Industry Committee on Nov. 27th, 2007

[Mark Yakabuski]

Insurance is a way of redistributing risk, madam. That doesn't mean that consumers bear no risk. For an insurance system to be reliable, it has to be simple enough to protect people. That doesn't mean that people can be completely careless. There has to be some acceptance of responsibility.

[The Chair, Conservative, James Rajotte]

Thank you.

We'll go now to Mr. Stanton, please.

[Bruce Stanton, Conservative, Simcoe North, ON]

Thank you, Mr. Chair.

Good morning to our witnesses, and thank you very much. It's rather an esteemed panel we have before us here today. It's great to have you here on this service sector study.

The purpose of this study is to help us understand better the nature and complexities of the service sector, and particularly how that sector strengthens the Canadian economy with respect to jobs and job opportunities down the road. Your presentations today certainly addressed many of those issues.

There is a suggestion that the manufacturing sector--a very important sector for Canada--is the engine of our economy, and the service sector is secondary to it; that it only exists because there are other primary jobs in the country from which people get wealth and then have the ability to purchase from the service sector. This is a narrative we have come across, yet earlier witnesses have suggested there is much more integration in the Canadian economy. There's a supportive role.

I wonder if I can ask Ms. Hughes Anthony and then Mr. Swedlove to comment on the degree to which your sector is integrated with the economy in that way.

[Nancy Hughes Anthony]

You make a very good point. I don't think this is a competition between sectors. We have a very integrated economy in Canada.

When I speak for the banking sector, they obviously want their customers and clients to be successful and prosperous. That would certainly include the manufacturing sector, the resource sector, or whatever. So I absolutely agree that we are so deeply intertwined in partnerships that we need to take a sort of holistic view of the economy and do what is best for all businesses to be competitive in what is obviously an extremely vicious and competitive world.

[Bruce Stanton, Conservative, Simcoe North, ON]

Thank you.

Mr. Swedlove.

[Frank Swedlove]

Thank you.

In the past there has been this thinking that services are secondary to manufacturing. I think that's very much old thinking, something that is buried in the 1950s and 1960s, frankly.

The service industry is very much an industry in its own right. It's highly integrated. We provide services to all businesses, including the manufacturing businesses, but we're also major purchasers of manufactured goods. So it's obviously a very highly integrated economy.

The service industry and the financial services industry are the leading industries in a number of communities in the country; indeed, manufacturing often supports the major service industry in those areas. So one can't say that one is the driver of the economy and the other follows. That's a very old concept, and I don't think it reflects the reality of Canada in any way.

[Mark Yakabuski]

I wonder if I could just add to that. We often refer to the property and casualty insurance industry as the oxygen of the economy, because virtually no business in Canada could operate without having the ability to insure itself against risks that would be far too large for any business to undertake. You've got product liability insurance, property insurance, directors and officers liability insurance--all of these forms of insurance that every manufacturer must have, and without which they would not be able to conduct their businesses. So we like to call ourselves the oxygen of the economy, underwriting risk, innovation, and economic growth. It's very much a symbiotic relationship between our industry and the manufacturers and other businesses we support.

[Bruce Stanton, Conservative, Simcoe North, ON]

If I can summarize, it's like an infrastructure, if you will, that allows those kinds of companies, other primary employers in the country, to exist.

One of the other things that has come to light here, and I think you even mentioned how surprised...and I think some of us are, although I can't speak for my colleagues, about the degree to which your respective sectors in insurance and financial services have a large role in foreign investment and in direct investment in other parts of the world.

I wonder, if there's time, Mr. Chair, if you could each make a brief comment on how that translates back to strengthening our economy in terms of job opportunities for Canadians. Do we see the benefit of your work in other countries here in Canada?

[The Chair, Conservative, James Rajotte]

There's about a minute left, so if we could briefly have one comment each....

[Nancy Hughes Anthony]

Sure, I could comment very briefly.

I think that was in the presentation, Mr. Chair. Obviously, Canada's banks have been reaching out to foreign operations more and more. We find this has very much strengthened employment here at home--and it has also strengthened employment abroad--because the companies remain Canadian headquartered and they remain taxpayers in Canada as well as employers in Canada. I think the statistics in my charts speak for themselves in terms of the benefits they bring to Canada.

[The Chair, Conservative, James Rajotte]

Mr. Swedlove.

[Frank Swedlove]

As I noted, over 56% of the revenue of our industry comes from abroad, so it's vital to our industry, obviously. What that means for Canada clearly is head office jobs in Canada, the export of our expertise and knowledge, and the continued development in Canada of that expertise. Some of our members have been very active in promoting the concept of maintaining strong Canadian entities and are actively involved in the competitiveness of work that is suggested by the government.

[The Chair, Conservative, James Rajotte]

Thank you.

Mr. Yakabuski, briefly.

[Mark Yakabuski]

Our industry is less an exporter of jobs to other countries. The way we do provide jobs is that successful Canadian companies tend to follow their insurer. If they expand abroad, it's often their Canadian insurance partner that insures them in these other countries and makes sure they can grow there.

[The Chair, Conservative, James Rajotte]

Thank you.

Thank you, Mr. Stanton.

We'll go to Ms. Nash.

[Peggy Nash, NDP, Parkdale—High Park, ON]

Thank you, Mr. Chair.

