Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce
Issue 12 - Evidence - Meeting of May 5, 2005
OTTAWA, Thursday, May 5, 2005
The Standing Senate Committee on Banking, Trade and Commerce, to which was referred Bill S-25, to amend the Act of Incorporation of The General Synod of the Anglican Church of Canada, met this day at 11:02 a.m. to give clause-by-clause consideration to the bill; and to examine and report on consumer issues arising in the financial services sector.
Senator Jerahmiel S. Grafstein (Chairman) in the chair.
[English]
The Chairman: We are delighted to have as one of our guests the deputy leader of the government from Newfoundland and Labrador. We are delighted to have him as one of our members today. The committee will move to clause-by-clause consideration of Bill S-25, the act to amend the Act of Incorporation of the General Synod of the Anglican Church of Canada.
Do I have a motion?
Senator Moore: Mr. Chairman, I move that the committee dispense with clause-by-clause consideration of Bill S-25 and that the committee report the bill at the next sitting of the Senate.
Senator Angus: I am happy to second that.
The Chairman: It is moved by Senator Moore, seconded by Senator Angus that the committee dispense with clause- by-clause consideration of the bill, an act to amend the act of incorporation of the General Synod of the Anglican Church of Canada, and the chair report the bill without amendment at the next sitting.
Senator Plamondon would like to add a personal observation to the report. I take it that no senators have any objection.
First, we will adopt the report and then consider whether or not there should be an observation. It is your wish to adopt the bill?
Hon. Senators: Agreed.
The Chairman: I will take that as unanimous and now we will have a discussion by Senator Plamandon. She wants to add an observation to the report.
[Translation]
Senator Plamondon: Yesterday, I said that some religious congregations had lost a lot of money after having placed their trust in people.
I am in no way questioning the confidence of synod representatives. Rather, I am concerned with the consequences resulting from risky investments that would not be in the interest of members.
I am proposing, under the diligence rules that we examined yesterday, that part of the contract be given to the person making the investment, because if someone who is not part of the Church makes the investment directly, the same situation could occur in other religious congregations.
The bill proposes to extend the scope of the investments made on behalf of the Church. At the risk of repeating myself, I am afraid that despite some people's good faith, there may be someone who abuses the trust of Church representatives and makes bad investments that are not in the interest of members. Therefore, I am proposing to add this observation to the report.
[English]
The Chairman: We have a problem of translation and timing. Senator, with your consent we will incorporate the language of the Trustees Act. It is a simple paragraph. That will eliminate the need for debate because the words are used in existing legislation. That was in our parliamentary notes, and it was translated. We can do that quickly. With your agreement that will sum up what you said. It sums up what we talked about which is we believe the test was so that we would say that the application of the objectives would be consistent with that provision.
Do you follow what I am saying, senators?
Senator Angus: The Trustee Act binds them, in any event.
The Chairman: Yes, but for greater clarity we believe that their terms of reference should be interpreted this way. That would be a very simple thing. We have the translation, and we can speed this up very quickly. We might have to revert to motions later today to get it, but we will get the translation done today so that we can table it today.
Do I have agreement?
Hon. Senators: Agreed.
The Chairman: We do have a motion to adopt the report without amendment but with this one observation.
Hon. Senators: Agreed.
The Chairman: Thank you. We will suspend for one minute to allow the first round of witnesses from the Canadian Life and Health Insurance Association to take their places.
Ladies and gentlemen, I would like to welcome the witnesses and the Canadian public. These hearings are televised on CPAC, and on the Internet.
We want to welcome the representatives of the Canadian Life and Health Insurance Association, the President, Mr. Traversy, Mr. Bernier, Vice-President and General Counsel, and Mr. Witol, Vice-President, Taxation and Research.
For you and for our listening audience, the Standing Senate Committee on Banking, Trade and Commerce is continuing its study on consumer issues, and consumer protection within the finance services sector.
We welcome you, Mr. Traversy, and your organization, which plays an important part in what we are exploring. We thank you for your presence and also for this very interesting brief. Some of us have not had an opportunity to explore it, but we will. Please make your opening remarks as brief as possible to leave us ample time to ask questions.
[Translation]
Mr. Gregory R. Traversy, President, Canadian Life and Health Insurance Association: It is truly a privilege for the CLHIA to appear before this distinguished committee.
