Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce
Issue 10 - Evidence - Meeting of April 13, 2005
OTTAWA, Wednesday, April 13, 2005
The Standing Senate Committee on Banking, Trade and Commerce met this day at 4:11 p.m. to examine and report on consumer issues arising in the financial services sector.
Senator Jerahmiel S. Grafstein (Chairman) in the chair.
[English]
The Chairman: This afternoon, the Standing Senate Committee on Banking, Trade and Commerce will continue its study of consumer issues arising out of financial services sector. Mr. Porter, please proceed.
Mr. Ken Porter, President, TransUnion of Canada Inc.: We are delighted to have this opportunity to appear before the committee.
In 1968, TransUnion was founded in Chicago, Illinois. We operate in 27 countries around the world. Canadian operations were founded in 1989, and we currently have 13 offices coast-to-coast. We are a privately held organization. We have 4,000 employees worldwide, with about 185 employees in Canada. We both have over 20 million Canadian consumer files in Canada. We are a repository of consumer data.
Senator Moore: Are those all Canadian?
Mr. Porter: Yes.
The Chairman: That is close to all of Canada.
Mr. Porter: We are a repository of consumer data. In a credit file, there is identification information, such as name, address, telephone numbers, credit history and public filing information, such as judgments, bankruptcies, et cetera. The credit files do not cover criminal information, health information or sexual orientation. That is mandated by the consumer reporting legislation laws in Canada.
Our database is in Hamilton, Ontario, and contains more than 20 million Canadian consumer files; everything resides in Canada.
Consumer reporting agencies, such as Equifax and TransUnion, receive roughly 100 million updates electronically transferred to us on a monthly basis. Credit granters, such as banks, trust companies, retailers, credit card companies and collection agencies, report these updates to us. Consumer reporting agencies receive roughly 135,000 public record updates each month.
Consumer reporting agencies do not make the credit decisions or rate consumers. That is the job of the credit granters. We have electronic access to the consumer data and its speed of access. Generally it takes only seconds to have an adjudication determined if someone has applied for a mortgage, loan or credit card. We render hundreds of thousands of adjudication decisions each day.
Who has access to our data? A membership is required. You must have membership and permissible purpose and consent to access the data to make any of these decisions.
That is about three or four minute's worth of our business and our industry. There are many aspects to the business and will ask Mr. Cleary to continue.
Mr. Richard A. Cleary, President, Equifax Canada Inc.: Mr. Chairman, honourable senators, it is my pleasure to be here to speak with you today as a representative of our industry and organization.
Equifax Canada Inc. is a subsidiary of a U.S. company as well. Our business was founded in Atlanta, Georgia, in 1899. Our Canadian operations were the first international facet of the Equifax operations founded in Montreal, Quebec, 86 years ago in 1919. We are a public company traded on the New York Stock Exchange with about 300,000 customers worldwide and 20,000 customers in Canada. We have approximately 5,000 employees in 15 countries and about 400 employees in Canada.
We are a highly regulated industry. There is specific consumer credit reporting legislation in place in nine of the 10 provinces, the exception being New Brunswick. This legislation governs who can access consumer data, what kind of data we can report, what consumers' rights are to access the data, et cetera. These laws differ somewhat from province to province but for the most part are quite consistent. It is our policy to take the most stringent feature of each provincial law and apply it uniformly across the country.
We are also subject to the Personal Information Protection and Electronic Documents Act, which is applicable in all provinces except those that have similar legislation that applies to our business. Equifax and TransUnion have chief privacy officers who oversee our compliance with that law. Those officers are with us today.
Mr. Porter talked about customers and the kind of business we operate. One focus of our business is consumers. To give that some perspective, at Equifax we have 28 full-time employees in our Montreal location dedicated to ensuring that consumer inquiries are dealt with in an efficient and timely manner. For example, consumers may ask for information or help on their own files. We have 20 full-time employees dedicated to ensuring accuracy of the data we receive from the data suppliers, such as credit granters and courthouse record information, and that it is consistent over time. At Equifax, we have 50 or 60 additional employees who ensure that our technology and infrastructure are secure. These employees see to it that our systems cannot be hacked; that the response we send to a credit granter matches the inquiry they sent to us; and, that we are sending the correct file for the correct consumer to the correct credit granter.
Consumers across Canada can get a copy of their credit file free of charge by mail, fax or phone. For example, in 2004, we disclosed about 400,000 such consumer files across Canada.
Consumers now can also get a copy of their credit file on the Internet for a small fee of $14.50. This is an immediate access to their credit file. At Equifax, we disclosed about 200,000 consumer credit files that way last year.
On those 600,000 consumer disclosures, we in turn heard back from approximately 30,000 consumers who asked us to investigate some aspect of their credit file, to update some information or to verify information. We also perform that service free of charge.
We do not grant credit. We do not collect money. We do not decide or recommend who is accepted or declined by a credit granter.
That is a very high-level overview of the scope of the business. Thank you.
The Chairman: Just before I allow questions, I want to say that we did receive your letter about some comments or questions of senators. We have it. We will make sure that it is part of the record, and that your response is part of the record. I want to thank you for paying so close attention to what senators are asking. We thank you very much for your comments, not that we agree necessarily, but it will certainly be part of the record and something we will weigh in our final recommendations.
Senator Angus: I thought your introductory comments were very helpful, succinct and to the point.
I have to admit that I did not realize until I saw your submissions that you sent in that Equifax is a New York Stock Exchange firm.
Is TransUnion a public company?
Mr. Porter: It is a privately held company.
Senator Angus: And it is American-owned?
Mr. Porter: Yes, by a man named Bob Pritzker out of Chicago, and formerly of the Marmon Group of companies. Recognized around the world, Marmon Group has 75 independent companies worldwide.
Senator Angus: Is he the sole proprietor?
Mr. Porter: Yes, he is.
Senator Angus: The universal complaint I have heard from borrowers is that until they pay off their debt at Household Finance or elsewhere, they cannot get a mortgage. That is what we hear from consumers, although I use the word ``borrowers.'' These borrowers cannot walk into the Royal Bank or the Chemical Bank in New York and get a mortgage on their house or a loan for a new car. They are usually at these lenders, not of last resort but pretty darn near last resort.
Mr. Cleary, you said that they could get a copy of their credit file. Let us say this chap is a gardener in a small town; he is not a person of means but he has a regular job. How does he get a copy of his report?
Mr. Cleary: Let me back up. If he is declined a benefit in Canada, for example, he is turned down for a mortgage, the credit granter will advise him if they use a credit reporting agency in making their decision, and if that was the reason for the decision, and how to contact that credit reporting agency.
Senator Angus: That credit granter would be your client.
Mr. Cleary: That is correct.
Senator Angus: And they pay you a fee?
Mr. Cleary: Exactly. They pay us per credit file they access. He would have been given our coordinates, how to reach us. If he phoned into the 1-800 number we provide, he would receive a recorded explanation of how to go about ordering his credit file, which would involve sending in two pieces of identification. Obviously, we have to be very concerned with making sure we are disclosing the information to the correct consumer. He would understand how to do that and mail that or fax that to us. We would then return the file by mail in plain language to the consumer.
The typical time frame for that would be seven to 10 days, let us say, so he would get a copy of their credit file. Included in the credit file would be a form he could use. If there was something in the credit file he thought needed updating or he disputed, he could send it back to us. We also provide a telephone number when we disclose the file that he can use to call and speak to someone about the credit file.
