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As banking fees increase yet again, federal government action needed to ensure record big bank profits not based on gouging and ignoring job-creating businesses

Bill S-5 to weak -- Comprehensive audits, and new Financial Consumer Organization needed for effective bank and financial services industry accountability, and for financial literacy

"It is essential, for deterrence, to have strong penalties that we know will be enforced."

Prime Minister Stephen Harper
CTV National News, February 26, 2009

Monday, March 12, 2012

OTTAWA - Today, as Canada's big six banks have reported new record first quarter profits totalling $7 billion (up 5.3% compared to 2011) while raising banking fees and cutting jobs in the sector from 304,663 in June 2010 to 295,864 in September 2011, and as Canada's wage gap is growing and the highest in 30 years, the Canadian Community Reinvestment Coalition (CCRC - Canada’s largest and leading bank accountability coalition) called on the federal Conservatives and opposition parties to implement accountability measures that do much more than current Bill S-5 does to ensure bank profits are not based on gouging customers and arbitrarily cutting credit, loans and services, and to ensure the banks support Canadian economic development and job growth.

"Past government actions have been ineffective in ensuring Canada's big banks and other companies are not making excessive profits from gouging customers and cutting services and failing to lend to job-creating Canadian businesses," said Duff Conacher, Coordinator of Democracy Watch and Chairperson of the CCRC.

"To help the Canadian economy overall, and to ensure the big banks serve everyone fairly at fair prices, the federal government must facilitate the creation of a national financial consumer watchdog group, and require independent audits to determine if the banks are reaping excessive profits through gouging interest rates and fees, and the arbitrary cutting of credit and services for some customers and communities," said Conacher.

"Every dollar of excessive profit for the banks, and every person and business the banks unjustifiably cut off from credit, costs the Canadian economy because it means that the banks are overcharging for their essential services and loans, and choking off spending and job creation," said Conacher.

In February 2011, the federal Conservatives' Task Force recommended extensive measures to increase financial literacy in Canada, but ignored the lowest-cost, most effective and broadly supported solution to this problem which is to use the innovative "pamphlet method" to create a membership-based Financial Consumer Organization as recommended by the federal MacKay Task Force and House and Senate committees in 1998, and an Individual Investor Organization as proposed by an Ontario legislature committee in 2006.

Financial service industry customers and investors are currently gouged with extra charges that companies in the industry use to pay their more than $400 million annual costs for industry advocacy efforts (advertising, lobbying, political donations and gifts).  The most effective way for the federal government to balance the marketplace is to implement the pamphlet method to give customers and investors an easy way to fund their own advocacy watchdog groups.

Canada’s big banks reported a total of more than $16 billion dollars in losses and writedowns in 2008 mainly because of their irresponsibly risky investments, and so these measures are needed more than ever to stop the banks from hiking rates and fees, and cut lending and services, to recoup their self-inflicted losses in the future.  The measures are also needed to increase bank accountability in return for the almost $200 billion in support the federal government gave the banks in 2008-2009  (See more details about Canada's big bank profits and losses below).

"No corporation has a right to gouge or unjustifiably cut services, especially when providing an essential service such as banking or trying to recoup self-inflicted losses like the banks are suffering from, but the Conservative government is continuing the negligence of past federal governments by subsidizing the big banks and other financial institutions with hundreds of billions of taxpayer dollars while failing to effectively require them to maintain loans to creditworthy customers and serve everyone fairly and well at fair prices," said Conacher.

"The best thing the federal government can do to help the Canadian economy overall is to ensure effective, ongoing financial services industry accountability by requiring banks to prove their loan and investment interest rates and charges are fair, by auditing bank lending and competition levels in communities across Canada and, as recommended by the 1998 MacKay Task Force and House and Senate committees, by requiring financial and investment companies to distribute a pamphlet in their mailings to customers and investors that invites them to join a citizen watchdog group to watch over the financial industry and federal government," said Conacher.  "At little or no cost to the federal government or the financial services industry, consumers and investors across Canada can be given a very easy way to band together to help and protect themselves through forming and funding their own watchdog groups."

