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Friday, January 26, 2007

Today, the Canadian Community Reinvestment Coalition (CCRC) called on federal Finance Minister Jim Flaherty to do more than express concern about some bank service charges, and to use Bill C-37 to close all of the accountability loopholes in the federal Bank Act that allow Canada’s big banks to charge customers whatever amounts they want and to hide key details about their service, lending and investment records.

Yesterday, Minister Flaherty said that he has asked the banks “Is there a justification, is there a rationale” for charging bank fees that TD Bank, for example, does not charge in its U.S. operations, and that banks in England don’t charge.

Federal finance ministers or junior finance ministers expressed similar concerns about bank service charges and/or credit card interest rates in 1988, 1995, 1997 and 2001, but all of them chose to protect the big banks from accountability rather than do anything to protect the 20 million Canadian bank customers from gouging.

Minister Flaherty recently introduced Bill C-37, which changes federal financial institution laws including the Bank Act, but the bill contains only one consumer protection measure (reducing the time period that banks can put a hold on a cheque) and no bank accountability measures.  As a result Canada’s banking law will continue to have key gaps that were closed 20 years ago in the U.S.

“No corporation has a right to gouge, withdraw or withhold service unfairly, especially when providing an essential service such as banking,” said Duff Conacher, Coordinator of Democracy Watch and Chairperson of the CCRC.  "But the federal Conservatives have continued the Liberals’ negligence by allowing Canada’s super-rich big banks to treat 20 million Canadian bank customers pretty much however they want, to do whatever they want with Canadians’ money, and to take over other companies even if it isn’t in the public interest."

Every poll conducted in the past decade has shown that 90% of Canadians believe banking is an essential service similar to heat, electricity, and phone service, but while companies providing those services are required by law to prove their prices are fair and to provide services fairly across the country, the federal government continues to allow Canada’s big banks to charge whatever they want for most services, to close branches in many, mostly low-income communities (creating a huge growth in gouging cheque-cashing outlets), and to escape accountability by keeping secret their lending and investment records.

In contrast, in the U.S. banks have been required for years under the Community Reinvestment Act (CRA) and related laws to disclose detailed information annually proving that their service, lending and investment records are fair, and if they have a poor record they are not allowed to expand and must take corrective  action (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).  As well, more than 30 U.S. states regulate credit card interest rates by preventing them from increasing more than a set percentage above the prime lending rate in the state.

Royal Bank , Bank of Montreal and TD Bank all own U.S. banks and operate successfully under the U.S. legal requirements, and TD has cut one U.S. service charge that they continue to charge in Canada.

Bill C-37 also does nothing to ensure that a public interest review occurs whenever a bank proposes to take over another company, or merge with another financial institution.  In contrast, under the Community Reinvestment Act and related laws the U.S. government reviews most mergers and takeovers by banks to determine whether service, lending and investment (especially small- and medium-size business lending, and community development lending and investment) will improve.  If the banks involved have a poor service, lending or investment record, the merger or takeover can be rejected or the banks required to take corrective action and set measurable targets before the merger or takeover proceeds.

The former federal Liberal government did no review of the takeover of Canada Trust by Toronto-Dominion Bank that occurred in 2000, and so the federal government has no idea whether TD/Canada Trust has a better or worse service, lending and investment record than in the past. (To see the CCRC's review of the TD Bank takeover of Canada Trust, click here)

In contrast, TD Bank faced a full review of its takeover of Waterhouse bank in the U.S., as did the Bank of Montreal when it took over Harris Bank in Illinois, and Royal Bank when it took over Centura Bank in North Carolina.  In fact, all three of these banks have board committees that monitor the fair service, lending and investment records of their U.S. subsidiaries, but not for Canada.

Over the past 15 years, Canada’s big banks have been allowed without any public interest review to take over investment companies (and now control most of the assets in Canada’s investment industry), trust companies and insurance companies.

Overall, there is no valid reason for bank mergers in Canada.  The record profits by Canada’s big banks are a clear sign of lack of competition in Canada; Canada’s big banks are in the top 10 in all key categories of banking in Canada and are also among the top 10 most profitable banks in the world, and; every study shows that banks bigger than Canada's big banks are not better banks. (To see the CCRC's position paper concerning reviewing bank mergers and takeovers and competition issues, click here)

“All of the studies that have been done show that bigger banks provide worse service at higher prices, are worse at lending to job-creating small and medium-sized businesses, and are less efficient so even shareholders’ are hurt by bank mergers,” said Conacher.

The CCRC is pushing the federal government to make the following changes through Bill C-37:

  • Facilitate the creation of a Financial Consumer Organization (FCO) to help consumers, as the Task Force on the Future of the Canadian Financial Services Sector recommended in its September 1998 Report (See Recommendation #56(b) on page 208 of the Report).  This organization could be set up very easily and at a low cost if your government required banks and other financial institutions to enclose an FCO flyer in their mailings to customers, inviting people to join the watchdog group.  No bank takeover or merger should be allowed until the FCO is set up using this method (To see the CCRC's position paper describing the FCO proposal in detail, click here);
  • Provide detailed information on loans, investments and services to customers, as required in the U.S. under the Community Reinvestment Act (CRA) and related laws (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).  We need to track whether banks are meeting the needs of individuals and businesses on a community-by-community level and, as in the U.S., require corrective action if banks are not meeting customer needs (including not allowing banks to merge or to takeover other financial institutions (such as TD Bank's takeover of Canada Trust) if they do not serve all customers well) -- To see the CCRC's position paper describing how this bank accountability system should work, click here;
  • Prohibit any service charge or credit card interest rate increases until the banks prove they aren't gouging us with excessive service and credit card charges, and lower fees and interest rates if gouging is proven through an independent audit of all bank operations for which the banks charge fees (To see details about this proposal, click here);
  • Disclose the profit/loss record for any branch proposed to be closed, to allow for a full review of the reasons for the closure;
  • Make it a mandatory condition for any financial institution bidding on federal government contracts to prove that they have a fair and very good service, lending and investment record every year for the past 10 years;
  • Require the Financial Consumer Agency of Canada (FCAC) Commissioner to disclose the name of the financial institution and the terms of settlement whenever the Commissioner finds that an institution has violated the law (currently, the Commissioner can only disclose the name of the institution if the Commissioner prosecutes the institution);
  • Require banks and trust companies to give customers access to the money they deposit by cheque as soon as the cheque clears (Bill C-37 only reduces the cheque hold period from the usual 10 days to 4-7 days, even though 98 percent of cheques clear in one day), and;
  • Increase the maximum penalty for violating the Bank Act to $50 million (currently, the maximum penalty is $100,000, a meaningless penalty for Canada's big banks which each make $15 billion in revenue each year). 
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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