Senator Angus: He gets his credit file. It is debatable about the red tape involved and the cost, depending where they live and the ready access.
Mr. Cleary: It is free, sir.
Senator Angus: If he wants to do it on the Internet, there is a fee. In any event, it is not quite as easy as you make out, but I understand that these laws in nine of the 10 provinces would insist or hope that you would make it as easy as possible. Then he gets the thing and there is an error, according to the consumer, or there is a claim on there that says he owes $10,000, but it is in dispute. It seems to me that it is the ones that are so-called ``in dispute'' that cause the biggest trouble.
The buzzword around the small borrower world is, you do not want to get your name down on Equifax; let us say Equifax because you are the really bad guys that I have heard about. I am just kidding.
The Chairman: You are starting to run out of time.
Senator Angus: I have personally, as I am sure many people around have, had experience where you have a rather unsophisticated individual who has run up a lot of debt and you help them try to consolidate their financial affairs. Time and time again, if their name is in the credit agency's file, and it is a disputed claim, how do you get it off? Often, they cannot get their mortgage or they cannot get their new car until it gets off.
Mr. Porter: We are very consistent at TransUnion with the numbers and things. There are consumer disputes and that is going to happen; but again, TransUnion, along with Equifax, has provided offices coast-to-coast and teams of people that understand information and data. We are actually there to educate the consumer.
Sometimes there is a dispute; in some cases, the consumer has not seen a copy of the report, and when they do see the report they realize that they did have a collection item on there that they had forgotten. However, wherever there is a dispute or an error, we do sit down and take the time to help educate the consumer so they are better able to understand their file. We are helping them so that they can have an accurate credit report and have the ability to get credit from a credit granter.
We have knowledgeable and educated staff to help a consumers understand what is in their credit file and their credit report and go through any dispute.
Senator Angus: I do not mean a dispute between one of your two firms and the individual consumer. I am talking about a dispute between that individual consumer and some third party that alleges the consumer owes them something when, in fact, the consumer does not owe that money.
We are concerned about that, especially my colleague Senator Plamondon, who has much more experience than I do in this. I think it is one of the really terrible things, and this is your chance to disabuse us.
Mr. Cleary: If the information is incorrect, when we verify the information with the credit granter, we usually establish that quickly. We are a repository of information. We do not decide, in a case where there is a dispute, who is telling us the truth.
If a credit granter says that Mr. Smith owes X amount of dollars and Mr. Smith disagrees, unless Mr. Smith can produce some documentation that causes us to believe otherwise, we report both sides of that story. We will indicate this is what the credit granter is providing us and we will indicate that the consumer disputes this information. I would suggest that most of the problems you are referring to really resolve around past payment problems.
How do you get rid of that? You do not. That information remains on your credit file for a period of six years. That is the whole purpose behind having credit reporting information available to credit granters, so that they have an accurate understanding of the payment history and credit history of the consumer. If the information is correct, it is not going to come off. Yes, there could be some consumer frustration about that.
Senator Angus: This is the big issue. It is something that we need to understand better. I am happy to wait till another turn or others will pick up on it.
The Chairman: This is a central issue.
Senator Harb: I want to pick up on my colleague's question. I am sorry we have not had the chance to meet to go over some of my concerns.
In your letter to the chair, you clearly stated that whenever there is a dispute on a file concerning a reporting agency, you would look at it, you will consider it, and then you will correct it. You may want to take us through that.
Do you truly investigate and verify that the information is correct?
Mr. Joel Heft, Vice-President, Legal Counsel and Chief Privacy Officer, Equifax Canada Inc.: I think you are referring to my letter. We investigate each one of the 30,000 requests for verification. We have a system in place where while our person is on-line with the consumer, that person is emailing or faxing the request for confirmation as it is happening, depending on the technology of the credit granter. We have it down to a point where our average investigation time is six days.
We are a repository of credit information. We are in between the consumer and the credit granter. We hold the information and we have a statutory duty by law to investigate and where necessary or where appropriate or where deemed fit, make the correction. If at the end of the day, the credit granter says or sends us proof that the consumer borrowed the money and missed his payments, then that stays on the file.
We offer to put a consumer statement on where the consumer has the opportunity right on the credit file to put forth his position. The consumer has ample recourse. Where the consumer does not agree with the position of the credit granter as put forth by us back to the consumer, we advise them that there is a Registrar of Credit Reporting Agencies in each of their respective provinces. New Brunswick is the exception, although we have never had a case where we have had to worry about it in that province.
The registrar's job is to take it up with the credit granter, the credit bureau, and the consumer. He has the power to force us to delete information if he so chooses. We do recommend that or advise that in every case. So far this year, for January and February, right across Canada, only 20 consumers have chosen to go to ministry and lodge those complaints.
Senator Harb: You take the information from your client and you put it on your file. You do not verify it. You only verify it when a consumer comes to you and tries to dispute an item, and then you will tell the consumer to go back to the bank or the financial institution or whatever agency that they deal with, so that agency can tell you to make the correction. In the event that does not take place, all that you do is put on the file the fact that the item is disputed. You do not correct it unless the agency that is your customer tells you to do so.
Mr. Heft: We have 20,000 customers in Canada. To leave you with the impression that all 20,000 of those customers can put information on the credit file would be incorrect. We have credit reporting members who number 447 in Canada that are allowed to put information on the file. It is not 20,000 companies that can put information onto a file. Of the 447, 50 are government sources; now you are down to under 400. Of that number, you can take one major bank who would count as six because of each of their divisions would be giving a separate take. It is not 20,000 different organizations that may put information on a file.
Senator Harb: If there is a dispute between the consumer and you and the institution that has deposited the report on the consumer, the only mechanism for this to be resolved is through the government channel. That is the only mechanism.
In the Province of Ontario, you have to go to the Ministry of Finance or the Ministry of Consumer and Corporate Affairs. One of the two will have to order you to investigate it; then you will do it.
Mr. Heft: It is the Registrar of Credit Reporting Agencies. As I said, numbers are numbers. We have had less than 20 that have even had to contact us through that avenue in the first two months of this year.
Mr. Cleary: We investigate it when the consumer asks us to investigate it. When we have investigated and we are getting a different story from the source of the information, we are not in a position to take that further and make a decision on behalf of one party or the other. We are a repository of information.
Senator Harb: I am going to move on. The bottom line is we should meet and we will be happy to meet with you to discuss the content of your letter at another occasion.
What you are supposed to be doing is that every time you give information on a consumer, you are supposed to have the consent of that consumer.
Do you get the consumers' consent each time?
Mr. Heft: The consent obligation is on the credit granter, not the credit-reporting agency. The credit granter must get the consent of the consumer every time they pull a credit file.
Senator Harb: Do you verify that?
Mr. Heft: We could not verify over 100,000 a day; credit adjudication would halt. It has to be done at the point of contact, which is what is done.
Senator Harb: Every time a consumer applies for a credit card, somehow it shows up on your file as an inquiry because the credit card company has phoned in the reporting agency to inquire. The mere fact that consumer has applied for a credit card, reflects on his or her credit.
In your weighting, the way you do your scoring at the end, the number of inquiries that goes on the consumer file reflects on their credit. A consumer could be a perfectly good citizen that never failed to make a payment, yet that consumer will have a credit rating or a score that is fair to medium.
Senator Angus: What is the system?
Mr. Porter: The rating system goes from a low of 100 up to 900 with 900 being a top score and 100 being a score that is digressing.