In addition to the creation of the two watchdog groups, the Canadian Community Reinvestment Coalition (CCRC), established in 1997 and made up of 100 citizen groups from across Canada with a collective membership of more than three million citizens, called on federal Finance Minister Jim Flaherty to work with opposition parties for effective bank and financial institution accountability by (See details about these proposals below):
  • requiring banks to prove through an independent audit (that goes back at least 10 years) that their credit card and other consumer and small- and medium-sized business loan interest rates and fees do not amount to gouging, with a public report on the extent of gouging issued by the Financial Consumer Agency of Canada (FCAC) -- To see details about this proposal, click here;
  • empowering the Competition Bureau to, as has been done in the U.S. for 20 years, evaluate and publicly report on the number of business loans applied for, approved, rejected and called for specific categories of business borrowers, and the level of competition in basic banking services, across the country -- To see details about how the U.S. has required for more than 20 years, click here.

Details of Canada's big bank profits and failure of federal government to ensure they are fair
According to Fortune magazine’s 2011 Global 500 Report, based on FY 2010 annual revenues five of the 11 Canadian companies to make the list of the 500 largest companies in the world were financial institutions, including three of Canada's big six banks (RBC (262nd with revenues of $34.72 billion, profits of $3.298 billion); TD Canada Trust (393rd with revenues of $24.49 billion, profits of $2.667 billion), and; Scotiabank (425th with revenues of $22.91 billion, profits of $3.032 billion), as well as Manulife Financial at 240th with revenues of $36.53 billion, and Sun Life Financial at 406th with revenues of $26.92 billion.  According to Fortune, Sun Life Financial was also the 47th fastest growing company in FY 2010 in profits, with a 203% increase over 2009 and total profits of $1.63 billion.

According to Fortune magazine’s 2010 Global 500 Report, based on FY 2009 annual revenues, three of Canada's big six banks were among the 500 largest companies in the world (RBC (228th with revenues of $32.61 billion, profits of $3.298 billion); TD Canada Trust (401st with revenues of $21.733 billion, profits of $2.667 billion), Scotiabank (414th with revenues of $21.428 billion, profits of $3.032 billion)

In the 2009 Global 500 Report (based on 2008 annual financial reports), four of Canada’s big six banks were within the top 18 banks in the world in terms of profit as a percentage of revenues (TD - 6th; Royal - 11th; Scotiabank - 13th; BMO - 17th), and four were within the top 30 banks in the world in terms of overall profits (Royal Bank - 13th; TD - 18th; Scotiabank - 21st; BMO - 29th), and four were within the top 21 banks in terms of profits as a percentage of assets (TD - 15th; Scotiabank and Royal - tied for 19th; Bank of Montreal - 21st).

Finance Minister Jim Flaherty has implemented only a voluntary, loophole-filled code of conduct last August covering business relations between retail companies and credit card and debit card companies.

And three of the eight credit-card regulations implemented in January and September 2010 by the Conservatives change only credit-card-disclosure requirements, another proposal only addresses consumer consent for increasing a credit limit, and another only limits debt collection practices in one way. 

None of these five proposed regulations do anything to prevent gouging, nor does the Conservatives' Task Force on Financial Literacy (which is redundant given the existence of the 8-year-old Financial Consumer Agency of Canada (FCAC) and other federal and provincial financial education agencies).

And while the other three credit-card regulations (a 21-day interest-free period (which came into effect until September 2010), a restriction on one fee, and payment allocation requirements) will protect a few customers from a few charges, none of the proposals will decrease already excessive credit card interest rates (which are especially galling given the Bank of Canada's prime lending rate has dropped to its lowest level ever), nor the extra interest rate and fee hikes the banks and other companies have unilaterally imposed in the past couple of years, nor their overcharging for various credit card and other banking services.

And more recent changes proposed  by the Conservatives mainly provide information to customers, and don't protect them from anything, especially from gouging and other key abuses.  More than 95 percent of cheques in Canada clear overnight, so the government's proposal to reduce the cheque-clearing time period from seven days to four days is a very small step forward.  There will be no penalties for failing to comply with the proposed new code of conduct on disclosure of terms of mortgages, and penalties for violating the Bank Act remain ridiculously low.

