Debates of April 10th, 1997

An Act To Amend Certain Laws Relating To Financial Institutions

[The Acting Speaker (Mr. Milliken)]

In my opinion the nays have it.

And more than five members having risen:

[The Acting Speaker (Mr. Milliken)]

The division on Motion No. 3 is deferred. The next question is on Motion No. 5. Is it the pleasure of the House to adopt the motion?

[Some hon. members]

Agreed.

[Some hon. members]

No.

[The Acting Speaker (Mr. Milliken)]

All those in favour of the motion will please say yea.

[Some hon. members]

Yea.

[The Acting Speaker (Mr. Milliken)]

All those opposed will please say nay.

[Some hon. members]

Nay.

[The Acting Speaker (Mr. Milliken)]

In my opinion the nays have it.

And more than five members having risen:

[The Acting Speaker (Mr. Milliken)]

The division on Motion No. 5 is deferred.

The House will now proceed to debate on the motions in Group No. 2.

[Werner Schmidt, Reform, Okanagan Centre, BC]

moved:

Motion No. 2

That Bill C-82 be amended by deleting Clause 45.

Motion No. 4

That Bill C-82, in Clause 55, be amended by deleting lines 19 to 42 on page 31 and lines 1 to 10 on page 32.

Motion No. 6

That Bill C-82, in Clause 412, be amended by replacing lines 18 to 22 on page 254 with the following:

"Governor in Council."

Mr. Speaker, I wish to speak to these amendments and to refer briefly to the hon. parliamentary secretary with regard to Bill C-82 covering a number of financial institutions. I think that is correct, a number of the wishes were put into place, a marked improvement forward.

However, the sections I am referring to, essentially clause 45, part of clause 55 and the subsequent amendment to clause 412, are there for a very specific reason which has to do with tied selling. Tied selling means to sell one product on the condition that another product be purchased. In other words, in the case of getting a mortgage from an institution you would get that mortgage only on the condition that you also brought your RRSPs or other kinds of things to that institution, which could be a bank, credit union, trust company or whatever the case.

The difficulty is that the individual once having made application for loan and wanting that loan has no choice. That is where the issue lies and this is where we want to come to grips with this matter.

I draw this to the attention of the House. The government has indicated that it would pass this legislation at this time but that it would not proclaim these two sections of the act until September 1998. That proposes a very interesting dilemma. If the issue is that this should be done now, then why would one delay this thing? The rationale given was that it has to be given to the finance committee so it can study in depth the implications of tied selling in the world of financial business.

All the rest of this was done in consultation with industry and was subjected to an in depth study. Now apparently this issue requires further study but in the meantime the government will pass legislation to permit institutions to do it. There seems to be a certain lack of logic in this procedure.

I am so concerned about this issue because it is not in the interests of the consumer. There are people who would argue this is of particular interest to certain vested interests in the financial sector.

I submit that the interest is the consumer and the protection of the consumer. I draw to members' attention the comments that were made by the director of government relations of the Insurance Bureau of Canada when he appeared before the committee: "If there is an area where the committee may choose to make Bill C-82 an even better piece of legislation, it is with respect to the tied selling provisions proposed under section 459.1 of the Bank Act. Our view is that subsections (2) and (3) have been worded too

broadly and may permit the bundling of certain bank products and other financial services in a way that may not be beneficial to consumers".

That is the crux of the issue. It is not only our view but it is the view of the Insurance Bureau of Canada and the member companies. It is also the view of the Insurance Brokers Association of Canada, which has written a similar letter on this issue.

The matter goes even further when we get into the statement: "The finance committee is also expected to assess ways to make a distinction between cross-selling and practices anti-competitive or coercive ones. The distinction between what is and what is not acceptable could be, we are told, reflected in future regulations. If our understanding is correct, it implies that the proposed interpretive amendments to section 459.1(2) and (3) of the Bank Act may be deleted or modified to reflect the finance committee's findings and recommendations".

What are the implications of tied selling that make me concerned and that show why these provisions are not in the interests of the consumer? Probably the primary issue here is the matter of forcing consolidation of financial assets into a single institution.

