Comparison of Amendments set out in Bill C-8 to Financial Institution and other Laws 
vs. CCRC Recommendations 
(February 2001)

Set out below is a brief summary of the main amendments of interest to the Canadian Community Reinvestment Coalition (CCRC) contained in Bill C-8, An Act to establish the Financial Consumer Agency of Canada and to Amend certain Acts in Relation to Financial Institutions. Bill C-8 was introduced in Parliament on February 7, 2001 and will likely be passed into law by June 2001.

The summary is divided into three sections:
I. Community Reinvestment and Financial Institution Accountability;
II. Consumer Protection; and
III. Mergers, Takeovers and Other Ownership and Control Issues.

Where it is not too complicated to do so, and in areas of primary interest to the CCRC, the section numbers from Bill C-8 are set out after the summary of each amendment. After each amendment that does not match the CCRC's recommendations, under the heading "Changes Needed to Close the Gaps in Bill C-8" and marked by ******* the gaps between the Bill C-8 amendment and the CCRC's recommendations are set out in brief.

The CCRC's recommendations are set out in detail in the CCRC's nine Position Papers and two reports published since September 1997. Links to all the Position Papers and reports can be found on the CCRC homepage.

I. Community Reinvestment and Financial Institution Accountability

(a) Public Accountability Statements
Bill C-8 requires banks and other financial institutions with equity (shares) of $1 billion or more to publish an annual statement describing the contributions of the bank and its affiliate companies to the Canadian economy and society. The contents of the statement, which of a bank's affiliates will have to have a report in the statement, and how and when the statement will be disclosed to the public will all be defined by regulations (section 119, 409).

(b) Business financing
The government has publicly committed to setting up a comprehensive Statistics Canada program of data collection and analysis about small- and medium-sized businesses (SMEs) debt and equity financing. The details of what data will be collected will be determined in consultation with data providers and potential users. The government has also publicly committed to creating a dedicated SME Finance Group at Industry Canada to analyze data and conduct surveys and undertake other research. The government has also publicly committed to encouraging, but not requiring, financial institutions to reduce turnover of account managers, decentralize credit granting processes, make credit available to higher-risk borrowers with appropriate pricing and innovative financing packages. The government has also publicly committed to establishing a working group with financial institutions and First Nations to lower the barriers to financing Aboriginal businesses (e.g. the fact that on-reserve property cannot be seized by banks, and so cannot be used as collateral for financing).

(c) Micro-credit financing
The government has publicly committed to encouraging financial institutions to explore partnerships and other means of increasing micro-credit programs.

Changes Needed to Close Gaps in Bill C-8
More detailed Public Accountability Statements - As set out in the CCRC's third and fifth position papers, the Public Accountability Statements should be as broad and as detailed as required under the over 20-year-old U.S. Community Reinvestment Act (CRA), and require banks and other financial institutions of any size to disclose detailed information on a branch-by-branch basis about their lending and investment records for business and community development projects (especially for affordable housing) and their service records for all customers.
Specifically, financial institutions should be required to track and disclose small business financing initiatives and amount of lending to small business categorized by size of loan and region of loan; investments or partnerships in micro-credit programs; examples of funding provided to local governments and voluntary agencies for community works; location of branches opened and closed; initiatives to improve access to banking services; national amount of charitable donations and examples; employee volunteer activities; number of individuals employed; and taxes paid to all levels of government. In addition, financial institutions should be required to track and disclose for business and community development (especially affordable housing) lending and investment: the number of applicants, and the number approved and rejected, with reasons for rejections, as in the U.S.; the number of loans and investments called by the institution; the default rate and loss rate for loans and investments; and, as in the U.S., the above information categorized by size of loan or investment; size, type and location of the business or development; and gender of the business owner.
Financial institutions should also be required to track and disclose for their service record: the number of complaints received, and the rate of resolving complaints; and the number of lawsuits initiated by customers against the institution, and the number won, lost or settled, as compared to lawsuits by the institution.