[English]
CLHIA welcomed your invitation to speak about consumer protection because protecting Canadians is literally this industry's raison d'être.
My own first experience with this committee was in 1973, and that was the beginning of an enormous respect for its role and its work. As we prepared the document you have before you, our goal was to provide the committee with a complete overview of the consumer protection system for life and health insurance. The resulting submission itself is about 40 pages long, but knowing the committee's insistence on solid back up and substantiation, we appended the major documents in order to put it all in one place for your ease of reference.
The Chairman: I want to thank you for your detailed brief. As you know and as you have said, the committee is not just interested in statements but also in substantial and statistical and third-party support for any statements contained in the brief. I welcome your excellent brief in this regard.
Mr. Traversy: The submission begins with a profile of the industry's customer. As you can see, 23 million Canadians put their trust in the industry. Many are covered by more than one policy, as you can note by looking at the numbers. The focus of this industry is to live up to their trust every day by delivering on every one of its promises to every policyholder for every period.
The consumer protection system described in this paper has five key elements. Its foundations are intense competition and exceptional financial strength. On those foundations is built a framework of organizations, laws and regulations and industry standards. This submission discusses each component of the system.
The competition in Canada's life and health insurance industry is extremely intense. I have often heard our member companies, which operate multinationally, say that Canada is the world's toughest market in which to compete. That means that Canada's consumers can benefit from a wide range of choice among competing products and prices.
This committee in its 1994 report on consumer protection in the financial services industry stressed the need for an appropriate balance between competition and financial strength. I am particularly pleased to be able to assure the committee that this industry's intense competition is not at the expense of its financial strength. In fact, that financial strength is exceptional, truly world class, which means that Canadian customers can be confident that their policy benefits will be there as promised.
[Translation]
Our submission then examines the protection framework for potential customers. Potential customers are people who are thinking about obtaining coverage and who are wondering which products would best suit their needs and resources. In other words, they are still shopping around.
[English]
Of course, this group does get protections from competition and financial strength, but a number of organizations also play a role, companies themselves, the superintendents of insurance have extensive powers, and there are others, including CLHIA.
The document then examines the laws and regulations which protect potential customers. The insurance acts provide important protections through such requirements as company licencing and intermediary licencing.
[Translation]
There are also industry standards that protect potential customers. As you can see, they are also plentiful.
[English]
The submission then focuses on the framework for those who have obtained coverage and become policyholders, those 23 million Canadians we were just looking at. Of course, these policyholders benefit from the industry's intense competition and financial strength and they also continue to benefit from the protections that applied when they were still potential customers just shopping around. Those protections help ensure that they now have obtained the right product at the right price. Now that they are policyholders, they benefit from substantial additional protections.
Look at the organizations which protect policyholders. We saw three of those on a preceding slide, but most of these are additional and interestingly, the committee has heard testimony from many of these organizations over recent weeks.
Mr. Chairman, this slide highlights the complementary roles of industry and government in this key area. The there are eight organizations on the slide, and the industry is proud that four of them, the companies CLHIO, CFSON, CompCor and CLHIA, directly arise from the industry's commitment and initiatives.
The Chairman: Mr. Traversy, acronyms are interesting for those close to the industry, but there are not very useful for the viewing public. Maybe when you talk about it, you could give us a brief word about their subject.
Mr. Traversy: I am sorry, Mr. Chairman. I will clear some of the acronyms up for the viewing public: OSFI, Office of the Superintendent of Financial Institutions, FCAC, the Financial Consumers Agency, CLHIO, the Canadian Health and Life Insurance Ombudsman, and CLHIA, the Canadian Life and Health Insurance Association. There is also CompCor.
The Chairman: We have a myriad of consumer protection agencies and we are trying to simplify that for the consumers' edification.
Mr. Traversy: Good idea. You are quite right. I have mentioned four industry organizations and four government organizations and all carry out their roles vigorously. This really is a classic made in Canada approach and it works well for the industry's policyholders here in Canada and for the 20 million other policyholders in 20 other countries around the world.
[Translation]
The same is true for the laws and regulations that protect policyholders.
[English]
The Insurance Company Act empowers the office of the Superintendent of Financial Institutions and the Financial Consumer Agency of Canada. In addition, there are several pieces of pension legislation; the Pension Benefits Standards Act, the Pension Benefits Act, the Winding-up and Restructuring Act and the Bankruptcy Act all of which are detailed in our submission. With the exception of the Insurance Act, these are all new things that come into play for the policyholders with coverage. In terms of industry standards, there are seven guidelines with specific protections for policyholders and a summary and full text of each is contained in the submission. The summaries are in the main body and the full texts are in the annexes.
This extensive and robust consumer assistance protection system has evolved over more than a century. As I said at the outset, protecting Canadians is not a sideline for Canada's life and health insurers; rather, it is literally this industry's raison d'être. This made-in-Canada model combination of intense competition, exceptional financial strength, organizations, laws, and industry standards, provides Canadians with consumer protection that is truly second to none in the world.
[Translation]
Mr. Chairman, we are in your hands.
[English]
Senator Angus: Gentlemen, I commend you for the clarity of your shortened summary presentation, which we received several days ago.
I would like to try a new approach in terms of consumer protection of policyholders and the products that you have outlined: life insurance, health insurance, disability insurance and pensions. We are talking about consumer protection and a diversity of available products or good healthy competition amongst the suppliers, which, in turn, would result in a reasonable cost to the consumers. One of the goals is to ensure that these essential products are driven by open, healthy competition, and available to Canadian consumers at a fair cost.
Second, we are talking about the security kind of protection that these products are stable, that the insurance companies will not fail, and if by some terrible fate they do fail there would be complete, efficient and free-of-charge redress.
Those are the two main kinds of protection on which you focus. Is there another one or does that cover all?
Mr. Traversy: Mr. Chairman you have asked an excellent question. There is no question that financial strength and intense competition provide the basis for the entire system. Interestingly, they are irreplaceable in the sense that no conceivable system of regulations, organizations and industry standards could ever substitute for weakness or deficiency in those foundations. They are the pillars and most important elements of the system.
Over the years, industry and government have worked together to add some supplementary protections. For example, we have the OmbudsNetwork that functions as a process for consumer complaints, and many organizations are involved in various ways.
I agree with the main thrust of your point, senator, which is that the fundamental consumer protections are competition and financial strength. Beyond that, there are a number of significant refinements that have been put in place over time. However, they are refinements on pillars that cannot be replaced by laws or industry standards.
Senator Angus: You have outlined the various eight organizations involved in ensuring that these protections are in place, as well as the seven statutes and the supporting regulations. Notwithstanding that infrastructure, your brief states that, since its inception, the Consumer Assistance Centre has dealt with more than 1,115,000 consumer complaints. That seems to be an extraordinary number of complaints.
My experience on this committee began with the failure of Confederation Life, which certainly was a big member of the CLHIA. The case study by the banking committee of the failure was quite interesting because we found that everyone received payment, the system worked quite well, and we learned some valuable lessons.
Over the past 30 years, there has been an evolution and a strengthening of the laws and mechanisms for consumer protections, however, could you provide us with a breakdown of the nature of these complaints? Do you categorize the complaints and receive more of one kind than another kind?
When you are answering this question, could you let us know whether it is going well or if there is something the committee could do to help in this area to enhance your effectiveness and possibly reduce the number of complaints.
Mr. Traversy: Mr. Chairman and Senator Angus, the Consumer Assistance Centre has assisted 1.1 million consumers since 1973. The vast majority of callers, 98.5 per cent to 99 per cent, received assistance in their search for information. The Consumer Assistance Centre is in three lines of business: First, they provide information to people who call with questions on products or companies. Second, they perform policy searches, which is interesting. Often executors will find that they have a vague awareness that the deceased may have had a life insurance policy because they heard reference to it and included in their responsibilities is the requirement that they track down this information. We offer a service whereby we work with our member companies to perform a comprehensive search.
Senator Angus: I would ask that you stop here because that is not widely known. If someone passes away and the family is uncertain whether there is a life insurance policy, the family can find that information through the Consumer Assistance Centre. With one phone call you can find that information; that is amazing.
Mr. Traversy: Absolutely, senator, and it has been in place for all those years. We find that people will access a policy search through our website or a toll-free phone call or a visit to our office.
We carry out a full search over 1,000 times a year.
Senator Angus: I obviously made a mistake in reading this figure 1,115,000 as complaints; the figure represents requests for information.
Mr. