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Federal Conservatives did bail out Canada's big banks in 2009 -- now must finally take action to ensure banks and other financial institutions service, lending, investment and prices are fair, responsible and support innovation

Comprehensive disclosure and audits, higher penalties, and new financial consumer watchdog group needed for effective bank and financial services industry accountability

"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

Tuesday, October 18, 2011

OTTAWA - Today, with Canada's big six banks soon to report new record annual profits beating their record combined total of $21.15 billion in 2010 (which was up 32% from $14.34 billion in 2009), and with protests happening in cities across Canada against corporate greed and irresponsibility, the 100-member group Canadian Community Reinvestment Coalition (CCRC - Canada’s largest and leading bank accountability coalition) called on the federal Conservatives and opposition parties to give the banks something in return for the huge public subsidies offered to them by the federal government, by finally enacting measures to ensure bank and other financial institution profits are not based on gouging customers and arbitrarily cutting credit, loans and services, and to ensure banks and other financial institutions serve Canadians, and lend and invest Canadians' money, fairly, responsibly and in support of innovation.

The federal Bank Act and other financial institution laws are being reviewed by Parliament and the federal government right now, so the time is perfect to finally create the much-recommended and broadly supported financial consumer and investor watchdog groups using the low-cost and effective pamphlet method, and to enact strong regulations and penalties to ensure fair and responsible actions by Canada's big banks and other financial institutions.

After the federal Conservatives weakened lending rules and created a dangerous sub-prime mortgage lending bubble in Canada, the Conservatives then used the "Extraordinary Financing Framework" in their so-called "Economic Action Plan" in 2009 to offer huge, publicly funded subsidies to Canada's big banks and other financial institutions of more than $200 billion (including up to $125 billion of mortgage-buying by the Canadian Mortgage Housing Corporation, of which $70 billion was used, incredibly with the details kept secret still today).

Through their years in power, the Conservatives (just as past Liberal governments did) continue to fail to require the banks to do anything meaningful in return for their huge public subsidies -- in particular they have done nothing effective to ensure the banks charge fair prices, serve all customers and communities fairly, and lend and invest responsibly.

"Past government actions, and the federal Conservatives' credit card and debit card codes and regulations last year, have been much too little to ensure Canada's big banks and other financial institutions are not making excessive profits from gouging customers and cutting services, and are serving everyone fairly and well and responsibly and supporting innovation," said Duff Conacher, Founding Director 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 or denial of credit and services for some customers and communities," said Conacher.

Last February, the federal Conservatives' Task Force recommended extensive measures to increase financial literacy in Canada, and the lowest-cost, most effective and broadly supported solution to this problem is to create a membership-based Financial Consumer Organization as recommended by a federal task force, and House and Senate committees, in 1998.

"Every dollar of excessive profit for the banks, and every person and business the banks unjustifiably cut off or deny credit or lend to irresponsibly, 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 and innovation, and financing companies that pollute or harm Canadians in other ways," said Conacher.

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.

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 in August 2010 covering business relations between retail companies and credit card and debit card companies.

And three of the eight credit-card regulations implemented in January 2010 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.

And while the other three credit-card regulations (a 21-day interest-free period (which came into effect in 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 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, or prevent banks from denying credit to people and businesses that are creditworthy and trying to innovate in Canada's economy.

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.

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:

  • as recommended by the federal MacKay Task Force and House and Senate committees in 1998, and supported by two-thirds of Canadians in a survey, requiring banks and other financial institutions to facilitate the creation of consumer watchdog groups by enclosing an appeal pamphlet for the groups in their mailings to customers and individual investors -- To see details about this proposal, click here;
  • 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, and requiring the banks to belong to the Ombudsman for Banking Services and Investments (OBSI) -- To see details about how the U.S. has required for more than 20 years, click here.

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.

"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 suffered 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, and to lend and invest responsibly," 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."


The CCRC proposes first that the federal government empower and mandate the Financial Consumer Agency of Canada (FCAC) to examine for at least the past 10 years, and annually in the future, the levels of profit of the credit card and basic consumer and small business loan divisions of the banks and other federally regulated companies, as well as profits from basic banking service charges.
The FCAC would keep key company information confidential, reporting only the profit margin for these divisions of each company.  If the FCAC found excessive profits (above the corporate average of 15-20 percent), the public would know, and likely that pressure alone would cause interest rates and service charges to drop.  (To see details about this proposal, click here)

Second, the federal government must order the Competition Bureau to audit the lending records of the banks (by tracking number of applications, number of approvals/rejections, and number of called loans in all consumer and small and medium-sized business loan categories), and to evaluate the actual level of basic banking service competition in communities across Canada, for the past 10 years.
Third, the federal government must require the banks and other federally regulated financial institutions to enclose twice each year in their mailings to customers a one-page pamphlet that invites them to join a financial consumer watchdog group.  The federal government must also do the same for all federally incorporated companies, requiring them to enclose a one-page pamphlet in their annual mailing to individual shareholders that invites them to join an investor watchdog group.  This method has been used successfully in four states in the U.S. to form broad-based, self-sustaining watchdog groups for utilities. (To see details about this proposal, click here)

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 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 require the FCAC to disclose the name of violators in every case, and change the complaint process to require all financial institution to be covered by the Ombudsman for Banking and Investments (OBSI) and allow consumers to complain to the OBSI directly at any time without having to go first to their bank's ombudsman.
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For more information contact:
Duff Conacher, Founding Director 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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