The Chairman: Without getting into the detail of that, because it sounds rather complicated, could you both separately give us some assistance with how you score and what the rating is so that we could analyze that as opposed to just going through it?
If it is 9 to 100, it would be interesting to figure out how you score people and what the objective criteria that you use. It is just really a question of your system, if that is public information.
Mr. Porter: Mr. Cleary has some statistics here that we put together.
The Chairman: I just asked that question because it will save a lot of time. Senators will want to get into it. If we see the material it might save time.
Mr. Cleary: There are a number of scores used by credit granters around the country. The most popular and most prominently used are scores that predict the likelihood of delinquency in the coming 24-month period.
There are bureau scores, generic scores, and custom scores. I think what most of you are referring to is the Equifax Beacon score or TransUnion Empirica score. The Fair Isaac Company built the scores; they are specialists in building models that predict risk.
Mr. Porter alluded to the score that runs between 300 and 900 hundred with 900 being a perfect score and 300 being a perfectly bad score. Frankly, the fine nuances of how they work are not something that I know. I am not an expert. I can tell that the scores depend upon how the consumer pays his or her debts on the amounts of money that they owe and the extent to which they are using their available credit. The scores also depend on how long the consumer has had the accounts and the length of his or her credit history. An application for credit results in an inquiry to determine to what extent they are seeking credit, and what kinds of credit they are using.
At the risk of oversimplifying this, one way of looking at this is Fair Isaac, or other model builders, would take a snapshot of a large number of consumer files at two points in time 24 months apart. After looking at that, they determine which elements in the credit information are likely to be predictive of certain outcomes. That is how these types of data elements are determined.
If there are a number of inquiries on the file, it can be proven empirically or statistically to have a predictive element in terms of guessing the likelihood of delinquency in the future. Someone who is seeking a lot of credit, I think, intuitively you would agree is a higher risk that someone who does not need any. Someone who has paid slowly in the past is likely to pay delinquent in the future. Someone who is using 90 per cent of their available credit versus 20 per cent is probably a higher risk. That is what these scores represent. I do not know if that answers the question.
The Chairman: Will you supply us with the written materials concerning the model and the scoring mechanism?
It would be helpful to give us the statistics on how many people are in each category.
Mr. Cleary: I can give you some statistics right now. About 70 per cent of the population in Canada would score at 700 plus. They would represent about 8 per cent of the delinquency of the population. In other words, if your score is above 700, the odds are less than 8 in 100 that you are going to go delinquent. The majority of people would score quite high on that scale. If your score is between 6 and 650, about six per cent of the population falls into that category. They represent about 39 per cent of the delinquency that credit granters encounter.
I would be happy to send further information. In addition, there is some excellent information at the myfico.com website or at our website, which explains this in more detail.
Senator Harb: Have any of your clients raised concerns about your scoring methods?
Has any one of your customers indicated that this is perhaps something you have to look at?
Mr. Cleary: These are not our scoring methods. In some cases the customer has their own custom built model that does the same thing. I am referring to the model built by Fair Isaac. Both TransUnion and Equifax have their own models. If the customer does not have confidence in the model, they would not use it. These models are critical to the customers' decision process. They do not want to decline credit applications that they should say ``yes'' to. They do not want to accept an application that is they should say ``no'' to. They regularly validate their delinquency results against their models whichever models they are using. If they are unhappy with them, they would move off of them.
The customers would not come to us and complain about our score. They might inquire about a new model, but it is the customer's decision whether to use the score or not. This is not part of a person's credit file.
Senator Harb: You spoke about the scores and the way you do the analysis. In a sense for a normal consumer, simple consumer, like many of us are, it is almost like you become the analyst in a sense. You become the predictor rather than being the reporting agency.
Mr. Cleary: The missing element is the credit granter decides what part of the market and what level of risk with which they care to do business. Therefore, a consumer who is a 650 may be accepted by five of 10 credit granters and declined by five of 10. It is up to the credit granter in which part of the market in terms of risk they want to play in.
Senator Harb: Do not you think you are going beyond what your organization should be about, that is just to report on the fact whether or not somebody is meeting his or her obligation?
Do not you think you are going beyond that?
Mr. Porter: I referred earlier to credit granters such as the large financial institutions, the retailers, and the companies that provide credit cards. The Fair Isaac Company developed the scoring system that we use. Both TransUnion and Equifax take into account bankruptcies, public record information, payment history, and amounts owed.
All of the credit granters have their own scorecards, many that the Fair Isaac Company built. I look at it as helping many Canadians get the credit card, or the loan. The dream of a Canadian is to own a home. Without having a scoring system like this, a consumer could go to a bank and the bank would not know whether to give the consumer the loan or the mortgage or whatever based on the accuracy of this scoring system.
Mr. Cleary referred to the high scores here. Many Canadians fit into that high bracket that enables them to obtain credit, to get that car, to get the mortgage, or to get that loan.
The Chairman: Are delinquent parking tickets also included in your analysis?
Ms. Chantal R. Banfield, General Counsel, TransUnion of Canada Inc.: No, they are not.
The Chairman: Thank God!
Mr. Heft: The senator referred to us overstepping our bounds by getting involved in the adjudication process.
I want to clarify one item before we move on. The scores are not part of the credit file. If we did not live in an electronic world and there were still paper files, the score would not be part of the file.
To set the record straight, that is an independent adjudication product that we licence from Fair Isaac and we facilitate the delivery to the end user. It is not something we own, control or become involved with. It is something we facilitate the credit granter to obtain.
Mr. Cleary: Only those credit granters order it and pay for it; it is not part of the credit file.
The Chairman: I understand that there is a different pattern of credit response in Canada to the United States.
Are you telling me that the model that you are using is a North American model as opposed to a Canadian model?
Mr. Cleary: No, sir, it was built entirely on Canadian data.
The Chairman: It is Canadian versus American data; is that correct?
Mr. Cleary: That is correct. It is rebuilt every couple of years.
The Chairman: We would have a different credit pattern, as I understand it.
Mr. Cleary: Absolutely.
Mr. Porter: One last comment. When Mr. Heft referred to Fair Isaac of California, their headquarters are in California, but they have Canadian operations using Canadian data for the Canadian consumer.
Senator Tkachuk: When you talk about clients, you are talking about the people who are granting credit, such as the Royal Bank. You have the right to sell the information to anybody else who also would be a client.
I am trying to understand the process of getting on the database as a person who obtains credit.
Does the database then reflect the discharge of that credit?
Let us say that your client is the Royal Bank, and a person goes in and applies for a loan or a mortgage. They make a reference to you. You then supply them with information about not only the Royal Bank history, but also all other institutions that belong to you. Is that a correct statement?
When that person is finished with that obligation, do they send the information to you?
Do you get information every month about that person?
Do you only get it when they do not discharge it properly?
Ms. Banfield: Mr. Porter mentioned that we receive 100 million updates every month. Every credit granter sends monthly updates. If an account is closed, or if a loan is paid in full, it is reflected in the monthly updates.
Senator Tkachuk: That is usually where there are complaints to politicians. We hear complaints that a consumer has a poor score even though the account is paid.
Is there a penalty if they do not supply the information?
Ms. Banfield: Contractually, there is an obligation for them to report on a monthly basis. We both have those obligations in our agreements. The banks particularly are subject to PIPEDA. Therefore, the information they provide to us must be accurate. They have to have reasonable measures in place to ensure that the information is accurate. There is that obligation as well.
