Future of the Canadian Financial Services Sector

Public Interest Advocacy Centre Comment on The Taskforce on the Future of the Canadian Financial Services Sector Report

A. General

Overall, PIAC strongly supports the consumer-oriented recommendations of the Taskforce. While we may recommend some modest changes Taskforce’s recommendations, we view the Taskforce recommendations as setting out a positive blueprint for consumers in the financial services sector. The Taskforce’s recommendations on consumer matters are particularly important in light of its other recommendations such as allowing banks to sell insurance and lease cars, and allowing major mergers to proceed under certain conditions.
The Taskforce’s recommendations should be viewed as a package. It will be very disappointing if the recommendations that are worrisome for consumers (such as banks retailing insurance) are implemented, while the consumer protection measures are not. The Taskforce report suggests that government and industry should take a new, more positive attitude towards consumer protection. PIAC hopes that the major players will take this message to heart.

B. Implementation of Taskforce Report

B1. Consumer Advisory Committee

We recommend that a consumer advisory committee be set up immediately to advise the Minister of Finance on the government response to the Taskforce, and on the early implementation of key measures. The new involvement of consumers in decision-making about the financial services sector, recommended by the Taskforce, should be begin right away. Without consumer input, the government response risks being out of touch with the needs and values of consumers.
The government should not depend on the reports of the House and Senate standing committees that held hearings about the Taskforce report in the Fall. The hearings were dominated by industry interests, jockeying for position in the context of potential further deregulation of the sector. For the consumer interest to be adequately represented, the government should consult and involve consumers and consumer representatives directly in its current work. Early and substantial involvement of consumer representatives increases the chances that the government response will be publicly acceptable.
An advisory committee would offer the advantage of a structured method of providing consumer input, and if officials were willing to work with the committee, would be much more relevant and provide greater value than ad hoc meetings. The committee could provide a forum for discussion among industry, government and consumers, and would further mutual understanding. It would be wise to start fostering a collaborative approach now, in anticipation of the extensive work that must be done over the next few years.

B2. Early Implementation of Key Measures

Consumers have been waiting a long time for improvements in consumer protection in the banking industry. It is widely accepted that some consumer protection improvements are needed in the sector. The government should start now in implementing key measures contained in Taskforce recommendations, rather than waiting an additional three to six months while the government response is being prepared.
Some candidates for early implementation are:

Access to Financial Services: Consumers have been calling for action on this issue for over a decade. The Taskforce recommendations should be implemented immediately.
Disclosure: As with the access issue, it has been clear for over a decade that some action on this issue is required. We recommend setting up the proposed Working Group immediately.
Consumer Protection Bureau: The institutional arrangements for implementing the Taskforce recommendations should be set up soon to avoid a long delay between the government response, and actual implementation of recommendations.
Strengthening Consumer Organizations: It is only fair to hold discussions on this topic with consumer organizations prior to the government response. Any measures in this area will likely take several years to implement. It is important that consumer organizations have adequate resources to participate in the reforms of the sector that will take place over the next few years.

C. Comment on Specific Taskforce Recommendations

C1. Mergers (Taskforce Recommendations 46 to 52)

PIAC agrees with these recommendations. The government should make a commitment to ensure that any future merger proposals are subject to a public interest review. The Commons Committee on Finance also agreed with these recommendations.

C2. Empowering Consumers (Taskforce Recommendations 53 to 56)

PIAC agrees with these recommendations. Recommendations 53 to 56 should be the principles underlying the consumer protection initiatives implemented as a result of the Taskforce. The Commons Committee recommended that the government act quickly to put into place an enhanced consumer protection regime, and that a consumer protection bureau be established to undertake this task. We agree with the Commons Committee. However, our recommendation is that the bureau be established under the mandate of Industry Canada, rather than the Department of Finance.
There are two main reasons for recommending that Industry Canada be responsible for setting up the consumer protection bureau. The first is that Industry Canada, through the Office of Consumer Affairs, has the mandate to deal with consumer issues, and a good track record in implementing consumer-friendly measures in banking (such as the bank fee and credit card interest calculator). The second is that OSFI and Department of Finance would have trouble fitting consumer issues into their present mandates. Also, neither the Office nor the Department is experienced in implementing consumer protection and empowerment measures.
The new consumer protection bureau should be an independent regulatory agency, since it would be charged with overall responsibility for consumer protection rules/regulations in the financial services sector. Its mandate should include the development of rules/regulations, as well as compliance measures and programs. As well, it should be asked to undertake consumer education activities. The consumer protection bureau’s mandate should specify that it is to carry out it activities with the full involvement of stakeholders.
We disagree with the Commons Committee that there be no direct government funding for consumer organizations. Like the Taskforce, we strongly believe that funding for consumer organizations gives good value to Canadian consumers. We note, however, that there are options other than direct funding which should be considered by government and the industry. One option is the Consumer Utility Board (CUB) model, which was the subject of a PIAC report entitled CUBs for Canada? Another option is an industry-sponsored fund or foundation.
Government and industry must recognize that consumer organizations represent the Canadian consumer to decision-makers and the industry, and, as such, perform an important watchdog and advocacy role. Recent improvements to banks’ rules on opening accounts for low-income people, for instance, are directly attributable to consumer organizations activities over several years.

