CCRC Recommendations and Corresponding Task Force Recommendations (September 1998)

Set out below is a brief summary of the CCRC Recommendations for changes to financial institution legislation in Canada, as detailed in the six Position Papers produced by the CCRC since September 1997.

After each group of recommendations, the Corresponding Recommendations of the September 1998 Report of the Task Force on the Future of the Canadian Financial Services Sector are set out (along with page numbers for the related sections of the Report). Below that, the Changes Needed to Close the Gaps in the Task Force's Recommendations are set out. For more details about any of the recommendations or changes needed, please contact the CCRC.

Overall, the CCRC agrees with the vision and framework set out in the Task Force's Report in Recommendations 53 to 55, and 57 to 63 (pages 71-72, 121-128, and 145-149), which makes it clear that financial institutions will only serve all Canadians fairly and well if consumers are empowered, disclosure and transparency rules are strict and comprehensive, and a comprehensive accountability system is enacted, and that financial institutions (especially banks) must serve all stakeholders fairly and well because they have benefited historically from regulatory protections and provide essential services to Canadians.

CCRC Recommendation #1
As detailed in our third and fifth Position Papers, enact legislation based upon the U.S. Community Reinvestment Act (CRA) which will: require banks and other financial institutions to: serve all customers and communities fairly and well and disclose detailed information (on a branch-by-branch basis) about their lending, investment and service records; establish an annual government review and grading of each institution's performance in these areas, and; set out incentives and sanctions to encourage institutions to improve their performance if they received poor or failing grades in any area.

Corresponding Task Force Recommendations:
Recommendations 99 and 100 (pages 168-171) on Community Accountability Statements. Recommendations 87, 101, 105, 106 (pages 59-60, 154-155) on disclosure of small business financing information. Recommendations 109 to 111 (p. 161) on financing aboriginal business. Recommendations 94 to 97 (pages 166-167) on micro-credit lending programs. Recommendation 98 (pages 167-168) on partnerships with the voluntary sector.

Changes Needed to Close Gaps in Task Force Recommendations:
In addition to the activities set out by the Task Force, Community Accountability Statements should also include information about: the number of complaints received by the institution's branches in the community: how complaints were resolved; the number of lawsuits by and against the institution and how resolved; and the pattern of opening and closing branches. Financial institutions providing financing for business and community development should be required to disclose the number of applications, the number approved and rejected, all categorized by size and type of business, and gender and location for small businesses, and by size and type of community development. The loan loss and loan default rate should also be tracked for each category of financing to determine the riskiness of lending to each type of business or development. Also, the definition of each community should be set through public consultation (to reflect community concerns) and, as in the U.S., there should be a standard format for Community Accountability Statements, to ensure institutions do not downplay poor service records. In addition, the Community Accountability Statements should be reviewed annually by the government, with public input, and the government should grade performance by institutions. Incentives to improve poor performance should include: as in Ontario, a surtax and requiring a passing grade as part of bidding for government contracts; as in the U.S., denial of applications to expand; and fines and a requirement to hold public hearings in communities where failing grades are received.

CCRC Recommendation #2:
As detailed in our sixth Position Paper, prohibit the current proposed bank mergers and place a moratorium on bank mergers and takeovers of other financial institutions (and expansions of bank powers) until two years after the promised changes to foreign-bank entry laws have been made and a CRA-like law is enacted in Canada (this time period is needed to determine whether foreign banks will provide significant competition to Canada's big banks, and whether our big banks serve all Canadians fairly and well).

Corresponding Task Force Recommendations: Recommendation #9 (pp. 99-101: the barriers to foreign bank entry should never be lowered any further than set out in this recommendation).

Changes Needed to Close Gaps in Task Force Recommendations: A moratorium should be placed on bank mergers and takeovers of financial institutions, and expansion of bank powers, until the foreign bank entry and CRA-like laws have been in force for two years.

CCRC Recommendation #3
As detailed in our sixth Position Paper, never remove the 10% bank ownership rule, and enact in law the federal government's review process for bank mergers and expansions of bank powers (other than the process just recently finalized by the Competition Bureau) and include in the process consideration of the results of a CRA-like assessment, likely job losses, likely negative impacts from withdrawal of service and consolidation of services branch by branch, and a requirement that all reports produced through the review be made public.

Corresponding Task Force Recommendations:
Recommendations 1 to 9, 25 to 28, 29 to 41 and 45 (pages 80-88) on ownership structures. Recommendations 46 to 52 (pages 116-120) on Merger Review Process.