Good morning to all the witnesses. Thank you for your presentations.

Something I would like to raise this morning is a United Way report that was just released yesterday in Toronto, looking at the issue of poverty in Toronto. I am a Toronto member of Parliament, and the level of poverty in Toronto is quite shocking. Toronto is rapidly becoming the poorest city in Canada. I represent a riding in the west end of Toronto, where we have many low-income people.

One of the issues the report signalled was the incidence of payday lenders, who have come into many poor communities, and the level of really exploitative interest rates that some of these payday lenders charge. Especially people who are working but are still poor, people, who in order to cover the gap until their paycheque comes in, will make a short-term loan at one of these payday lenders. Then they get trapped in these really high interest rate situations and begin to sink deeper and deeper into debt.

Ms. Hughes Anthony, I know your organization does not cover the payday lenders, but the banks are heavily regulated in terms of the interest rates they can charge. I wonder what your take is on the payday lenders, because it seems to me to be a regulatory gap that is leading to really serious problems with very vulnerable people.

[Nancy Hughes Anthony]

I'm just going to ask my colleague, Terry Campbell, to respond to this.

[Terry Campbell]

That's a very good question, and it is something we have been watching over the last few years, I think for the same reasons and from the same motivations as you and the United Way.

You talk about a regulatory gap. The federal government, a few years ago, passed a statute that in effect enabled the individual provinces to regulate the payday lending industry.

[Peggy Nash, NDP, Parkdale—High Park, ON]

Actually, that was just earlier this year.

[Terry Campbell]

It was earlier this year. Indeed.

Up to that point they had not been regulated. It allowed the provinces to do two things: set the fees—because as you point out, there are a lot of concerns there—but also to regulate market conduct in consumer protection issues. There are worries about rollovers and disclosures and practices.

Some provinces have begun to move on that—the Province of Manitoba and a few others. But I think it's fair to say that we have not seen the full progress across the country that I think would address some of the issues.

We know there is an association of payday lenders, and they have established a code of conduct that addresses many of those issues. But I think you're absolutely right; what we would need to see here is a combination of the industry addressing its practices through a code of conduct, but also regulatory activity.

You have commented on a United Way report about concerns of poverty. It's been a public policy challenge, I will say over the last few years, to really get a handle on why people use the payday lenders, who uses them, and their motivations for using them. I think it is fair to say that there's a range of motivations. I think what the United Way report focused on was a sector of the clientele. So your point is well taken.

[Peggy Nash, NDP, Parkdale—High Park, ON]

Thank you.

Yes, it's something I would like to pursue with the federal government, because it's my understanding that the ability to regulate provincially is only given once there is a demonstrated limit on the amount of interest that is being charged. I'm not sure that's happened yet in, say, Ontario. It's something I'd like to follow up on because it seems to me the banks provide excellent services and products in addition to financial products. I think there's an opportunity through the banks to actually help people understand how finances work so that they can protect themselves against this kind of problem. It is an issue.

One concern that comes up and is maybe something that could be looked at is the issue of identification, that sometimes very low-income people don't have all the necessary identification to cash cheques when they go into a regular financial institution. I know, for example, that in Parkdale, which I represent, there's a nice, big TD Bank branch and a big Scotiabank branch—the banks have not abandoned that community, for sure—yet we have a plethora of payday loan companies. Why does someone go into one and not the other? I think it's probably an issue of identification that presents the barrier. That's maybe something we can try to work on together to see how we can improve it.

[Terry Campbell]

This is part of the conundrum I was talking about earlier. Often you will find a payday loan institution very close to a bank branch. It's exactly as you say; it's not because of abandonment. If you look at the practices of payday lenders, they require you to have a bank account, so it's not the absence of an account.

In the banking sector, identification required for opening accounts is all mandated by statute. It's set out very clearly in the regulations. It's for that balance between accessibility and also knowing your client. Nowadays, with all the concerns about who's opening accounts and for what purposes—terrorism and so on—we have that “know your client”; it is that very careful balance.

We haven't nailed exactly all the motivations, and it could be that this is one of them.

[The Chair, Conservative, James Rajotte]

Thank you, and thank you, Ms. Nash.

We'll go to Mr. Brison.

[Scott Brison, Liberal, Kings—Hants, NS]

Thank you very much for joining us today.

The first question I have is for Ms. Hughes Anthony. It's the first time I've heard a representative from the banks appearing before the committee who has not talked at some point about mergers. There's been a diminution of the size of Canadian banks relative to foreign banks and in terms of size and rankings over the last 10 years. When you refer to regulatory burdens under which you must operate here in Canada, is one of the regulatory burdens to which you're referring the implicit barrier to merging your operations?

[Nancy Hughes Anthony]

I'm interested to have that question. I'm surprised it actually took that long.

The government has stated that it is not going to undertake or consider the question of bank mergers at this particular time. So as a practical matter, Canadian banks are doing what they can do. As I talked about, a lot of them may be going into international operations that are very advantageous to the banking community and to the consumer.

What would I say? Mergers are a legitimate business practice that other businesses are allowed to take advantage of, should they wish to. For reasons of perhaps politics more than policy, that is not made available, at the moment, to Canada's banks.

As I said, as a practical matter, life goes on and banks are finding other ways to do what they do. Does it make any sense in an international context? No, it doesn't.