None of the Conservatives' proposals prevent the banks from cutting off credit for people and businesses that have made their payments consistently for years and are very creditworthy.

The Conservatives' so-called "Economic Action Plan" offered huge, public-funded subsidies to the big banks of more than $200 billion, but the Conservatives (just as past Liberal governments did) continue to fail to require the banks to do anything in return, especially to ensure the banks charge fair prices and treat all customers fairly.

To their credit, both the federal NDP (also here) and the federal Liberals proposed in fall 2009 more effective gouging-protection measures, but unfortunately they have not worked together and with other MPs to pass a bill imposing these measures on the big banks and other credit card issuers, nor have they proposed an industry-wide audit which is needed to determine whether banks are treating all customers fairly and what are actual fair prices for all banking services, nor have they proposed any effective financial consumer empowerment initiatives such as creating the watchdog groups using the low-cost method proposed by the CCRC.

Beyond the record-high gap between the prime rate and credit card interest rates, and the regular practice of continuing to charge interest on the full amount of a credit card debt even if most of the debt has been paid off, see for examples of other gouging and excessive profits the following:

Every survey done in the past decade has shown 90 percent of Canadians believe access to banking services and credit is essential for functioning in society.

Details about the CCRC's proposals
In addition to having the Financial Consumer Agency of Canada (FCAC) examine profit levels for credit cards and service charges for the past decade and annually in the future (To see details about this proposal, click here), and the Competition Bureau examine lending records and competition levels across Canada for the past decade and annually in the future (To see details about the U.S. requires this under the Community Reinvestment Act (CRA), click here -- To see details about the $4.5 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 work, click here), the federal government should finally actually regulate Canada’s banks and investment companies through the following actions:

  • If the FCAC study shows gouging in the past decade, require banks to refund customers;
  • If the Competition Bureau shows lack of competition in any community, require banks to open branches or subsidize credit unions opening branches; 
  • Require banks to provide detailed information on loans, investments and services to customers, require corrective action and deny mergers and takeovers if banks are not meeting customer needs, as in the U.S. 
  • Every government in Canada contracts money-handling and credit card business to the banks, and should award contracts based on which bank serves the most people well;
  • Facilitate the creation of a Financial Consumer Organization (FCO)  and an Individual Investor Organization (IIO) to help consumers by requiring banks and other financial institutions to enclose an FCO or IIO pamphlet in their mailings to customers, inviting people to join the watchdog groups (To see the CCRC's position paper describing the FCO proposal in detail, click here -- NOTE: Creating such an organization using the pamphlet method was recommended by 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), and the House of Commons and Senate committees that reviewed the report endorsed the recommendation);
  • Require federally regulated banks and other financial institutions to use the Ombudsman for Banking Services and Investments (two banks have set up their own complaint dispute resolution systems that are not as independent and effective as the Ombudsman);
  • Require banks to give customers access to their money as soon as a cheque clears (as 98 percent of cheques in Canada clear in one day), and;
  • Increase the maximum penalty for violating the Bank Act to $50 million (currently, the maximum penalty is $200,000, much too low to encourage compliance, and the government's proposal in Bill S-5 to increase it to $500,000 is still much too low), and;
  • Require the FCAC to disclose the name of violators in every case (currently, the FCAC is only allowed to disclose the identity of a financial institution that violates a consumer protection measure if the FCAC prosecutes, which it rarely does).
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For more information contact:
Duff Conacher, Board member of Democracy Watch
Chairperson of the CCRC
Tel: (613) 789-5753 

To see the CCRC's analysis of the flaws in Bill C-37, which changed the Bank Act and other federal financial institution laws in April 2007, click here

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Canadian Community Reinvestment Coalition
P.O. Box 821, Station B, Ottawa, Canada K1P 5P9
Tel: (613) 789-5753
Fax: (613) 241-4758
Email: cancrc "@" web.net

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