-day basis?

[Jim Callon]

We have found with branch closures that there has been a decline over the last three years. We had reached a peak about three years ago, in terms of the number of closures that were occurring, partly with respect to mergers that happened between TD and Canada Trust.

We found that the regulation brought forward dealt with making advance disclosure to communities, advising them that the closure is occurring, and therefore allowing them the ability to react with respect to that closure.

What we always find at the branch closure meetings we attend is the expectation of the community that they can reverse the decision. Generally, the bank's position in these meetings is that the decision has been made, so the consultation isn't necessarily about the closing; it's about how the closing will progress.

To go any further, we get into government policy, and I wouldn't venture into that area.

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

Right, and the difficulty is that the banks are under no obligation to disclose any information about the profitability of that bank branch. So it really comes full circle, every time, on this issue--that is, legislative provisions that require transparency and accountability on the part of these financial institutions. That would make your agency a lot more effective, and it would give some assurances to consumers and to ordinary citizens that their interests are being protected. The right that Duff Conacher mentioned, which I totally support, the right to access financial services somewhere within one's community, must be upheld. This is not now the case.

So what we've got in Winnipeg North is that all the bank branches get closed, ATMs pop up, and then those ATMs of those banks are sold to private label companies. Then a person has to pay $6 to take out $20, or $30, or $40 of their own money. At private label, white label ATMs, it's as high as $6. And there are no regulations. At any rate, we're going to try to deal with that as well.

Let me ask a question about when it is possible for FCAC to actually prosecute. I understand there was a survey done in 2003, a mystery shopper survey of 1,600 bank branches, and you actually found that there were more than 800 bank branches in violation of the Bank Act. The reasons ranged from violating the legal requirement to post interest rate information, to violating the requirement to have a clear publicly available on holds on cheques, violating the requirement to have their public accountability statements publicly available, violating the requirement to make publicly available information on interest rates and loans, violating the prohibition on tied selling, and so on.

But as I understand it, no prosecutions ever happened. Then, I understand, in fact your agency then tried to reduce the areas for which you were surveying so that in fact you didn't get the same numbers again.

I think we need to have some clarification on that, to know what you're able to do when there are violations, in any one of these areas; whether or not you continue to survey on all those issues; and what we need to do, if you can't do it, to beef up the legislation to make it possible to go after banks that actually condone and allow these violations of very clear measures under the Bank Act.

[Jim Callon]

With the creation of the agency we've developed a rather innovative compliance framework. One of the tools we use is mystery shopping. The first time we'll go out to a sizeable portion of branches across the country in various urban centres and in some rural areas, to see what the retail experience is for the consumer with respect to compliance with the legislation.

Our first mystery shop was carried out in 2003 and we focused on how the banks met their disclosure requirements in branch. The results were not positive in all the areas.

We then have in our act two processes. First of all, let me clarify the word “prosecution”. Prosecution is a completely separate action that would be taken through the criminal act, and that's not a key tool for the agency. The agency can progress through what we refer to as a “notice of violation” and then a violation that receives an administrative monetary penalty.

So that's the difference between prosecution and our administrative monetary penalty. That's just a point of reference there.