In regard to penalties under the Consumer Reporting Act, that act is provincial, thus the registrars take the position that that applies to the bank. The banks are federally regulated. I know there is an argument from some of the banks that they are not governed by provincial reporting legislation.
All of our major credit granters report to us on a monthly basis. Certainly the Privacy Commissioner has jurisdiction over them as well.
Senator Tkachuk: What happens when a client comes in and says that the he or she has discharged the obligation and you realize that the bank neglected to inform you? That must happen.
Mr. Cleary: That happens rarely. If it does, we correct it.
Senator Tkachuk: Who makes the correction?
In other words, the consumer could have been hurt all this time because of this credit error.
Mr. Cleary: When the credit granter denies the consumer a benefit the granter is required to advise the consumer. If something is following them and hurting them, we advise them of the problem. When the consumer finds an error, he or she contacts one of our organizations and we contact the information source and explain the problem. Often, it is the difference of a few days between the reports being current.
Mr. Heft was trying to explain that we are talking here about large institutions that have very sophisticated systems that are absolutely not motivated to get this wrong.
Senator Tkachuk: They do lose tapes in the United States and things like that.
Mr. Cleary: Mistakes can happen. If a mistake happens like that, they would quickly correct it. We would then make the change in the credit file. We would send that changed credit file to any credit granters who had received it in the past six months. We would, of course, tell the consumer that we made the change.
Senator Tkachuk: Do you have government clients?
Mr. Heft: Yes, we do.
Senator Tkachuk: Why would the government want to be a client?
Mr. Heft: Why would the government want to be a client of a credit-reporting agency?
Senator Tkachuk: Yes.
Mr. Heft: Security clearance could be one reason for being a client. Government agencies may have debts owing to them and may need to collect.
Senator Tkachuk: Why would they need information from a credit agency?
When a person gets a job, he pays income tax. What does that have to do with you or anybody?
Why would a government want to be a member?
Do they report all this information to you?
Mr. Cleary: They do not report.
Mr. Heft: When I spoke of government, there was a misconception. When I spoke of government, I lumped that in as public record. That is a very good question and I am glad you asked it.
The government agencies that I was speaking of would be the courts or the federal bankruptcy superintendent. That is what I meant by government tape suppliers.
For example, if there were a judgment against you in the Province of Quebec, we would get that information on the file because that is very important information to credit granters. The same is true for the other provinces.
Senator Tkachuk: You also said the government is a client. Who would be a client in the government? Is the court system a client? Who is the client?
Mr. Cleary: We have different ministries at both the provincial and federal level.
Senator Tkachuk: Can you give me examples?
Mr. Cleary: I do not know that I am at liberty to say.
Senator Tkachuk: We could ask the government that, I suppose. I am just trying to figure out why they would want to be a client. Maybe there is a reason.
Mr. Cleary: Let me give a provincial example. A ministry that has overpaid a benefit to a citizen and is now trying to recuperate that overpayment would manage that receivable much like a credit granter who is trying to get payment for a credit card. The ministry would use information from our agencies to help them determine the work plan for how to go after collecting that debt.
If the particular consumer seems to be in good shape from a credit perspective and has no record of delinquency, they may treat that account differently from somebody who has five judgments against them and is late all over the place.
Senator Tkachuk: This is really important. I know that you say a client can only get information by permission. One would have to sign a form upon application for a loan or credit card. If a government department is a client, then they are getting this information without permission. In most cases, they can get my credit file.
Mr. Heft: In most cases they do not get the credit file. Under provincial credit reporting legislation there is a carve- out for government, which is header information, information on the location of a person. They would not get the full credit file but they would get header information to locate you. That would be permissible under the Ontario legislation.
Senator Tkachuk: This is getting very interesting. I do not know if we should wind this up or continue this line of questioning. I am sure senators will follow this up and I have one more question. I want to come back to that unless someone else follows up.
On the issue of safety, you have a lot of information on consumers; you have employees; and you have people who use the information that you supply.
What safety precautions do you have to prevent the dissemination of information to others without permission?
In Saskatchewan, a government department got into trouble because bureaucrats in the Department of Health were selling the information, which leads me to the question: How do you hire your employees and how do you prevent this type of abuse?
Ms. Banfield: We screen our employees. We do criminal background checks and reference checks, although perhaps not to the extent that the government would do a security clearance. We have checks in place to ensure that we hire people who have good reputations and are not a risk.
Our data centre is a secured facility that requires an ID badge for access. We have a policy that nobody can enter without being accompanied by an employee and visitors sign in. We have all of the protection that would be expected of a large organization that has highly sensitive data.
From the client perspective, Mr. Porter mentioned that in order to obtain information from TransUnion or from Equifax, you must be a member. To do that, you must complete a membership application for review. We reject a large percentage of people or companies that come to us and request membership. We do that on the basis of the information supplied, similar to a background check. We ensure that the client is a valid company and properly incorporated. We ask for many kinds of information about their facilities and we perform on-site inspections. We have a screening process to ensure that the companies that become our members with access to the data files are reputable companies with a permissible purpose and obtained consent from the organizations, unless they are exempt under some legislation.
After the information leaves the building, the responsibility is with each client to ensure that they secure the data in their possession.
Mr. Cleary: There are encryption and intrusion tests. We try to hack into our systems as any large IT shop would do.
[Translation]
Senator Plamondon: Before becoming a senator, I ran a consumer organization. We carried out several studies on credit companies and agencies.
Earlier you talked about two specific things, but I am not sure people were able to make the distinction. You control credit files, but you are also engaged in other activities. You act as a collection agency and you provide services to insurance companies. I had understood at the time that Beacon — the software you referred to — had been specifically developed for you. I have a list of all the software used by credit grantors and these types of programs do not only require financial information. It is a well-known fact that there are all kinds of programs available, including some that focus on behaviour, that are used by organizations that provide credit.
An article appeared at one point in the magazine Le banquier stating that flair and experience are no longer enough to develop marketing programs and strategies, and that people now have to rely on what is called ``technomarketing'', which revolves around specific market segmentation and having specific target markets. This technique assumes that you know everything possible about your client.
So, you provide a service, but you also engage in a number of other activities. We are talking about your credit- related activities. But can you tell us about the others?
[English]
Mr. Cleary: First, we are no longer in the collection business, which we sold in 1999. We sold our insurance services business in 1996.
[Translation]
Senator Plamondon: So, you only handle credit files?
[English]
Mr. Cleary: Yes, we do credit information analytics, both commercial and consumer.
[Translation]
Senator Plamondon: Tell us about the software programs that you use to perform your analysis. Someone was saying that databases and lists of names are not sold, and yet you deal with lists of names. For example, a bank may come to you with a list of names and ask you to carry out an analysis of that list, but removing one of the criteria. Do you do that sort of thing?
[English]
Mr. Heft: It does vary by province. The classic example would be a case of getting a list of one million names from a credit granter who wanted us to, for public record, run the names through and tell them which ones have a bankruptcy. That is public record information and we simply facilitate the delivery of it to the credit granter.
[Translation]
Senator Plamondon: So, you facilitate the editing of certain lists of names. You talked about scoring. Are you able to perform a purging exercise whereby the names of everyone with a score indicating delinquency can be eliminated?
[English]
Mr. Heft: I am not sure I understand the question. Are you asking whether we go through the list and tell the scores?
