Mr. Speaker, I rise to address Bill C-82. I would like to go over a number of issues and review some of the items that are in the bill which the parliamentary secretary has pointed out.
I would also basically like to submit to the House a lot of the work that was done by my colleague from Okanagan Centre who is our critic for industry and who has been monitoring and following the impact of this bill on Canadians and the four pillars of our financial institutions in Canada. A lot of what I do will be some work that he has done and that he has monitored.
I will express the overall outline of the Reform Party and then explain to Canadians who are watching how standing committees work, what actually is presented at standing committees by various groups and how that has an impact or no impact on final legislation. I will then read into the record a report by the member for Okanagan Centre which he has sent to the Secretary of State for International Financial Institutions. That way our position as a party and our contribution to this debate on this issue will definitely be moved forward.
The Secretary of State for International Financial Institutions indicated that Bill C-82 was really about protecting consumers. In a sense that is right but there are objections I have to that comment. How do we protect consumers when we increase their taxes? How do we protect consumers when we confuse them across this country, for instance, with the harmonized sales tax in three provinces but not in the other provinces? How can we implement tax reform and how do we encourage financial institutions and the four pillars to know what is going on when we have one tax regime in three provinces and a different one in other provinces?
We saw that big flaw. We saw that the direction of the government in terms of taxation was the wrong direction. We saw that in terms of another bill we debated earlier today, Bill C-70, the harmonization tax, the blended sales tax or the tax inclusive pricing which the Senate sent back to the House. I thought we were finished with it.
Although the amendment is headed in the right direction on that bill, tax inclusive prices in three provinces confuses consumers and lenders. The bill does not go far enough. I do not see why the bill should not have had, along with being open and visible, a national harmonized sales tax, not a partial one, and a single rate, not a mid-double digit rate. A lower rate would force the federal government to keep its expenses down and not overspend. There should have been another amendment to allow doctors to claim the GST on input credits.
The Liberals are very lucky they have a Senate and senators who went on a trip. Because of the power they have in the other place they were able to send the bill back to this House. At least they understand the meaning of representation and what is in the best interest of an area or a community. The Liberal premier of New Brunswick also understands the meaning of representation. He puts the people of New Brunswick first and not the Liberals. He puts the people he represents first and not his party. He puts his province first and not the Liberal federal government. Many Atlantic MPs will benefit from that decision.
I said many times that the harmonization effort was not really based on economic benefits for Canadians. I submitted sufficient proof that it bears a high cost. Yet the parliamentary secretary just said on Bill C-82 that he is worried about consumers.
Consumers are taxpayers. Taxpayers have had to pay three provinces $961 million. Taxpayers are consumers. They have a traditional cost in terms of their businesses and government transitional costs of $200 million. They are over a billion dollars now. There will be a huge increase in costs to consumers when the blended sales tax is applied in the three provinces after April to goods and services the provincial sales tax never applied to before. It will represent a 7 per cent tax increase to consumers.
I have read all the news about the government and what the Liberals are doing by introducing this bill and that bill and by jumping back and forth one to another. A new issue has come up that amazes me and disappoints me. The Liberals truly sound like the Conservatives before them.
During the Charlottetown accord Mulroney labelled anyone who voted against his accord as enemies of Canada. Now certain Liberals feel threatened by the actions of the Liberal premier of New Brunswick, Frank McKenna, in terms of the Liberals' re-election chances federally. They are angry he did a flip-flop on the harmonized sales tax. They are angry he did an about-turn and does not support the harmonized sales tax the way it was being shoved down the throats of Atlantic Canadians.
McKenna sided with the Senate banking committee to defer tax inclusive pricing, much to the embarrassment of the Liberal government and in particular the finance minister who claims that he was representing the consumers of Canada, the consumers of Atlantic Canada. Yet he is contradicted by the Liberal premier.
A disgruntled Liberal MP claims that "people are getting tired of his shenanigans", referring to Premier McKenna and his actions. The Liberal MP goes on to state further "on the condition of anonymity". This is a public servant elected by people and he speaks on the condition of anonymity. Does that shows real courage? He says: "I have never seen a premier accumulate so many enemies in three and a half years".
Because a Liberal premier, no less, disagrees with the federal government on what is best for the constituents of New Brunswick, he is labelled an enemy of the federal Liberals. Shame. Arrogance abounds on the government side.
All members of Parliament should be evaluating the consequences of increased taxes. All members of Parliament should be evaluating the consequences of tied selling, allowing banks to get into all businesses and becoming a stronger oligopoly. All MPs should be interested in representing the wishes of their constituents.
Our job as politicians is to represent voters across the country, not just the wishes of the federal Liberal government. If they do not agree with the government they should not be labelled as enemies of the country, as enemies of Canada, or as enemies of the Liberal government. If the Liberal government cannot keep an election promise it is not the fault of those who oppose. Nor should they be labelled as enemies.
I spent some time on the aspect of consumer protection. That is what Bill C-82 is all about. After the review will the bill improve things for the people of Canada, the consumers, as the Secretary of State for International Financial Institutions claims?