A review, grading and sanctions system - As set out in the CCRC's fifth and sixth position papers, the federal government should evaluate the above data and grade each financial institution's performance in serving each community, as in the U.S. The public should have the right to make submissions to evaluators about the performance of financial institutions. The institution would receive a poor grade if the evaluation reveals, for example, that the institution arbitrarily rejects certain types of loan applicants, maintains excessive barriers to access to basic banking services, or has a high rate of complaints or successful lawsuits against the institution.
In addition, the following incentives should apply to financial institutions to encourage them to improve their performance: (1) as Ontario has done, governments at all levels should insist on a satisfactory performance rating before services are contracted out to a financial institution; (2) government should be permitted to deny applications to expand by a financial institution with an overall failing grade; (3) senior representatives of the financial institution should have to attend a public meeting in any community where the institution has a failing grade to explain how the institution plans to improve its performance; (4) the current fines set out in financial institution legislation should be levied against institutions with failing grades; and (5) as Ontario has done, federal and provincial governments should consider imposing a surtax on financial institutions, combined with a tax credit that could be applied to the surtax based on the institution's performance in meeting community needs.

II. Consumer Protection

General Change Needed to Close Gaps in Bill C-8
Consumer protection rules should be in the law, not in regulations or codes - Financial institutions do not comply, and never will comply, with any voluntary codes, as revealed by the CCRC's June 1999 national survey report on financial institution which showed that 96% of financial institution branches surveyed were not complying with the February 1997 voluntary code on access to banking services. Therefore, governments should not use voluntary codes to regulate the behaviour of financial institutions in any way. All consumer protection measures should be set out in the law, not in regulations, and especially not in voluntary codes.

(a) Access to banking services
Bill C-8 requires certain types of bank branches to open a personal account for any individual who meets certain requirements, and prohibits these branches from requiring an initial minimum deposit or that a minimum balance be kept in the account (sections 97, 107 to 111). Bill C-8 proposes requiring certain types of bank branches to open a type of low-fee retail deposit account for any individual who meets certain requirements (sections 107 to 111). The definitions of branches and accounts that will be covered by these requirements, and the definition of individuals who will be eligible to open such accounts, will be defined in regulations. The federal government has publicly committed to monitor federal deposit-taking institutions efforts to make all branches wheelchair accessible, and to work with trust companies to establish voluntary codes on access and low-cost accounts.

(b) Cashing cheques and holds on cheques
Bill C-8 requires bank branches that have tellers to cash a government cheque of up to a certain amount if the cheque is presented by an individual who does not have to have an account with the bank, but must fulfill other specific requirements (section 117). The Bill also requires banks to disclose their hold policies for other types of cheques to customers in writing (section 110). The amount and circumstances under which a government cheque will have to be cashed will be defined by regulation. The Canadian Payments Association is working on standards for clearing other types cheques, and the government claims its regulations and these standards will effectively limit holds on cheques.

Changes Needed to Close Gaps in Bill C-8
Right to a low-cost account at any institution - As set out in the CCRCÕs second position paper and June 1999 national survey on access to banking services, anyone who can present two pieces of identification (no photo should be required), or one piece of identification and a community leader to vouch for their identity, should have a right by law to open an account at any branch of any financial institution, including trust companies, except if fraudulent activity is proven by the financial institution. Right to cash cheques at any institution, and limits on all cheque holds - Anyone who can present two pieces of identification (no photo should be required), or one piece of identification and a community leader to vouch for their identity, should have a right by law to cash any government cheque at any branch of any financial institution, including trust companies, except if fraudulent activity is proven by the financial institution. And instead of relying on the Canadian Payments Association standards, legal limits should be set on holds on all deposited cheques, as in the U.S. ***************************************

(c) Branch closures
Bill C-8 requires those bank, trust company and other deposit-taking financial institution branches that have tellers that open personal accounts and give cash to customers to give notice if it withdraws those services or if it is going to close. How far in advance the notice must be given, and how and to whom it must be given, and under what conditions the bank will be required to hold a consultation meeting with customers of the branch and others will be defined in regulations (sections 119, 526) The government has publicly committed to requiring federal deposit-taking institutions to provide 4 months notice of branch closures to customers by contacting local authorities and newspapers and by posting a notice in the branch (6 months notice will be required where there is no other financial institution branch within 10 kilometres of the branch being closed). The government has also publicly committed that the Financial Consumer Agency of Canada will order banks to convene a consultation meeting if the bank is not consulting customers adequately.