Senator Plamondon: No, I suppose you would not reveal the scores but if you remove delinquent scores, the list that remains could be very telling. Tell me what you do with the list, except bankruptcies.
Mr. Heft: The list would include both bankruptcies and public records. There are judgments, anything that would be on a registry, information that would be available to the public if they were to check the registry.
Senator Plamondon: Do you use scoring to treat the list?
Mr. Cleary: We might use an aggregated scoring. In Ontario, for example, we would use what we call DACD, based on a postal code. We use that to determine the average score within that particular postal code. If a customer wanted to do some sort of marketing campaign and target it to consumers who were likely to score above a certain amount, we would offer them something like that.
Senator Plamondon: That is what I mean. So you do more than store credit records?
Mr. Cleary: Yes.
Senator Plamondon: You treat the information?
Mr. Cleary: Yes, it is a fair statement to say we do provide data for our customers to use at the portfolio level for both account acquisition or marketing and account management or risk management.
Senator Plamondon: My other question concerns the new developments in the Patriot Act. Has the United States government asked you to provide information on Canadian citizens?
Mr. Heft: As an organization, no, we have not.
Senator Plamondon: As what then?
Mr. Heft: The American government has not asked Equifax for that information, but I cannot speak on behalf of our customers.
One benefit we have, and we take this position, five of the nine provinces have database residency requirements, which require us to have our database physically located in Canada. We have had to confirm that to a number of customers who want to make sure that the Patriot Act would not affect our Canadian operation, so we have not had any request by anyone, U.S. or otherwise, to disclose any consumer information or files in our databases.
Senator Plamondon: What about TransUnion?
Ms. Banfield: We have never had any requests.
The Chairman: Just a supplemental, that is the American side but what about on the Canadian side? We also have a terrorist bill.
Have you been requested by the federal government to provide that information as well?
Mr. Heft: We have not.
The Chairman: Have you?
Ms. Banfield: No.
Senator Plamondon: You stated that you no longer do collection. However, you did say that when asked by a government to collect money owing you said that you were treating that situation. I agree with them that people have not signed a consent form.
What do you do that is not collection, if people want to recover money and go to you for help?
Ms. Banfield: It varies depending on which ministry we are looking at, whether it is provincial or federal, but a lot of them actually have this permission, if you will, to access information without consent built into their governing legislation.
Senator Plamondon: If it is in the private sector, do you do any services for collection purposes?
Mr. Cleary: We do services for collection agencies, which are typically similar to what we would provide to a credit granter for their own internal collection process. These are cases where either the credit granter had consent, or the third party collection agency is operating on behalf of the credit granter who had consent.
[Translation]
Senator Plamondon: How do you use the social insurance number?
[English]
Mr. Cleary: We use a social insurance number as a means of identifying correct files, if it is provided to us. Our system does not rely on social insurance numbers, and we do not return a social insurance number to any credit granter or anyone using our system, except for those who give us the correct social insurance number.
If a customer comes to us and puts in the correct social insurance number, we will repeat it back to them that it matches ours. If they do not give us the social number, or the one they give us is wrong, we will not confirm it back.
Mr. Heft: We adhere to that as well.
[Translation]
Senator Plamondon: How do you know it is the correct social insurance number?
[English]
Mr. Cleary: We only know the one we have in the file.
Mr. Heft: It has to match what we have on our file. If it does not, we do not return it.
[Translation]
Senator Plamondon: Anybody can invent a social insurance number if he has the algorithm; so you do not really know whether it is the correct number or not.
[English]
Mr. Cleary: Yes, and we do not give it to anyone unless it matches the number that is given to us. We do not ask the consumer for it; we get it from credit granters.
The Chairman: With all due respect, we are running out of time, Senator Plamondon, one short question.
[Translation]
Senator Plamondon: I would like to know whether you carry out bulk transfers of the information you have in your database.
Mr. Cleary: Yes.
Senator Plamondon: Inside Canada or outside of Canada?
Mr. Cleary: Inside.
Senator Plamondon: Do you also make transfers outside of Canada?
[English]
Mr. Cleary: I do not think so.
[Translation]
Senator Plamondon: Because you operate in several different countries?
[English]
Mr. Cleary: Unless we had a credit granter located outside of Canada that had customers who had provided consent inside Canada, and I cannot think of an example. We might have a customer like a multinational credit card issuer that is in 13 countries, but when they ask for information about their Canadian portfolio, they ask for it here.
Senator Fitzpatrick: Sorry, I missed your presentation, so this may seem like a dumb question to you. Can I get my credit rating for myself and my companies, and how do I go about that?
Ms. Banfield: Your credit file?
Senator Fitzpatrick: My credit file.
Ms. Banfield: We did go over that during the presentation. I will be happy to repeat that. Basically, there is a process whereby you can either obtain your credit file via the mail, you can fax in your information, you can call and we will give you instructions on how to obtain it, or you can do it on the Internet. It is on both of our websites, and you can also obtain it online if you need it immediately.
Senator Fitzpatrick: I have to have my social security number or something to access it?
Ms. Banfield: You do not need your social insurance number. It is not obligatory. If it is supplied, it is supplied; if it is not, we ask for two pieces of identification, because we have requirements under consumer reporting legislation in the various provinces to identify the consumer with whom we are dealing to make sure information is relayed to the appropriate person.
Senator Moore: Mr. Cleary, in your opening remarks you said that Equifax does not grant credit or collect monies. I think you said in answer to Senator Plamondon that you do act as a money collecting or recovery agency. Which one is it?
Mr. Cleary: No, we do not. We sell our credit reporting services to collection agencies but we do not collect money. We are not a collection agency. We were, at one time.
Senator Moore: You sell your credit information to a collection agency.
Mr. Heft: All provincial collection agencies are licensed under the appropriate regulatory regime. We will only accept a licensed collection agency; then they can gain access to the files under the legislation, as any other customer, as long as they comply with the law.
Mr. Porter: As well, many collection agencies pass on their data to both Equifax and TransUnion on a monthly basis.
Senator Moore: TransUnion is privately held by an owner in Chicago, and Equifax is a subsidiary of a company located in Atlanta, Georgia. With regard to Senator Plamondon's question and the Patriot Act, you said that the U.S. government has not asked for information concerning Canadian citizens.
What would you do if either of your companies, inasmuch as they are U.S. owned, received such a request?
Mr. Heft: I would say it does not have application in Canada; that arm does not extend here. We would take that position on behalf of our customers, whose data it is, and vigorously contest any effort to obtain that information. No request has been made nor have any inklings of that happening taken place in our area.
Mr. Porter: Our answer would be the same.
Senator Moore: Do you mean that your answer is ``no.''
Mr. Porter: Correct.
Mr. Cleary: Our business relies on the Canadian credit granters continued information. Frankly, without that flow of information, our business is not viable. We would vigorously reject that type of request if it would put our relationship with those data suppliers in jeopardy, which it would.
Senator Angus: You have 20 million files. Are those 20 million files individuals and/or companies?
Mr. Porter: The files consist of individual consumers.
Senator Angus: Your job is to get as much information about those people as possible, right?
Mr. Cleary: We think our job is to get as much legitimate and correct information as possible and put it in the proper file.
Senator Angus: You have your ways of obtaining the information. Senator Tkachuk asked about the government. My understanding is that you are in business, it is a legitimate business, and it is a regulated business.
