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Tuesday, April 17, 2007

OTTAWA - Today, at a hearing of the House of Commons Finance Committee, the Canadian Community Reinvestment Coalition (CCRC) called on federal Finance Minister Jim Flaherty and the Committee to ignore the half-truths and irrelevant claims of Canada’s big banks concerning their fees and services and, finally, enact accountability measures passed more than 20 years ago in the U.S. to ensure all Canadians are well served by banks at fair prices.

“If Conservative Finance Minister Flaherty and all federal political parties are actually interested in holding the banks accountable they must require them to undergo an audit on fee and service patterns for the past 15 years, and annually in the future, with a rollback of any fee that amounts to gouging,” said Duff Conacher, Coordinator of Democracy Watch and Chairperson of the CCRC.  "Talk is cheap, cheaper than many bank fees, and many finance ministers and politicians in the past 20 years have talked about holding banks accountable but unlike the U.S. government they haven’t done enough to ensure banks serve all Canadians fairly and well with fair prices and interest rates."

“In fact, the federal government has essentially allowed gouging of all customers and the creation of a two-tier banking system, with wealthy people receiving personal, full-service banking in branches and less wealthy people pushed to use bank machines or gouging cash-chequing outlets,” said Conacher.

The banks have provided lots of information to the Finance Minister and the Finance Committee, but have withheld the key information of what it costs them to provide each service and product, and this information is needed to determine whether their prices are fair (To see the Canadian Bankers Association submission to the Finance Committee, click here (PDF format)).  All of the banks’ arguments are either half-truths or irrelevant, as follows:

  • The banks claim their fees are fair -- this can only be proven if the banks disclose the revenues they obtain from each service and product fee vs. the costs of providing each service and product so that each bank’s profit margins can be calculated (and the banks refuse to disclose their exact revenues and costs even though they have admitted that they know them exactly and do not cross-subsidize the costs of any division of their operations);
  • The banks claim they only charge a so-called “convenience fee” to use another bank’s machine or a non-bank-owned machine -- in fact, the banks charged the Interac network access fee of $1.50 up to 2000, and then added the $1 to $1.50 convenience fee, essentially doubling the cost of serving yourself at another machine (as a result, the banks’ claim that cutting the convenience fee would be like one workout gym letting a customer of another gym use its machines for free is a completely false claim, because the banks would still be charging the Interac fee);
  • The banks claim fees are comparable to other countries -- in fact, fees in 8 countries are lower overall (including the Netherlands at 66% lower (and banks there also have a lower interest spread) -- even if fees were comparable, Canadian banks could still be gouging Canadian customers if their costs were lower than banks in other countries;
  • The banks claim non-bank-owned machines are competitors -- in fact, such machines are partners with the banks as they only facilitate customers accessing their bank account (in the same way gas stations are partners with oil company refineries), and the banks save money because they pay no operating costs for these other machines;
  • The banks claim they are serving Canadians well -- in fact, banks have shut down full-service branches in many neighbourhoods and communities across Canada and fired thousands of staff (and saved whose knows how much money doing so (the banks refuse to disclose their cost savings), and as a result it is highly questionable whether full banking service is at all accessible to many Canadians;
  • The banks claim competition works so regulation is not needed - if competition worked, at least one of the banks would have lowered or cut the so-called “convenience fee” in the past six years (none have), and in any case banks will never compete for the business of people with low incomes because profit levels are low in this sector -- given the protections and privileges the federal government has granted the banks for decades (allowing them to become as big, powerful and profitable as they are), and given that banking is an essential service, regulation is not only needed but also is a completely justifiable way to ensure they are serving all Canadians well at fair prices.
“Banks have very strong market control of essential banking services in many parts of Canada, and they need to be required, as similarly powerful utility and telecommunication companies are, to prove that all of their prices are fair through annual audits and public hearings,” said Conacher.

The banks have made it clear that if they cut the so-called “convenience fee” for using another banks’ machine, they will just add another fee or increase other fees to make up the lost revenue from cutting the so-called “convenience fee.”

As a result, the only solution to protect consumers, hold banks accountable, and to ensure gouging is stopped completely, is a full audit of the following for the past 15 years, and annually in the future (To see the 10 questions such an audit should aim to answer, click here):

  • the annual revenues the banks have received from each fee for each service and product;
  • the annual costs the banks have paid to provide each service and product, and;
  • the annual savings the banks have had from withdrawing full-service banking (by closing branches and firing staff) and the effects on competition across Canada, and;
  • the overall profit margins for each product and service.
In any service or product area the audit finds that the banks are obtaining a gouging level of profit (ie. a profit unjustifiably higher than the average corporate profit margin of 15%), the banks should be required to lower the fee for that service or product, and wherever lack of competition or service is found banks should be required to open at least basic service branches.

The U.S. government has conducted similar audits of not only bank’s services, but also their lending and investment patterns and practices, for more than 20 years under the Community Reinvestment Act and related laws, and banks are required to establish special programs to ensure are customers are well-served (To see details about the Community Reinvestment Act (CRA), click here -- To see details about the $4.2 trillion in reinvestments that have resulted from the CRA since 1977 (in a PDF-format document), click here --  To see the CCRC's position paper describing how this bank accountability system should be established and word in Canada, click here).

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For more information contact:
Duff Conacher, Coordinator of Democracy Watch
Chairperson of the CCRC
Tel: (613) 789-5753 

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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 2007 Canadian Community Reinvestment Coalition