Let us look more specifically at what the legislation does for Canada and for Canadians. Some of the more notable clauses in the bill provide that more detailed information be available to the consumer regarding cost of credit disclosure. They require simplified and improved dissemination of information to consumers about basic financial services, low cost options and fees on products and services. They also allow non-deposit taking institutions to opt out of the Canada Deposit Insurance Corporation and loosen subsidiary requirements. So far so good.
They introduce regulations to allow financial institutions to enter into joint venture agreements and propose changes that permit mutual insurance companies to issue participating shares. They require that large mutual insurance companies remain widely held after conversion to a stock company. They also permit foreign banks to be regulated as Canadian banks.
In terms of foreign competition the Reform supports competition in the financial sector. We support permitting foreign banks to be regulated as Canadian banks. The Reform feels that competition leads to the best service and to a lower cost for the delivery of that service.
There is also an item called coercive tied selling. The whole issue of tied selling is probably the single most controversial aspect of the bill the government will have to address and be held accountable and responsible for. The issue raises serious concerns with regard to tied selling. Subsection 459.1(1) in clause 55 states:
A bank shall not impose undue pressure on, or coerce, a person to obtain a product or service-
Subsections (2) and (3) set out provisions where the banks are allowed to offer loans to persons on more favourable terms and conditions, on the condition they buy other products and services from a particular person. A bank or one of its affiliates may offer a product and service to persons on more favourable terms, on the condition a person obtains a loan from the bank.
Although subsections (2) and (3) are intended to be interpretative clauses for the courts, it is our opinion that they permit tied selling and give the banks considerably more power than they enjoy now.
We recommend that these clauses be deleted. If not, the banks will have the ability to pressure individual and small businesses to consolidate their financial activities and requirements into a single provider. This would not be considered fiscally prudent. Having assets under one roof increases the relative influence of the bank to determine who is granted loan capital and who is denied access.
In order to ensure a balanced system that respects both the interests of the consumer and the integrity of Canada's financial
institutions it is necessary to ensure that legislation such as the Bank Act is clear in its meaning and intent.
We must be prudent in all cases and ensure that access to capital is freely available without constraints of any kind. That point is trying to strengthen the argument that tied selling is a very delicate and potentially divisive issue. It deserves further review and discussion.
Earlier I said I would talk about some items raised in the Standing Committee on Finance in October last year. This is where the issue was discussed and certain groups came before the committee to make representations.
I will read the fourth report of the Standing Committee on Finance of October 1996 under tied selling:
Tied selling occurs when a vendor requires a customer to purchase one produce or service as a condition of purchasing another one. As the white paper points out "concerns have been raised that the special nature of the relationship between financial institutions and their customers renders their customers especially vulnerable to coercion and that market forces and the Competition Act may not provide sufficient safeguards for these consumers".
The committee is concerned that tied selling must not be confused with cross selling. Cross selling, in essence, involves offering a lower price for a particular product or service if the customer agrees to purchase another product or service.
That is like a volume discount. It continues:
Non-coercive cross selling may actually result in savings to customers who often find package sales attractive. As well, banks may find it worthwhile to make small business loans only if other services to that customer are part of a package, and the committee does not wish to discourage lending to small business. It is not always a simple matter, however, to distinguish between tied selling and cross selling.
That gets back to my earlier point that the Bank Act must be clear in its language and in its intent, and I do not believe it is. It goes on:
The Independent Investment Dealers Association brought three specific cases of alleged coercive tied selling by banks before the Senate Committee on Banking, Trade and Commerce. The Canadian Bankers Association has disputed that these cases involve tied selling. Without investigating the details of each case, the committee cannot judge their merits. Suffice it to say, however, the committee remains concerned about the possible abuse of power by not only banks but by all financial institutions and insists that their customers not be subjected to abusive practices involving tied selling.
The Competition Act currently prohibits tied selling by "a major supplier of a product in a market that is likely to
(a) impede entry into or expansion of a firm in the market,
(b) impede introduction of a product into or expansion of sales of a product in the market, or
(c) have any other exclusionary effect in the market with the result that competition is or is likely to be lessened substantially".
The committee does not believe that any of its concerns about tied selling of financial services can be dealt with by the Competition Act prohibitions since undue pressure on an individual customer would not meet the test of substantially lessening competition in that market. Accordingly, arguments to the effect that the Competition Act can resolve this committee's concerns about tied selling are specious.
In addition to the Competition Act prohibitions against tied selling, section 416(5) of the Bank Act states as follows:
"No bank shall exercise pressure on a borrower to place insurance for the security of a bank with any particular insurance company-"
The committee received representations from both the Canadian Bankers Association-and the Independent Investment Dealers Association-on this provision.
The IIDA asked that section 416(5) be amended to read as follows:
"No bank shall exercise pressure on a borrower to purchase or obtain any financial product or service from any particular supplier".
The CBA objects to the use of the word "pressure" as it currently applies, and to the expansion of its prohibition beyond "insurance for the security of the bank" to "any financial product or service".