A credit-granting agency wants to measure the creditworthiness of the person they are lending the money to, so you people have a good reputation for getting accurate information. You hold yourself out to your clients as having accurate information. Let us use this example of a government. One debt that people have is taxes, either real estate or income tax.
Mr. Cleary: It is not information we have, though.
Mr. Heft: This goes back to an inaccuracy I said earlier.
Senator Angus: Why do you not have that information? What happens if a person owes a whole lot of income or real estate tax?
Mr. Cleary: We have proposed that and the government agencies involved are not interested. They do not have the right to give that information to us so we do not have it.
Senator Angus: Real estate information is in the registry office.
The Chairman: Those are all provincially regulated one at a time.
Senator Angus: Those would be debts people might have that you do not have in the file.
Mr. Cleary: That is correct.
Senator Harb: The law clearly states that when you give information you have to have consent.
Now, why would you give information to a collection agency when you know that collection agency may or may not have the consent of the consumer to obtain information?
Mr. Cleary: The Credit Reporting Act contains specific provisions regarding collection agencies.
Senator Harb: Do those provisions allow them to give out information?
Mr. Porter: In most cases, collection agencies are collecting debt from a credit granter who has permissible purpose and consent from the consumer.
Senator Harb: Notwithstanding whether they are right or wrong, you still give the consumers' information.
Senator Tkachuk: We were talking about government clients and you mentioned that when they ask for information on a citizen, even though the government agency would not have had permission to access that file, you provide what a ``header.'' Please define the word ``header.''
Mr. Heft: Subsection 8(3) of the Ontario Consumer Reporting Act says:
(3) Despite subsections (1) and (2), a consumer reporting agency may furnish identifying information respecting any consumer, limited to his or her name, address, former addresses, places of employment, or former places of employment, to the Government of Ontario or of Canada or any province thereof or of any agency of such government or the government of any municipality in Canada or any agency thereof or to any police officer acting in the course of his or her duties, even though such information is not to be used for a purpose mentioned in subsection (1).
Senator Tkachuk: Do you supply that information to private clients as well?
Mr. Heft: Without consent, no, that is specific to government.
Senator Tkachuk: Do most provinces have the same legislation and are any of them more expansive than the one you just read?
Ms. Banfield: I believe they are all fairly similar.
Senator Tkachuk: Like all governments they give themselves the luxury they do not allow anyone else to have.
Ms. Banfield: In some cases, the legislation governing a particular government body may give them more extensive rights, but under the consumer reporting legislation it is pretty much the same across the country.
The Chairman: Could you give us any statistics about the number of complaints you receive from consumers that are unhappy with the service?
We would like to know the number of complaints, the time that it takes and those that are satisfied. We would like a statistical model from both of you. We would like to have information on the amount of time it takes and the number of complaints in the last year and the year before to see whether there has been a change in consumer attitudes.
We are here to examine this from a consumer protection status. We are here to decide whether your organization treats consumers fairly and one of the ways to do that is to look at your statistics.
It would be useful if you would give us the last year or two of your statistics so we can compare the number of complaints, the response to those complaints and the timing of those responses.
Is there a problem for either of to you provide that information?
Ms. Banfield: No.
The Chairman: Is there a request for further information?
[Translation]
Senator Plamondon: I'd like to know whether you have done any surveys or inquiries, or whether anyone else has done any regarding the error rate in your credit files. A number of years ago, information was published in the magazine Protégez-vous pointing out that many errors had been found. People had found errors in their credit files.
[English]
The Chairman: We are trying to look at this not only from anecdotal but also from a statistical model.
We want to thank you for your evidence.
We are delighted to welcome Ms. Joanne De Laurentiis. Are you the producer of a movie? They are great movies.
Ms. Joanne De Laurentiis, President and Chief Executive Officer, Credit Union Central of Canada: No, I have no talent in that regard.
The Chairman: We want to welcome you both. Please make your presentation as short as possible, because you can see that senators will have read some of the material and will be very sensitive to the issues.
Mr. Jack Smit, Chairperson, Board of Directors, Credit Union Central of Canada: Good afternoon, honourable senators. I want to thank you for opportunity to come before the committee today to discuss the credit union system and your study of consumer issues in the financial services sector.
Canadian Central is a federally regulated financial institution that operates as the national trade association and finance facility for our shareholders at the provincial Credit Union Centrals. Through them, there are 558 affiliated credit unions across Canada.
Our credit unions employ more than 23,000 Canadians serving our members who number over 4.7 million. As of the fourth quarter of 2004, our Canadian Credit Union affiliated system had approximately $78.6 billion in assets $63.3 billion in loans and $70.5 billion in savings. We have averaged about 8 per cent annual growth for a number of years.
In addition to serving the consumer market, credit unions are a rapidly growing presence in the small- and medium- sized lending market. On a consolidated basis, our participation in that SME market equals approximately $18 billion.
Co-operative principles form the basis of credit union ownership and corporate governance. The primary commitment of a credit union is to serve its members' financial needs and that distinguishes us from the joint stock banking organizations that exist to earn a profit for their shareholders.
Credit unions are not branches subject to centralized direction, but rather locally autonomous institutions accountable to our members.
Credit unions are committed to our communities. This is evident in our efforts to purchase bank branches in communities where commercial banks have decided to leave. Since 2000, we have purchased 72 bank branches: 14 in British Columbia, 21 in Alberta, 17 in Saskatchewan, 16 in Manitoba, 2 in New Brunswick and 2 in Nova Scotia.
Credit unions are the primary retail financial institution in our system. The provinces regulate us. They derive their general powers from provincial credit union statutes, such as the provincial credit union acts that set out their business and investment powers, corporate governance practices, and capital and equity requirements. Provincial regulators have the responsibility to ensure that credit unions comply with the legislative and regulatory requirements as set out by the provincial authorities.
Legislative requirements embedded in provincial credit union acts or by provincial customer protection laws of general application, protect credit union members and customers. For example, our member deposits are protected by provincial deposit insurance frameworks and vary somewhat across the country. All members must participate in a deposit insurance framework and the respective provincial organizations responsible for deposit protection monitor credit union financial performance closely. They are independent of the audits and other inspections mandated by provincial legislation. We have various levels of deposit protection that range from $60,000 per individual to an unlimited 100 per cent guarantee in a number of provinces.
Provincial legislation governing credit unions may also set out the obligations of a credit union as they relate to the cost of borrowing disclosure and protections that relate to membership and withdrawal from membership in a credit union.
It is the cost of consumer credit disclosure that is an area of great concern to the credit unions in Canada. As senators may be aware, the federal and provincial governments have undertaken a formal process through the officers of the Industry Canada's Consumer Measures Committee that aims to harmonize the cost of borrowing disclosure regulations and practices across all of Canada's jurisdictions.
Harmonized laws insure that consumers receive fair, accurate, timely and comparable information about the cost of credit in order to obtain the most economical credit for their needs. The laws ensure that disclosure and disclosure requirements are as clear and simple as possible given the inherit complexity of the subject matter. Thirdly, consumers are entitled to pay off loans at any time and if they do so they incur only those finance charges earned up to the time the loan is paid. This does not include mortgages.
We believe that consumers can only benefit from disclosure if the provisions applicable to the different regulated financial institutions are identical, regardless of the regulatory jurisdiction. In our opinion, that has not happened and consumers are still faced with disclosure practices that vary between regulators.
The chartered banks have different disclosure rules than provincially regulated credit unions. If comparison of information is to have value for the consumer, there must be identical disclosure provisions applied to provincial and federally regulated institutions.
