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Thursday, March 22, 2007

OTTAWA - Today, the Canadian Community Reinvestment Coalition (CCRC) called on the Senate Banking Committee to add several measures to Bill C-37 to require banks to prove their branch closures are justifiable, to prove their credit card interest rates and service charges do not amount to gouging, to prove they lend to all individuals and businesses that are creditworthy and reinvest in community development across Canada, and to increase penalties and disclose violators of federal laws (To see the CCRC's submission to the Committee, click here).

Federal Conservative Finance Minister Flaherty introduced Bill C-37 (which changes federal financial institution laws including the Bank Act) in the fall but included only one partial consumer protection measure and no significant bank accountability measures.  As a result Canada’s banking laws will continue to have key gaps that were closed 20 years ago in the U.S. 

"U.S. governments have recognized that 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 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 (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.  In addition, federal U.S. law requires financial institutions to give customers access to their money as soon as a cheque clears.

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 expand by opening branches, taking over another company, or merging with another financial institution.  In contrast, under the Community Reinvestment Act and related laws the U.S. government reviews most expansions, 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 expansion, merger or takeover can be rejected and/or the banks required to take corrective action and set measurable targets before the expansion, merger or takeover proceeds -- 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 (in a PDF-format document), click here.

In contrast, Canada’s Bank Act and other financial institution laws contain maximum penalties of only $100,000 (much too low to encourage compliance, given the banks altogether make more than $80 billion annually), and no bank has ever had to pay anywhere near that amount as a penalty.

Bill C-37 also does nothing to ensure that the public knows about banks and other financial institutions that treat customers poorly.  Currrently, the federal government’s Financial Consumer Agency of Canada (FCAC) can only disclose the identity of a violating bank or institution if it prosecutes, and even then it has the choice whether to make the disclosure.

The FCAC has been negligent since it was formed in late 2001 in informing the public, failing to disclose the identity of the violating bank or other financial institution in 118 of 120 known cases (many other cases were likely settled behind closed doors).  In fact, the FCAC found through a survey more than 800 bank branches violating federal law in 2003, and did not prosecute or publicly identify any of the banks involved.  When the survey was done again in 2005, the FCAC let the banks off the hook by not including questions in the areas in which the banks had done worst in 2003.

"Bank and financial institution customers and investors have a right to know which banks and institutions violate the law, and so the federal government’s Financial Consumer Agency of Canada must be required to end its secret deals and to disclose the identies of violators," said Conacher.

The CCRC is pushing the Senate Committee to make the following changes to Bill C-37:

  • Facilitate the creation of a Financial Consumer Organization (FCO) to help consumers by requiring banks and other financial institutions to enclose an FCO flyer in their mailings to customers, inviting people to join the watchdog group (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);
  • 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) and, as in the U.S., require corrective action and deny, expansions, mergers, takeovers and government contracts if banks are not meeting customer needs -- (NOTE: 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