Why is this significant? In this case we are dealing only with banks. It should apply to other institutions as well but the act refers here only to banks. They could precipitate a change in loan status, credit lines and so on based on the customer information available to them from information that may be existent in a subsidiary.

We were told before the committee by the Canadian Bankers' Association that the bank would never use information from its health insurance subsidiary or their life insurance subsidiary to in any way influence what would happen in terms of this issue.

Let me read the policy statement that exists in one of the subsidiaries of one of our six major banks. This is written to clients of this subsidiary: "In respect of the law the officers and employees must scrupulously observe in letter and spirit all laws governing business and securities activities. Confidentiality of client information is a fundamental principle of our firm. No employee may release confidential client information unless required by law or with the client's consent".

Then there is assurance that the subsidiary is wholly owned subsidiary of the bank and the bank guarantees all the liabilities of the subsidiary.

Now comes the key part, sharing client information. The subsidiary: "May give confidential client information to the bank. This type of information includes a client's name, address, phone number, income, assets, debts, investment objectives and financial plans".

The bank may use this information for the following purposes: to sell its services to the client; to survey the relationship between the subsidiaries and their clients; to determine the amount of debt outstanding to the subsidiary and to the bank; for any other purpose about which the subsidiary will inform the client in writing. That is the clincher.

What is excluded? Nothing. The bank will not pass this information to anyone else. Notice under the heading of consent: "By opening an account with this subsidiary, you are consenting to the bank's use of the information. If you want to end this consent, you must give written notice to the subsidiary, addressed and delivered to your subsidiary's branch. Your notice will be in effect when you receive a written acknowledgement from that subsidiary. The subsidiary may then decide to close your account if you said you wanted to withdraw this consent, and give you at least 30 days written notice before doing so. They will assume that you have received this notice five days after it was mailed".

If that is not a clear indication of how the information in a subsidiary may become the information available to another subsidiary or the bank, I would like to know what could be clearer than that.

That is one of the reasons confidentiality of information and consolidation of all of one's financial assets under one bank could be very serious if one of these businesses or certain parts of the enterprises get into difficulty.

There is another reason this is not in the best interest of the consumer. The point has been made, which is precisely what subsection 459.1(2) states, that preferred rates may be given on the condition that certain other products and services be purchased from a particular person. Preferred rates are given.

What does this suggest? It seems to me that we all know about lost leaders. It is certainly possible for a financial institution, in this instance a bank, to provide the individual a preferred rate, perhaps even a preferred rate in RSP purchases or in terms of negotiating securities. Then, once the business is consolidated under one roof, it could simply say: "Guess what? Our costs have gone up and we are going to have to increase the price of these services to you".

It is certain price fixing and a certain monopoly position vis-à-vis a particular customer that may not be in the interest of the consumer.

Finally and probably the most significant part is to recognize that we in this country need freedom. We need freedom of choice, fairness and equality. If the government wants to declare its support for consumers in the first instance, to support growth and development of small business and to maintain strong, stable and viable financial institutions like banks, it will support these amendments.

[Barry Campbell, Liberal, Parliamentary Secretary to Minister of Finance]

Mr. Speaker, I thank the hon. member opposite for his work on the bill. He has been tireless in his efforts at the finance committee. Once again he is trying to bring forward amendments in the House which I am sure he thinks will improve the bill.

We have taken a very long time to look at the needs of the financial services sector and to respond. Major amendments were introduced in 1992. Up to that time it had been traditional to amend the Bank Act and related statutes in the sector every 10 years. Because of the nature of the changes introduced in 1992 it was decided to review those changes in five years, in 1997.

Consultations were conducted. A white paper was issued. Discussions were held on the white paper. Hearings were held by the finance committee of the House of Commons and by the Senate banking committee. The government took time to reflect on the consultations and legislation issued. It has been debated in the House. It was again debated at committee. We now find ourselves at this stage very close to moving forward with what is essentially a bill that does some minor tinkering with financial services statutes because of the major overhaul that was done. The conclusion the government came to was that many of the changes put in place in 1992 were still being absorbed by the sector. It would be unfair to Canadians and unfair to the sector to once again make major changes. The bill before us today deals with a host of issues responsive to needs to make the sector more efficient, more accountable and more responsive to the concerns consumers have addressed.