As senators may agree, consumers are justified to compare disclosures provided by institutions in their home jurisdiction irrespective of the regulation under which they fall.
It is unlikely that a customer consumer will compare disclosure statements provided by credit unions from two different provinces. It is more likely that they compare the disclosure provided by their local credit union with that provided by a chartered bank. If the disclosure is not identical, the consumer might be misled by a seemingly lower rate when in fact the relevant loan may not be in the consumer's best interest. Two areas currently under consideration are the application of regulations relating to the calculation of the annual percentage rate on lines of credit and the conditions for the waiver of the two-day notice period before entering into a mortgage loan contract. You will find these issues described in detail in our formal submission.
In our brief, we comment on the template developed by the Consumer Measures Committee. We commend to the process, and the objective to achieve harmonization of consumer credit disclosure. However, experience has shown that the template is subject to interpretation that leads to a lack of clarity at best and an uneven playing field at worst.
Our recommendation is that the Consumer Measures Committee considers standardizing along the lines of the federal Bank Act provisions. We believe that those provisions are fair to consumers and practical to administer.
I want to thank the committee for its time. I will be happy to answer any questions that senators may have.
Senator Angus: I will go right to an article in Monday's Report on Business where Ms. De Laurentiis commented that Credit Union Central could play a role if two or more of our chartered banks merge.
This committee has done quite a few studies on the delicate balance that has evolved in Canada. Consumers are nervous about the possibility that in the event of a merger, their local bank branch or their banking choice would disappear and competition lessened.
I am referring to Credit Union Central picking up branches and looking after the retail customer.
Is that a legitimate fear of bank retail customers?
Ms. De Laurentiis: Honourable senators, mergers have been the subject of discussion and have never been decided upon because there is a concern about how to build a second tier.
Where will the options be for consumers who may feel abandoned because branches will close?
Our position for the last couple of years is that the second tier exists in this country and it is to be found in credit unions. If you look at the experience in the Prairies, B.C. and Quebec, it is clear that the presence of credit unions and caisses populaires have provided a robust level of service and an alternative to chartered banks. Our position is that should mergers happen, that fear should not be there because we are ready to pick up the slack.
Senator Angus: Could I rephrase your answer to say that if the question were, would you be in favour of mergers of that type, the answer is yes?
Ms. De Laurentiis: We are not here to lobby for mergers.
Senator Angus: I understand that.
Ms. De Laurentiis: That is the bank's job.
Senator Plamondon: Are you?
Senator Angus: No, I am against them.
The Chairman: Assuming there is a vacuum, how would you feel about filling that vacuum?
Ms. De Laurentiis: We believe we could fill that vacuum.
Senator Angus: You mentioned the caisses populaires in Quebec. I have always had some difficulty in understanding the different groups. Credit unions were represented at one time by a gentleman, I am not sure if he was your predecessor.
Ms. De Laurentiis: Bill Knight was my predecessor.
Senator Angus: Is that the same organization?
Ms. De Laurentiis: Yes.
Senator Angus: Are the caisses populaires members of Credit Union Central?
Ms. De Laurentiis: We are a separate and distinct organization.
Senator Angus: Do you perform the same functions?
Ms. De Laurentiis: We do the same thing in the sense that we are based on a cooperative model so that the services that are delivered to consumers are delivered by very independent, autonomous credit unions of which our chair is the CEO of one.
The Quebec caisses populaires are also independent and autonomous, although they have a different centralized structure. Credit Union Central is more decentralized, but the co-operative model provides full financial services in the marketplace.
Senator Angus: As a regulated industry, is there any law or power that you do not have?
If there were one wish that you could have fulfilled in terms of legislation, what would it be?
Ms. De Laurentiis: We will present a brief in response to the government's invitation for the 2006 financial service review. The Bank Act does not apply to us, but there is a mirror piece of legislation called the CCA. We have very precise suggestions for that piece of legislation. We are still in the process of formulating those suggestions. We will be happy to share them with you. On the provincial end, we would welcome insurance retailing.
The Chairman: Are you talking about a cross-pillar idea?
Ms. De Laurentiis: No, I mean the ability to retail insurance products at the branch.
Senator Angus: Would that be property and casualty, and life insurance?
Ms. De Laurentiis: Exactly, we would welcome that power.
Senator Massicotte: Some years ago, a study analyzed the efficiency and productivity of credit unions versus other banks and found credit unions to be less efficient than banks in the use of capital resources.
In the last six or seven years Caisses Desjardins, while still a credit union movement, has gone toward a more corporate method of working. Indeed, many members have complained that it is too corporate.
If you are less efficient it is tough to compete and tough to provide good competition to the banks if you do not use the capital as efficiently as they do. Can you comment on that?
Mr. Smit: Credit unions will never be as efficient as banks in terms of measurement. The reason for that is that we are not in the business of earning profits for a select group of shareholders. We are in the business of providing services for our member owners. We want to offer competitive rates and we do offer competitive rates and we only have enough earnings to sustain our growth in capital and so on. We are not there to create a profit and enhance shareholder value for a select few.
By definition, credit unions will likely never be as efficient because in the form of patronage, many of them return money back to their member owners.
Senator Massicotte: You made a comment in response to an earlier question that you ``can fill in the vacuum.'' Four or five years ago the federal government introduced legislation to try to increase competition. Tell me what has happened in the last five years in your movement. I notice that you have fewer premiums than you did three or four years ago. Many people are disappointed that there is not more competition despite the change in the legislation.
Ms. De Laurentiis: The federal legislation applies to the centrals, not to individual credit unions. At that time, we were looking for a mechanism that would allow efficiencies across centrals. On January 1, Central Financial received its charter and went into operation. That is the new version of Co-operative Trust, a Prairie-based co-op. The legislation has had some use in that it has encouraged consolidation and efficiency.
Credit unions have been growing, particularly in the West, in the Prairie region and in B.C. In Ontario, credit unions are not as robust, and the Ontario market is probably more obvious to you as an audience. Ontario is where competition is fiercest with the banks.
Our view is that in the event of merger, if there were an opportunity for the credit unions to purchase the divested branches we believe you would see quite a remarkable growth, a bulking up and an increased ability to provide broader services across the country.
[Translation]
Senator Plamondon: Ms. De Laurentiis, if you're in favour of bank mergers, do you think you will be in a position to pick up the slack? You gave the example of Caisses Populaires in Québec. But within the Caisses Populaires movement in Quebec, we are seeing the rural communities gradually abandoned in favour of points of service. The next step after points of service is automatic tellers, and if there is not enough business at the automatic teller, then they close that as well.
There have been studies done regarding a movement to centralize certain branches of Caisses Populaires. Some Caisses Populaires merge with other Caisses Populaires to form a major centre. In that case, rather than picking up the slack, they are abandoning the rural population, which is then stuck with a point of service, then an automatic teller machine, which may also disappear at some point.
What I know of you goes back to the time when you were Vice-President of the Canadian Bankers Association. When I hear you speak favourably of bank mergers, I'm inclined to see you as a Canadian banker, even though I know you are working with the credit unions. I want to commend you for the public recognition recently given the Assiniboine Credit Union, in Manitoba, for its community involvement. At the same time, I want you to know that I, personally, do not believe you will be in a position to pick up the slack if there are bank mergers. Even with the Caisses Populaires movement in Québec, we are slowly seeing the small branches disappear.