Changes Needed to Close Gaps in Bill C-8
Full disclosure of reasons for branch closure - As set out in the CCRC's second position paper, financial institutions should be required to disclose a branch's profit/loss record and net income before reducing services or closing any branch (not only branches with tellers), and be required to consult with customers and the community in a meaningful way in every case, to ensure a full public review before services are reduced or a branch is closed.

(d) Privacy protection
The government passed Bill C-54 allowing financial institutions (and other federally regulated businesses) to share private customer information with others if the customer consents explicitly or implicitly.

Changes Needed to Close Gaps in Bill C-8
Explicit consent should be required - As set out in the CCRC's fifth and sixth position papers, financial institutions should be required to obtain explicit consent from a customer before any of the personal information gathered from the customer can be shared with anyone else.

(e) Coercive tied selling
Bill C-8 prohibits a bank from practising "tied selling" through which the bank will only offer a product or service to a customer if the customer also buys another product or service from the bank. The Bill also requires that banks disclose the prohibition on tied selling in a clear statement displayed and available to customers at every branch. (sections 118, 148)

(f) Transparency and disclosure
Bill C-8 gives Cabinet the power to make regulations concerning disclosure of information of any product, service, policy, procedure or practice of a bank or other federally-regulated financial institution, or any consumer protection measure (section 119, 149, 155, 409, 519, ). The government has publicly committed to working with the provinces and the financial services industry to develop model, voluntary, plain-language contracts that fully disclose relevant information to customers.

Changes Needed to Close Gaps in Bill C-8
Transparency and disclosure should be detailed and required by law - Transparency and disclosure, and every other consumer protection measure, should be required in plain language and full disclosure rules set out in the law, not in regulations. In addition, disclosure rules should require disclosure in annual reports of the costs, revenues, and profit margins of financial institutions' in-branch, bank machine, Internet, and credit card operations to ensure that pricing for these products does not amount to gouging of consumers. ***************************************

(g) Government-run Financial Consumer Agency
Bill C-8 creates a new Financial Consumer Agency of Canada (FCAC) made up of a Commissioner and staff with full powers: to review financial institutions compliance with the consumer protection measures in the new law; to fine violators of such measures (maximum $100,000 fine for each violation); to promote such measures; to educate consumers and others about such measures; and to publish an annual report about violations of such measures. The FCAC will be funded by the federal government and also through financial assessments of financial institutions, in part based upon the number of complaints received about each institution (sections 3-34, 114, 116, 119, 147, 173, 325, 449, 545) The Office of the Superintendent of Financial Institutions will remain responsible for safety and soundness, and will be given new powers to remove directors or officers for misconduct, impose fines on institutions and individuals that fail to comply with Superintendent orders. (sections 155 to 173, 451 to 462). The Canadian Deposit Insurance Corporation (CDIC) will continue to collect premiums for deposit insurance and to promote safety and soundness (sections 195-208).

(i) Financial Services Ombudsman
Bill C-8 gives the Minister of Finance the power to create a new Canadian Financial Services Ombudsman (CFSO) structured as a non-profit corporation that will handle complaints from consumers about banks only. The Bill gives the Minister the power to appoint the majority of the CFSO's directors, who will each be independent of the government and the banks (section 115). The Bill also requires other federally regulated financial institutions to be members of a third-party complaint resolution system, and they can join the CFSO if they want (sections 408, 524). According to the government's public commitments, the CFSO will be structured and will operate as follows: Board of Directors of the CFSO will have eight independent directors and four directors appointed by financial institutions, all serving three-year terms; the Board will appoint Ombudsman and approve the annual budget; the Minister of Finance will approve the incorporation of the CFSO, and appoint the first eight independent directors; subsequent appointments of independent directors will be made by Minister of Finance and sitting independent directors; CFSO rulings will not be binding, but CFSO will be allowed to publicize the name of the financial institution if it does not comply with CFSO ruling.

