Finance Committee on March 27th, 2007

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

Which agency would look at that?

[Julie Dickson]

The Financial Consumer Agency of Canada has an education role and a role to look at the consumer provisions of the act.

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

I appreciate that, but if you have a situation where financial institutions like the Bank of Montreal—and there's a lawsuit going on—actually continue to process the conversions and charge the clients the conversion fees, notwithstanding the law and without telling the clients, it's not an FCAC responsibility but a government responsibility, or, I would think, OSFI's, given your role to maintain public confidence in our financial system.

Somebody has to be responsible for this, and if it's not the consumer agency—and it can't be—it must be you, or somebody.

[Julie Dickson]

I can tell you that I know it's not OSFI.

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

Who is it, then?

[Julie Dickson]

I would start by asking questions to the FCAC, but on this whole front—

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

They respond to consumer complaints; if a consumer doesn't know until way too late....

You're dealing with big banks, with huge power, up against individuals. Isn't there something OSFI can do to require the banks to uphold their fiduciary responsibility?

[Julie Dickson]

No, we wouldn't have any direct powers to deal with something like that. We are constantly dealing only with safety and soundness, which is a consumer protection thing as well. It is a full-time job on its own, and we don't have the powers to deal with those situations.

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

Well, then we're missing something important in terms of the whole government infrastructure around holding banks to account for the laws that exist.

Did OSFI investigate once you heard about this? Did you do anything?

[Julie Dickson]

No, that would be part of.... I'm interested in reading any article that appears with respect to a bank, because I think it's important to know what's going on in the sector, and when issues come up, OSFI is always asking whether we have a role to play. On this one, we definitely do not.

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

Let me try another issue. Again it's going to be in that grey area about your role, but maybe you can comment on it. It's on the issue of retroactivity when you apply for your CPP.

Right now CPP limits your ability to get retroactive payments to 11 months; the Quebec Pension Plan doesn't. Can you tell me if is there any kind of fiduciary reason, any kind of accounting reason, that people couldn't be entitled to their own pension, no matter how long it took them to apply for it?

[Julie Dickson]

No, I wouldn't be well placed to answer that question. It's not something that falls under my mandate.

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

Could you tell us if there's any kind of actuarial reason for this kind of situation?

[Julie Dickson]

There isn't that I'm aware of, but I wouldn't profess to be an expert on that. I know that obviously the Office of the Chief Actuary looks at CPP and provides actuarial views, but I don't know the specific answer to your question.

[The Chair, Conservative, Brian Pallister]

Thank you very much.

For clarification, would it be fair to say you exist to protect the consumer in the sense that your office exists to protect the financial stability of the institutions that offer services to the consumer?

[Julie Dickson]

That's exactly it.

[The Chair, Conservative, Brian Pallister]

Okay, so on consumer complaints and so on, we might suggest the ombudsman for banking services or an office like that would be better equipped to deal with consumer-specific concerns.

I want to segue off Madam Wasylycia-Leis's general inquiries to the issue of sub-prime mortgages. I wonder, given the circumstances in the United States right now and the recent entry into the field of sub-prime mortgages in Canada of non-traditional issuers of mortgages, where that sits right now with your office. Will you be collecting a levy from these companies now entering the marketplace and offering sub-prime mortgages? Is that something you will be doing?

[Julie Dickson]

We've been monitoring closely what is going on in the U.S. We don't see the same conditions here at all. The U.S. market is much more developed than the Canadian market. The Canadian market is growing rapidly, but has only started to grow over the last few years. Institutions and unregulated players in the U.S. have been doing this for quite some time. It's probably 2% of the Canadian mortgage market, and it's closer to 15% in the U.S. We don't see much activity in new originations. It may be 5% here; it's closer to 20% in the U.S.

A few institutions are very interested in this, small institutions, and some unregulated players in Canada are interested in this market. We would, as part of our job, be looking at what those institutions are doing. The U.S. market is giving us lots of examples of what to look at. We're not seeing the exotic mortgages; we're still seeing 25-year amortization with three- to five-year fixed terms. Also, in the U.S. the interest deductibility of interest payments when you have a mortgage is a big driver to borrow more than you would borrow here.

Mortgage insurance is playing a big role in Canada as well; all the high-ratio mortgages must be insured if they're offered by a bank. Predominantly the lenders are regulated institutions in Canada. There are new players—

[The Chair, Conservative, Brian Pallister]

Just to back up to the simple question, from these companies that are now in an industry component that is in its infancy, will there be a levy collected by your office; and are they under the auspices of your office? In other words, do you offer oversight to this component of the industry?

[Julie Dickson]

If it's a federal institution, yes.

[The Chair, Conservative, Brian Pallister]

Okay, and you've alluded to the fact that there are some non-regulated and non-affected potential issuers. But it is an area with great potential for growth, as has been testified to before our committee, and also an area where obviously, by its nature, these kinds of mortgages are somewhat more affected by increases in interest rates, that type of thing. That's why I'm asking.

Apart from observing the U.S. situation, what other research or preparatory work have you done in respect of these? I do believe from testimony we've heard at the committee that there is the potential for a great expansion in the marketplace of those types of mortgages, which prior to this time have not been utilized by Canadian homeowners. What kind of work have you done in respect of this?

[Julie Dickson]

Any time we see a line of business growing rapidly in a financial situation, we look at it. This is a line of business that in the past few years, we noticed, had started to grow rapidly but off a very small base.

We have been spending more time looking at that, as we would any line of business that starts to grow rapidly. That is the answer. We've been looking more closely at it. We're still fairly comfortable, because it is rapid growth but you don't see the kinds of exotic mortgages being offered here that are being offered in the U.S. So it is a different situation, but one that we're watching closely.

[The Chair, Conservative, Brian Pallister]

Finally, from my standpoint for questions, in terms of the most recent budget, it makes reference to the--I hate to use the word--liberalization in terms of access to various investment vehicles in Canada, international vehicles that may be more available on a retail level. What impact do you see in changes in respect of investment options being expanded, perhaps greatly, for the Canadian consumer?

Also, more importantly, I suppose, for financial institutions, pension plans and the like, what impact do you see that having, if any, on your work and in terms of the oversight that you must offer to some of these institutions?

[Julie Dickson]

I don't see a major impact just yet. One proposal talked about being able to buy securities, if you're in Florida, using a broker in Florida, and that kind of thing, which doesn't have an impact on OSFI, given that we're looking at federal financial institutions and we're not responsible for the activity whereby you're selling securities, etc. That would be in a securities dealer, which would be overseen by securities commissions. So I don't see anything there for us.

[The Chair, Conservative, Brian Pallister]

Finally, on the issue of the reference to the changes in terms of eligibility for deductibility for investment in foreign tax havens, as some call them, recent news coverage has had the banks certainly crying foul and saying this has a considerable negative impact on them potentially, and specifically them. I wonder if you foresee this as being a major issue of some import in terms of the stability of financial institutions such as banks in Canada.