C3. Disclosure and Transparency (Taskforce Recommendations 57 to 63)

We agree with these recommendations. It is important that there be independent oversight of contracts and marketing documents, and that best practices be established. We would like to see the Working Group set up as soon as possible.
We agree with Commons Committee that responsibility for initiative not be given to OSFI, and recommend instead that the responsibility be given to the new consumer protection bureau.
We do not agree with the Commons Committee reservations about disclosure of fees and commissions to third parties and prohibition on unilateral amendment to financial services consumer contracts. We recommend that the original Taskforce recommendations be implemented.

C4. Privacy (Taskforce Recommendations 65 to 69)

We agree with these recommendations. In particular, we note that the Taskforce has recommended that the privacy regime be legally binding, which is crucial if consumers’ privacy is to be protected. We agree with the Commons Committee that OSFI should not be given responsibility for auditing the privacy regime, and recommend that the Privacy Commissioner be involved instead.

C5. Coercive Tied Selling (Taskforce Recommendations 70 to 75)

We agree with these recommendations. The Taskforce’s’ proposed changes to section 459.1 of the Bank Act should have been made prior to its proclamation in September. PIAC recently published a report on tied selling in the banking sector entitled Unfit To Be Tied: A Study of Improvements to the Tied Selling Provisions of the Bank Act that provides an in-depth discussion of the issue and our public opinion research on it. A copy of the executive summary of this study is appended to this document.

C6. Redress (Taskforce Recommendations 76 to 80)

We agree with these recommendations. It is important that the ombudsman be independent. We agree that the federal and provincial governments should make a special effort to cooperate so that the ombudsman could act for both provincially and federally regulated financial institutions. We recommend that the ombudsman be responsible for consumer redress only, not for the new consumer protection bureau as suggested by the Commons Committee. Instead, as explained above, we recommend that the new consumer protection bureau be formed under the mandate of Industry Canada.

C7. Proficiency Standards (Taskforce Recommendations 81 to 86)

We agree wth these recommendations. The recent report Investment Funds in Canada and Consumer Protection by Glorianne Stromberg (commissioned by the Office of Consumer Affairs) supports the need for proficiency standards. This is a major issue which should be a priority.

C8. Access (Taskforce Recommendations 88 to 92)

We agree with these recommendations. The access issue has been a high priority for consumer organizations for over 10 years, yet progress has been slow. The Taskforce’s recommendations on this matter should be implemented immediately.
We do not agree with the Commons committee’s comments on the dangers of abuse of issuing identification cards. In our opinion, this initiative, if implemented properly, would solve some privacy issues for low-income people dealing with banks. Also, it is important not to overstate the risk of fraud. Low income people should not be penalized because of the overall risk of fraud involved in all banking transactions.

C9. Branch Services Access (Taskforce Recommendation 93)

Banking services are essential in modern society, yet they are not fully accessible to all. We therefore recommend a stronger approach to this issue than the Taskforce. Federal and provincial governments should work together to develop a strategy to make sure that banking services are accessible to Canadians living in rural and remote areas, as well as in low-income neighbourboods. Options such as providing banking service through Canada Post should be carefully considered. Beginning immediately, branch closures should be monitored by government.

C10. Micro-Credit (Taskforce Recommendations 94 to 97)

We agree with these recommendations. The government should promote micro-credit initiatives.

C11. Partnerships with the Voluntary Sector (Taskforce Recommendation 98)

We agree with this recommendation. The government should promote these partnerships.

C12. Community Accountability Statements (Taskforce Recommendation 99)

We agree with this recommendation, and we disagree with the Standing Committee’s reservations about it. We note that the requirement for a community accountability statement is significantly less onerous that the requirements under the American Community Reinvestment Act (CRA). The CRA applies to both foreign and domestic banks operating in the United States. Generally, the CRA has had positive results in the United States, ensuring that small business financing, personal loans and mortgages are accessible to all. Also, the CRA monitors branch closures. We would like to see further consideration of a CRA for Canada, or CRA-like provisions for monitoring financial sector performance.