My second question has to do with interest rates. In your presentation, you mentioned that you provide loan services to the disadvantaged. At what interest rates do you grant those loans?
[English]
Ms. De Laurentiis: The credit unions in English Canada are truly autonomous. Canadian Central is at the bottom of the pyramid in the sense that the credit unions own provincial centrals who are shareholders but we have no centralized function. There is no setting of interest rate at even a provincial central for credit unions. No credit policies are determined by a central. The credit union is truly an autonomous individual, and they make their decision based on the interest of their members in that community.
It is an important distinguishing difference, and they are rooted in those communities; they are not going anywhere and they are expanding. We have seen that even though there have been mergers within the credit union system, the number of branches or locations have actually expanded and not reduced.
I am unsure about your question on interest rates. I believe that you are asking whether there is a differential in terms of interests charged by credit unions.
Senator Plamondon: How much interest do you charge poor people?
Ms. De Laurentiis: I cannot answer that question.
Mr. Smit: As an operator, I cannot answer either because the rate is dependent on a number of factors, one being the security offered and another being the credit rating of the individual. There is not one, set rate. None of the credit unions I know of come close to the user's rates that to which you refer.
I will follow up on the question about how credit unions fill the gap. We have not decreased the number of locations and we are strong in the rural areas. My credit union is located in London, Ontario but we have a number of branches in the rural areas. We are committed to our local communities. I cannot speak for the caisses populaires but as credit unions we are committed and we are supportive of branches. I have never worked for a bank but I have worked for a credit union for 35 years.
Senator Plamondon: Do you have a range of the lowest rate and the highest rate?
The Chairman: Are your rates generally speaking lower than the chartered banks? It is to your customers and you seem to have a lower profit margin.
Mr. Smit: Are they lower in general? We are quite competitive. I cannot say that we are lower on every occasion. When you ask about a range, it is difficult to say because it also depends on the product. For example, there are authorized overdraft products, so it is difficult.
The Chairman: Do you not have statistics to indicate to us how your members would be in terms of the ranges based on the models for the chartered banks?
Mr. Smit: To do a comparison of the rates you would have to do a comparison of the profile of the customer in terms of collateral and credit rating.
The Chairman: That would be difficult.
Mr. Smit: We could come up with a composite rate but if it is taken in isolation with other factors, it loses its relevance.
Senator Massicotte: In a report on commercial mortgages, your spread was higher than the banks spread but you are still getting a good part of the market share. Is that a good summary?
Mr. Smit: I think that is a very good summary. If I may, that question goes to the heart of what I was saying. We are the second largest lender behind the Royal Bank in terms of the SME market. We have a huge penetration in some markets. We operate particularly in the SME market, and we do not have the large corporate customers. Again, we are not involved in commercial mortgages of large real estate developers and so a comparison of products is difficult.
Senator Massicotte: You take higher risks and so you want higher rates as a consequence.
Mr. Smit: I am not saying higher rates. We are trying to compare apples and oranges here. Banks' corporate loans are in the commercial mortgage basket.
How can we not be competitive if we are the second largest lender in that business?
[Translation]
Senator Plamondon: I would like to pursue the discussion with respect to interest rates. Do you have organizations like MoneyMart and Payday in the small communities that you serve? People have come before the Committee saying that bank branches are closing and that they are seeing a proliferation of operations like MoneyMart and Payday, that are replacing traditional financial institutions. Do you have branches of MoneyMart or Payday where you operate?
[English]
Mr. Smit: Certainly, I would say there are more in the small urban markets. It depends on your definition of ``rural'' but the smaller rural communities would not have them whereas the small urban markets do have those services available.
[Translation]
Senator Plamondon: I want to come back to what you were saying in your presentation, which is that you provide loans to the disadvantaged, who tend to go to MoneyMart. What could you do to serve that client group better?
[English]
Mr. Smit: There are various reasons why people go toMoneyMart. We know that some people may not want to see a trail of their funds and others might not have the financial education to do business elsewhere. I think financial education is probably a key in this area. It is not so much related to the fact that the people are poor but to the fact that they do not have the financial education. Again, credit unions are autonomous so the individual branches differ in their activities. I will use VanCity Savings as an example, about which there was an article not too long ago. They have opened a branch in a poorer community called Pigeon Park. There is another one in Assiniboine that provides similar services.
There are certainly examples of credit unions stepping into those areas.
Ms. De Laurentiis: I will add that we appreciate the concerns that you and committee members have about payday loan companies. They are an issue. They are a problem, and I think they are a collective problem for all of us. We are looking at initiatives; the individual credit unions certainly are, and there are lots of examples that we can bring.
The solutions in the communities are extremely labour intensive. They are not easy solutions. There is not really a single formula. You have to tackle them community by community.
We appreciate the concern and we are trying to do our bit to solve the problem. Perhaps it is not enough, but we acknowledge the problem.
[Translation]
Senator Plamondon: In the United States, the financial sector has taken certain initiatives to prompt small urban communities to take action in this area, so that the people who tend to deal with places like Money Mart can deal with them instead. Have you done anything along those lines?
[English]
Ms. De Laurentiis: We do have some initiatives. It will probably take longer to explain it here, but we would be happy to come back and talk to you about those.
The Chairman: We have detected a problem. We think there is a gap in the marketplace. We think that the consumers are not being fairly treated at all levels.
We are concerned about the lower-end consumer. If there is some way to advise us of solutions to this problem, we welcome them.
The problem is rates of interest and so on, as you know; Senator Plamondon, in particular, is interested in rates of interest.
I have several questions I want to put on the record.
We have the results of Canadian Federation of Independent Business survey called Banking on Competition. The October 2003 statistics show the chartered banks with a satisfaction rate of 50 per cent and the credit unions are at 77 per cent. There is only one bank at the same level and that is HSBC. How do you explain that?
Mr. Smit: There are a number of reasons why credit unions have a higher satisfaction rating. First, credit unions are autonomous; they are local organizations so they are aware of what is happening in their communities. We tend to have stability in our staffing with our account managers, and branch managers staying around longer.
I think we genuinely have an interest in our communities, because we are local. We are not exporting our money. The money we collect is invested in the communities. We have a stake in the health of the communities. We have a stake in their viability.
The Chairman: Larger is not necessarily better.
Mr. Smit: Absolutely not.
The Chairman: Again, just to put this on the record, in the same study, the ranking of financial institutions based on satisfaction of quality of service shows 10 categories. Once again, the credit unions are right up there with just one bank, HSBC, and all the other banks are much lower in the rating.
Would your comment be the same as the last comment?
Ms. De Laurentiis: One addition is that if you walk in and you are a small businessperson, you do not deal with an agent; you deal with a member who is probably part of the credit committee. If you have a unique problem, they can tailor that solution for you.
The Chairman: If we look at the CFIB survey, the credit union movement has about 18 per cent of the SMS market in 2003, compared to 13.5 per cent in 2000. You have increased your market share considerably, and you are filling what I consider a substantive gap.
Will the comment be localized service, concern about the client, and involvement in the community, once again?
Mr. Smit: Yes, and I would add to that that the consolidation that has been taking place in credit unions to some extent is driving that as well, because it increases the capability of credit unions to serve those kinds of markets, where historically credit unions have been more in the personal lending market. They now have a greater capability to serve the business market.
The Chairman: We would like to proceed but I am told that we will be cut off. Thank you so much, it was very interesting, and I recommend this study to all our members.
Thank you for your evidence.
The committee adjourned.