Changes Needed to Close Gaps in Task Force Recommendations:
The proposed ownership rules (especially for holding companies) should be more strict to ensure that the Canadian banking system remains Canadian-controlled and can be regulated effectively (See especially Recommendation 39 (p.87)). In addition to the criteria set out by the Task Force, the proposed Merger Review Process should take into account the merging financial institutions' record in serving customers as part of the Public Interest Criteria , and a poor service record should be grounds for denying an application to expand (as in the U.S.). The process should also cover takeovers more comprehensively (not just mergers), and there should be no exemptions to the process.

CCRC Recommendation #4
As detailed in our fourth Position Paper, require banks and other financial institutions to enclose a one-page flyer in customer mailouts inviting people to join a consumer-directed Financial Consumer Organization (FCO), as supported by a majority of Canadians according to a national survey.

Corresponding Task Force Recommendations:
Recommendation 56(a) (pages 141-143).

Changes Needed to Close Gaps in Task Force Recommendations:
Without further delay, financial institutions should be required to enclose the flyer, as called for by a majority of Canadians in a national survey.

CCRC Recommendation #5
As detailed in our second Position Paper, require banks and other financial institutions to provide fairly-priced services to any person who can prove residency in Canada, and to clear cheques and deposits within a specific time period, and set up an independent, effective monitoring system to ensure they comply.

Corresponding Task Force Recommendations:
Recommendations 88 to 92 (pages 162-165).

Changes Needed to Close Gaps in Task Force Recommendations:
Without any further delays, and as in several U.S. states, deposit-taking financial institutions should be required by law to provide access to basic services at a fair price, and to clear cheques and deposits in a specific time period (with effective penalties for violations). Financial institutions should also be required to disclose their costs vs. their revenues division by division (e.g. electronic banking, in-branch banking, credit card operations) to determine their profit margins for each division and ensure they are not gouging customers with excessive fees and interest rates.

CCRC Recommendation #6
As detailed in our second Position Paper, require banks and other financial institutions to conduct a public review of any proposed branch closures, including disclosure of the branch's profit/loss and net income record for a few years before the proposed closing date.

Corresponding Task Force Recommendations:
Recommendation 93 (pages 165-166).

Changes Needed to Close Gaps in Task Force Recommendations:
In addition to being required to give four months notice of branch closures, deposit-taking financial institutions should be required to disclose the branch's profit/loss and net income record for a few years before the proposed closing date, to ensure that the community has full information relating to reasons for a branch closure.

CCRC Recommendation #7
As detailed in our first Position Paper, establish a truly independent financial services ombudsman with the power to make binding rulings.

Corresponding Task Force Recommendations:
Recommendations 76 to 80 (pages 136-140).

Changes Needed to Close Gaps in Task Force Recommendations:
The ombudsman should have the power to make binding rulings, as in Britain.

CCRC Recommendation #8
Prohibit financial institutions from practising tied selling and put in place an inspection and penalty system for violations.

Corresponding Task Force Recommendations:
Recommendations 70 to 75 (pages 133-136). Recommendations 10, 112 and 113 (pages 173-191) on the role of the Office of the Superintendent of Financial Institutions (OSFI).

Changes Needed to Close Gaps in Task Force Recommendations:
No changes needed as long as OSFI's role and regulations and penalties are significant enough to discourage violations by large financial institutions with hundreds of billions of dollars in assets.

CCRC Recommendation #9
Prohibit financial institutions from disclosing personal information gathered from a customer to other subsidiaries of the institution or other institutions or individuals without the explicit permission of the customer, and put in place an inspection and penalty system for violations.

Corresponding Task Force Recommendations:
Recommendations 64 to 69 (pages 128-133). Recommendations 10, 112 and 113 (pages 173-191) on the role of the Office of the Superintendent of Financial Institutions (OSFI).

Changes Needed to Close Gaps in Task Force Recommendations:
No changes needed as long as OSFI's role and regulations and penalties are sufficient to discourage violations by large financial institutions with hundreds of billions of dollars in assets.

CCRC Recommendation #10
Apply all of the above disclosure, review and accountability measures to all financial institutions operating in Canada, whether foreign or domestic, branch or electronic operations.

Corresponding Task Force Recommendations:
Recommendations 10, 11, 116, 119 to 124 (pages 99-101, 184, and 187-191).

Changes Needed to Close Gaps in Task Force Recommendations:
No changes needed as long as OSFI's role and regulations are structured, and penalties are significant enough, to discourage violations by large foreign financial institutions with hundreds of billions of dollars in assets.