(j) Canadian Payments Association
Bill C-8 proposes that the Canadian Payments Association (CPA - which operates the cheque clearing system) be expanded, its mandate changed to require it to advance the public interest, its board expanded to include non-bank and independent directors, and the existing Stakeholder Advisory Council set out in law. Minister of Finance will have power to review and approve/reject all CPA rule changes, and to regulate other payments systems (sections 214 to 239).

Changes Needed to Close Gaps in Bill C-8
Consumer-run Financial Consumer Organization (FCO) needed - As set out in the CCRC's fourth position paper, recommended by the Task Force on the Future of the Canadian Financial Services Sector, the Senate Committee on Banking, Trade and Commerce, and the House of Commons Standing Committee on Finance, and supported by a majority of Canadians according to a national poll, the government should facilitate the establishment of a consumer-funded and directed Financial Consumer Organization by requiring financial institutions to enclose periodically a one-page FCO membership flyer in the institutions' mailings to their customers (at no cost to the government or the financial institutions. An FCO is a necessary complement to the proposed government-run Financial Consumer Agency and the Canadian Financial Services Ombudsman (CFSO) because it will ensure that the consumers have a place to call that is broad-based, well-resourced, independent of governments and the industry, and dedicated to serving consumers. The FCO will also ensure that consumer representatives on the board of the CFSO and the Canadian Payments Association's Stakeholder Advisory Council actually represent consumer concerns.

Fines should be increased - The maximum fine of $100,000 for violations of consumer protection measures is not high enough to ensure that financial institutions comply with the measures, given that enforcement will not be 100% effective, and that the annual revenue of many institutions is more than $10 billion.

Ombudsman should be for all financial institutions, and rulings should be binding - As set out in the CCRCÕs first position paper, the Canadian Financial Services Ombudsman should apply not just to banks but also to all federal financial institutions, and the Ombudsman should have the power to make binding rulings, rather than relying solely on publicity as a means of ensuring compliance. Also, the process of appointing the Board members and the Ombudsman must be clarified (ie. will the Ombudsman be appointed by majority vote of the Board?)

III. Mergers, Takeovers and Other Ownership and Control Issues

(a) Share ownership levels for large banks
Bill C-8 proposes allowing an investor to hold up to 20% of any type of voting shares and up to 30% of any type of non-voting shares of a bank with more than $5 billion in equity, subject to a review testing the investorÕs past record as a business person, the soundness of their business, and the reasons they want to get into the banking business, to determine if they have the necessary integrity and fitness of character for the business (sections 36-42, 65). The Bill also contains new measures to ensure that one shareholder, or shareholders acting together, do not directly or indirectly control any bank. (section 93)

(b) Holding companies
Bill C-8 proposes allowing widely held financial institutions to incorporate a regulated holding company whose only permitted operations will be to own or control as subsidiaries federal financial institutions, other financial-sector related companies, and a few non-related companies. Holding company structures will allow financial institutions to enter into partnerships and raise capital without merging or taking over institutions. Banks, and insurance, trust and investment companies will be fully regulated subsidiaries, but other subsidiaries will be subject to less regulation. If a widely held bank sets up a holding company, the holding company will have to be widely held, but the holding company will be allowed to own more than 50% of the bank (although no single shareholder or shareholders acting together will be allowed to exceed the share ownership limits of 20% and 30% set out above for the holding company or the bank) (section 93). The Bill also proposes allowing closely held insurance and trust companies to set up unregulated holding companies, although demutualized insurance companies will only be allowed to set up a regulated holding company (section 173).

Changes Needed to Close Gaps in Bill C-8
Maintain 10% rule and limit holding companies - As set out in the CCRC's sixth position paper, the government should maintain the 10% share ownership rule for Canada's large, chartered banks. The proposed increases to the share ownership limits, and the proposed holding company rule changes, will allow a few shareholders (including foreign shareholders) effectively to control a large bank (mainly through selection of directors and executives). In addition, the holding company structure will allow banks to rearrange their corporate structures effectively to avoid consumer protection and accountability laws and regulations. ***************************************

(c) Share ownership levels for medium-sized and small banks
Bill C-8 proposes allowing a few shareholders or even one shareholder to own more than 50% of the stock of a bank with equity (value of all shares) of $1 billion to $5 billion, although 35% of the voting shares must be held by shareholders unrelated to the majority shareholder(s). The Bill also proposes allowing a few shareholders or even one shareholder to own 100% of a bank with equity of less than $1 billion. If a bank grows and crosses a threshold in size of its equity, it will have three years to make the transition to the different ownership rule (section 93). Government also proposes changing ownership rules for insurance and trust companies. Government also proposes that the minimum capital required for starting a new bank, trust or insurance company be lowered from $10 million to $5 million, and that any applicants be reviewed to ensure that the plan to start the new financial institution is sound and in the public interest, and the individuals and companies involved are of good character and integrity (section 81).

