Thank you, Mr. Chair, for the invitation to be here today. I'm just two weeks in this role, so I'm happy to have a wingman with me. I feel a little bit better having Marc-André here.
I think all of you know how important the credit union sector is to Canada. Our association represents 275 credit unions and caisses populaires outside of Quebec. Our members are full-service financial institutions. We serve 5.6 million Canadians. We employ 56,000 people, and we add $6.5 billion to the country's GDP. We are co-operatives: the people who bank with us are the same people who own us. In repeated surveys by the CFIB—I think this is the 13th year in a row—Canadians have ranked us ahead of federally chartered banks for customer service excellence.
All but one of our members are provincially regulated, but the fact is that policies set at the federal level affect every credit union. That's why, as an association, we are highly engaged in the statutory federal financial institutions review that is currently under way.
My remarks today are focused on three measures that we believe will improve competition in the financial services sector. I had the opportunity to walk around the room and introduce myself, so I think I'm quite predictable, based on what I heard. You know the first issue I will raise. That is the matter of the terms “bank” and “banking” used by credit unions. Credit unions are the only domestic competitors to the federally chartered banks, and for decades have used the verb “bank” and the term ”banking” to help Canadians identify the other regulated financial service options that are available to them.
In June, OSFI issued an advisory to cease use of these terms. The step was unusual for two reasons. It put aside many decades of their own common-sense enforcement of section 983 of the Bank Act, and it put aside Parliament's intent in that section of the act, which is to prevent consumers from being deliberately misled. Credit unions don't want to be confused with banks, but we do want to be able to use the same common terms that Canadians use. A ban on the use of these terms would force credit unions to popularize phrases to replace “online banking” or “bank with a credit union”, and it would cost our members an estimated $80 million to change their signage, websites, and advertising.
We appreciated that the Department of Finance has opted to roll this question into their current public consultations, and we've urged the minister to amend the Bank Act to make it clear that credit unions may use these terms in the same way that Canadians do.
I want to acknowledge the support of many of you around the table who have worked so hard on this ask. We are asking the committee to urge the Minister of Finance to amend the Bank Act to make it clear that credit unions can continue to use the verb “bank” and the term “banking”.
Our second issue is mortgage insurance risk-sharing. Mortgage lending is one of the ways credit unions help our members attain their life goals. It accounts for more than half of credit union loans. This represents about 7% of the Canadian mortgage market outside of Quebec. A portion of our portfolio is in CMHC-insured mortgages. The arrears rate on insured mortgages is 0.29%, yet for the past year, the federal government has been considering imposing a deductible on CMHC-insured mortgage contracts issued by credit unions and other lenders. This risk-sharing proposal will increase costs for credit unions, but we think it will do little to improve what is already high-quality, prudent lending in insured mortgages.
We've seen that the federal government has moved very cautiously on the file. We urge them to step back from the risk-sharing proposal for several reasons, not the least of which is recent evidence that the Toronto and Vancouver real estate markets are already slowing. With these considerations in mind, we ask the committee to recommend that the Minister of Finance not proceed with proposals to introduce a mortgage insurance deductible.
Lastly, in the next 12 months, Parliament will be asked to consider changes to the Bank Act and other acts as part of the financial institutions framework review that's currently under way. We believe that the changes must support more innovation and more competition in this sector. Since the financial crisis, Canada has seen the largest banks achieve even greater dominance in the banking sector. In our view, there is good reason to believe the current framework could be improved by tackling the disproportionate regulatory burden effects on smaller entities in two ways. The first is to implement a categorization approach to prudential rules. Under this approach, policy-makers would develop two sets of rules depending on the size and scope of the institution. Second, a formal competitive balance lens needs to be applied to the policy formulation process.
To that end, we recommend that the committee work with the Minister of Finance to ensure that as part of the 2019 review, the government institutionalize the perspectives of federal credit unions and small banks.
Thank you, Mr. Chair.