I digress for a moment to say the government announced the creation of a task force on financial services to look ahead to the 21st century and to ask some fundamental questions about the shape of the sector for the next century. How will it continue to serve the interests of Canadians while continuing to grow and prosper? How will it help enhance the opportunities for jobs and growth? What powers are required? What realities will the industry face?

We cannot sit back and simply say what we have will always be good enough. The world changes whether we like it or not. Competitive factors are there whether we like it or not. Our financial services sector, a major engine of employment and investment, requires that the government take the time-and through the task force it is doing so-to ensure the sector is poised to deal with the challenges of the next century.

The sector is often maligned in the House because it is misunderstood. That is not to say there is not fair criticism. There certainly is. We heard a great deal of it in the committee, which was quite legitimate, as is true of any business sector. It is a major employer, particularly the banks, of millions and millions of Canadians through their RRSPs and their company pensions. Sometimes we forget that.

Motions Nos. 2, 4 and 6 in the second group relate to the issue of tied selling. We heard much about tied selling before the finance committee during the consultation stage when we were considering the white paper. Allegations have been made that certain financial institutions engage in tied selling and that the legislative provisions which currently exist in the financial services laws are insufficient to deal with the problem.

The committee and the government concluded that as yet there is insufficient evidence of the existence of tied selling as it has been described to us by certain parties. Therefore the government took a decision recently to invite the finance committee of the House of Commons to engage in a detailed study of tied selling in the financial services sector. That study will take place over the next year. In the interim while the study is going on, the government has indicated that it expects each participant or each industry group in the financial services sector to develop internal guidelines to deal with tied selling practices in this area. The government certainly hopes that a self-regulatory regime will develop in that sector. We certainly want to give it time to happen.

The hon. member opposite, knowing the party he represents, does not want government to rush in to regulate and not necessarily help the situation. We are giving the industry time because the industry has said: "We can address the problem. Let us address it". We are saying: "We will stand back and let you do that". We will also look at the whole area through the good work of the finance committee in the year ahead.

To facilitate that we have proposed that a new tied selling provision, which had been proposed in the legislation originally tabled before the House, be suspended and not be proclaimed in force until a certain date in the future.

In the interim the existing tied selling provision, whether adequate or inadequate, will remain in place so that we are not left with no provision whatsoever in the Bank Act dealing with tied selling.

The government looks forward to hearing from the finance committee of the House of Commons with respect to its recommendations about the tied selling provision, what should be reflected in regulations under that provision, what activity should be described as acceptable and what activity should be prohibited.

We are mindful of the experience of our neighbours to the south in the United States where there are extensive provisions dealing with tied selling and carve outs of acceptable activity. We do not want to inadvertently take away from consumers the opportunity to

benefit from relationships that can happen in the market by just an outright prohibition at this point.

While we appreciate the member's interest in the area, his concern for consumers and for the efficient functioning of the sector, we think we have the best situation of all. We have proposed the new tied selling provision and suspended it. It will be proclaimed in force. The government at that point will have the benefit of seeing how the self-regulatory regime works and the benefit of extensive study of the subject of tied selling throughout the financial services sector by the finance committee. I am sure the hon. member opposite will co-operate in the work of the finance committee.

On behalf of the government I urge hon. members, as I did with respect to the first group, to reject these motions.

[Jim Silye, Reform, Calgary Centre, AB]

Mr. Speaker, I vehemently disagree with the Parliamentary Secretary to the Minister of Finance.

In his speech he indicated that the bill on financial institutions had been debated and was pretty close to moving forward. Those words mean they are not sure what they should be doing on tied selling. That is the clause members of the Reform Party are most concerned about. It is the clause that is potentially extremely dangerous for consumers if the bill is allowed to go through without clear definition and for competitors in the financial world.