(d) Foreign banks
The government has passed legislation allowing foreign banks to set up two type of branches directly in Canada: a full-service branch that may only take deposits of more than $150,000; or a lending branch that is not allowed to take deposits. Since lending branches do not take deposits, they are not as fully regulated. Foreign banks can still set up a Canadian subsidiary rather than opening branches directly. Bill C-8 allows foreign banks to engage in permitted investments and business powers in similar ways to the provisions in Bill C-8 concerning domestic banks.

Changes Needed to Close Gaps in Bill C-8
Do not allow foreign banks increased rights and powers - As set out in the CCRC's sixth position paper, Canada should not increase the rights or powers of foreign banks or other foreign financial institutions through either World Trade Organization agreements or domestic legislation. Apply all laws and regulations to small and foreign financial institutions - As set out in all of the CCRC's position papers, the government should ensure that all community reinvestment, accountability and consumer protection laws and regulations apply to all federally-regulated financial institutions in Canada, including foreign financial institutions, branches, subsidiaries or virtual entities operating in any way by offering services in Canada.

(e) Credit unions
Bill C-8 gives the Minister of Finance the power to allow credit unions to eliminate provincial networks and have one national network. Government also proposes facilitating credit unions that are trying to form a national co-op bank.

(f) Bank mergers
The government has publicly committed, by releasing Merger Review Guidelines, to a Merger Review Process for proposed mergers between banks (and, if any are created, bank holding companies) with equity (shares) more than $5 billion. The Process will assess proposed mergers and approve them only if the merger does not unduly concentrate economic power, does not significantly reduce competition, and does not reduce the flexibility of the government to address prudential concerns. Banks that propose to merge will have to prepare a Public Interest Impact Assessment (PIIA) that sets out the costs and benefits of the merger on lending to consumers and small businesses, on branch locations and overall service, on international competitiveness, on employment, and on technology. The House of Commons Standing Committee on Finance will review the PIIA and will hold public hearings on any merger proposal. The Competition Bureau and the Office of the Superintendent of Financial Institutions will continue to review proposed mergers for impacts on market competition and safety and soundness. The Minister of Finance will continue to have the power to approve or reject a merger proposal. The Minister will also have new powers to enforce any undertaking made by the banks as a condition of the merger, and to penalize violations of undertakings (sections 80, 82, 93).

Changes Needed to Close Gaps in Bill C-8
Enact moratorium on expansions of banks - As set out in the CCRC's fifth, sixth and ninth position papers, the government should enact a moratorium on all expansions of banks and bank powers until the community reinvestment, accountability, consumer protection and foreign bank-branching measures recommended by CCRC have been in place for two years. This time period is needed to determine whether foreign or domestic banks will provide significant competition to CanadaÕs big banks, and whether our big banks serve all Canadians fairly and well. Broaden application and scope of Merger Review Process, and enact it in law - The Merger Review Process should be enacted in law, and expanded to become a Financial Institution Expansion Review Process and, in addition to the proposed Review Process criteria set out in the Merger Review Guidelines, the lending, investment and service record of any institution involved in any proposed expansion (e.g. all takeovers or mergers with any other financial institution or other company) should be reviewed and graded and if an institution has a failing grade in any area, the institution should be required to take corrective action before the expansion is allowed to take place, as under the U.S. Community Reinvestment Act.

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Canadian Community Reinvestment Coalition
P.O.Box 1040, Station B,
Ottawa, Canada K1P 5R1

Tel: (613) 789-5753
Fax: (613) 241-4758

Email: cancrc@web.net

Copyright 2001CCRC