The committee shares the concerns of the CBA that the word "pressure" is not defined and that many aspects of selling could involve an element of pressure. As stated by the Consumers' Association of Canada, what is important is that the pressure not be undue or coercive. The committee therefore recommends that section 416(5) of the Bank Act be reconsidered with a view to reflecting that it is not just any pressure, but only undue or coercive pressure, that amounts to unacceptable behaviour.
Secondly, the committee recommended that the prohibition in section 416(5) of the Bank Act against undue or coercive pressure should apply to the provision of "any financial product or service" and not just "insurance for the security of the bank". There is no reason why such pressure should be permitted in any instance.
Thirdly, the committee recommends that a provision similar to section 416(5) of the Bank Act as amended above apply to all federally regulated financial institutions. Undue or coercive pressure should not be prohibited only among banks. Recognizing the possibility that constitutional issues might arise, the committee recommends that the government undertake discussions with the provinces with a view to obtaining this protection for consumers of all financial institutions.
Fourthly, the committee recommends that financial institutions would be required to:
designate a senior level officer in each financial institution to implement procedures for dealing with consumer complaints;
provide customers with details on how customers can make complaints; and
report annually on the complaints received and the actions taken to respond to these complaints.
Fifthly, the committee recommends that customers who believe their complaints have not been dealt with adequately by the financial institution concerned shall be informed of their right to complain directly to the Consumer Protection Bureau-under the Minister of Industry, and the CPB shall report to Parliament on such complaints.
Sixthly, in the event the largely self-regulatory regime proposed herein proves inadequate to protect customers against undue or coercive pressure from tied selling, stronger measures should be undertaken.
Lastly, the committee recommends that officials study the laws and jurisprudence in other jurisdictions to assist in determining more precisely the difference between tied selling and cross selling. For example, section 106 of the 1970 Bank Holding Company Act of the United States spells out in some detail the instances of activities of banks that are not considered to be tied selling and which are therefore presumably for the benefit of consumers. Various provincial laws dealing with this issue might also prove helpful.
These are the conclusions drawn by the Standing Committee on Finance based on the submissions given by various witnesses on the issue of tied selling.
One can see how technical this issue is in the sense that it is hard to understand and is hard for anybody to really get it clear in their mind the difference between tied selling and cross selling, when they are going from one by placing conditions into the other where they are just suggesting a better deal or a lower rate and a real benefit if they are offering cross selling.
I would like to read from a document written by the member for Okanagan Centre, our chief critic of industry, who is not here today. It is just a short article that he entitled "It's Time to Stop and Take a Good Look at the Financial Sector". Having read this, I share the general thrust and view of his position on this.
He goes on to write:
[The finance minister] surprised many in his 1996 budget speech by assuring Canadians that banks would not be allowed to sell insurance through their branch networks-this year. This soft ball, so deftly tossed our way, neither assuaged our concerns or addressed the issue.
The real issue is not whether the banks should be allowed to sell insurance or enter into the car leasing business but whether true competition exists within the financial sector and thus whether the consumer and the economy will benefit if banks are allowed to enter other markets.
The banks assure us that their own industry is competitive and not the oligopoly that Canadians suspect. This is difficult to believe when the six largest banks in Canada move en masse to raise or lower interest rates every time the bank rate so much as twitches. The only competition in this case is, who will move first.
The four pillars of the financial sector, banking, insurance, trust companies and securities dealers, have crumbled as deregulation and technological progress has blurred the lines of distinction. The banks have been applying pressure ever since to sell insurance in their branch networks, enter into auto leasing, and increase their interest in the securities market. Further deregulation and the subsequent increase in the size of banks, however, could reduce competition in the financial sector and hurt consumers. These are perennial issues in Parliament particularly when a review of the Bank Act is scheduled. Major reviews are conducted every 10 years, interspersed with minor reviews every 5 years.
1997 brings a minor review but it is a major review that is required. We need to know a good many things: How do our financial institutions interact? How do they operate in relation to other sectors of the economy? What are the strengths and weaknesses of the current regulatory structure? Not only will the answers reveal whether or not true competition exists within the banking sector and thus, whether or not they should be allowed to expand into other financial services, the answers will determine the veritable strength of our financial sector as it heads into the 21st century. Until such a review is completed, a moratorium should be placed on making further decisions about financial institutions.
Furthermore, Parliament must be the venue, perhaps in the form of a joint committee of the finance and industry committees. It is the only way we can assure all interests will be recognized and the process will be both accessible and transparent. Canadians must be able to see the process in order to put faith in it.
As lobbyists from all sides pressure members of Parliament to take sides and others to try to frame the issue within the overly political constraints of a war between big and small business, the challenge will be to keep our eye on the ball. That is, to ensure true competition exists and is free to function within the marketplace, that stability is maintained in respect of financial sectors, and a prudent regulatory structure is in place to protect the consumer.
If the bottom line is met, Canadians and the economy will indeed emerge as winners.