The bill affects the four pillars of the financial industry: trust companies, insurance companies, investment dealers and the banks. By far the most powerful institution of those four are the banks.

The Parliamentary Secretary to the Minister of Finance should know it is the job of government to protect those who cannot protect themselves, to protect against monopolies and to protect against unfair intrusion into competitive areas where single suppliers of a service are not held at a disadvantage.

I submit that clause 45 deletes the current section in the act that prevents tied selling. Subsection 459.1(1) reads:

A bank shall not impose undue pressure on, or coerce, a person to obtain a product or service from a particular person, including the bank and any of its affiliates, as a condition for obtaining a loan from the bank.

That makes sense. I agree with that. It is the clause that basically says that no tied selling, no coercion and no undue pressure on the consumer. It protects other institutions that offer insurance and investments and the bank does not have the advantage.

Then it goes to clauses 2 and 3 which my colleague from the Okanagan wants deleted. I support that amendment. Section 459.1(2) confuses things more. It reads:

For greater certainty, a bank may offer to make a loan to a person on more favourable terms or conditions than the bank would otherwise offer to a borrower, where the more favourable terms and conditions are offered on the condition that the person obtain another product or service from any particular person.

If that does not give the banks unfair advantage, these people do not know what they are talking about. The bill is advocating volume discount. I have five products. You are coming to me for a mortgage. I approve your mortgage, but I say: "Listen, I can give you a better rate on the mortgage if you buy an RRSP. I will give you an even better rate if you buy insurance on your house". Those are three products. But wait a second. A trust company cannot provide all of those products. Insurance companies cannot provide all of those services. Investment dealers cannot provide mortgages. That is unfair.

Mr. Speaker, you are giving me a sign, but I believe the agreement made by the House leaders was that we would be given two ten-minute speeches on this today and that would be it. That is what the parliamentary secretary to the House leader told us. I believe that the Bloc agreed to that, as did the Reform Party. I thought I had five more minutes.

[The Acting Speaker (Mr. Milliken)]

The Speaker is bound by the House order that was adopted earlier this day, which provides that at the end of Government Orders, which is at 5.30 p.m., as the hon. member knows, all questions are deemed to be put and a recorded division deemed to be requested and deferred until Tuesday, April 15 at 12.30 p.m.

If there is any other arrangement, I am unaware of it. If there is consent, the hon. member may continue for another five minutes. Otherwise, I believe the time has expired and it is my duty to interrupt the proceedings in accordance with the order adopted earlier this day.

[Jim Silye, Reform, Calgary Centre, AB]

Mr. Speaker, I was present when the negotiations were going on. If there is some confusion, then of course you will proceed to Private Members' Business, but I would like to make it clear and put it on the record that I still have five minutes remaining when this debate resumes.

I know that the parliamentary secretary to the House leader is busy with other matters, but I wish he was here to clarify the situation because I do insist, because that was the deal, that I be allowed to finish this point. That is one of the things which is wrong with sending this stupid bill off to committee after only three hours of debate.

[Barry Campbell, Liberal, St. Paul's, ON]

Mr. Speaker, in the absence of the parliamentary secretary to the government House leader, I was present in the House and I believe you may have been in the chair, Mr. Speaker, when the motion was discussed. If you refer to the text of the motion, it is clear in its terms.

I think you have proceeded quite properly and that at 5.30 p.m. today all questions are deemed deferred until Tuesday and all stages of the bill which is before us, Bill C-82, will be dealt with at that time.

[Jim Silye, Reform, Calgary Centre, AB]

Mr. Speaker, I do not disagree with what the parliamentary secretary to the finance minister said. I just want to have it on the record and make it clear that when we continue government orders I will have the floor to finish my speech.

[The Acting Speaker (Mr. Milliken)]

The difficulty the hon. member has is that when the matter comes up again it is for a vote. There is no continuation of the debate except at third reading stage.

[Bob Kilger, Liberal, Stormont—Dundas, ON]

Mr. Speaker, certainly everything that was mentioned by the Parliamentary Secretary to the Minister of Finance is correct. I fully support his view on the matter.

However, I was also involved in the negotiations with the other parties and, given the co-operation of all the parties and the fact that the matter will be coming to a vote on Tuesday without any further debate, as you stated, in a spirit of co-operation I think we should give the member for Calgary Centre another five minutes in order that he may conclude his remarks. Then, of course, the vote will be deferred until Tuesday at 12.30 p.m.

[The Acting Speaker (Mr. Milliken)]

The House has heard the suggestion of the chief government whip. Is it agreed that we extend for five minutes at this time?

[Some hon. members]

Agreed.

[Jim Silye, Reform, Calgary Centre, AB]

Mr. Speaker, I would like to thank government members for giving me the opportunity to finish my remarks.

I would caution those members of the Standing Committee on Finance who will be considering this bill, especially with respect to the issue of tied selling.

For greater certainty, we have to ensure that there is a level playing field for financial institutions. We have to be concerned that investment dealers, trust companies and insurance companies do not have the same rights to provide all of the services which banks do.

For instance, all those money machines out there are only banks, Mr. Speaker. You have to have a bank account in order to use them. These other institutions do not have that right. If a clause is put in which says that the more services that one uses with the bank the better deal one can get on one's rate for borrowing the money, that is giving an unfair advantage to the banks. To me that is very clear. It is unfair to the other institutions.

For the individual consumer in that particular case it might be fair. As my colleague from the Okanagan pointed out, there are two schools of thought concerning what happens when one bank or one institution ends up getting all the business and knows everything about that person. Either that is good or that is bad. If it wants to pull the plug it can pull the plug.

Clause 3 states that for greater certainty a bank or one of its affiliates may offer a product or service to a person on more favourable terms or conditions than the bank or affiliate would otherwise offer where the more favourable terms and conditions are offered on the condition that the person obtain a loan from the bank.

I am confused or call me stupid, but one clause says we get rid of tied selling, then it is replace with this type of tied selling. That allows tied selling. That is not cross selling. The banks can offer more services, thereby if they are allowed to give discounts they can give greater discounts than the other institutions. Therefore, it becomes tied selling and people will end up dealing more with the banks and it is a loss of revenue or business for the other institutions.

Cross selling is fine. I have applied for a business loan, they have approved it and then they ask me questions like "Jim, do you need a mortgage? Do you need something else?". When I tell them no, they say "Okay. If you did you know we could look at it favourably". That is suggestive selling. Or I just bought a house and they ask if I would like to get insurance on that house. Then I ask what is the rate. At least I get my mortgage and I am approved. It has nothing to do with my mortgage being conditional upon me also getting insurance. If they just suggest it, that is okay.

We do not know what goes on behind closed doors, but we did have witnesses come before the committee and say that this kind of thing is done by certain bank managers who are more aggressive than other bank managers. The law may say one thing but the application of the law by individuals in the workplace might allow them to do another thing. If they do another thing, then we end up with coercive tied selling and that concerns me.

I do not want to be a part of a 35th Parliament that passes something like this without proper debate, proper discussion, lots of witnesses in the committee so that we know exactly whether we are talking about cross selling or tied selling.

Maybe somebody should put forward an amendment that would allow insurance companies, trust companies, investment dealers that want to merge to go into the banking business as well. In that way they can compete with the banks and we will not have these kinds of debates. Then whatever the bank offers as a volume discount for having more and more services, these other companies would also be in a position to do the same thing.

Mr. Speaker, I want to thank you for your patience in listening to the different points of order. I want to thank the chief government whip for conceding the extra five minutes and the Parliamentary Secretary to the Minister of Finance for also agreeing to allow me

these few more minutes so that I can get the points across that I wanted to make. I thank everybody in the House.

[The Acting Speaker (Mr. Milliken)]

Pursuant to the agreement reached earlier today, all motions in Group No. 2 are deemed to have been put and recorded divisions are deemed to have been requested and deferred.

Is the House ready for the question.

[Some hon. members]

Question.

[The Acting Speaker (Mr. Milliken)]

The question is on Motion No. 2. Is it the pleasure of the House to adopt the motion?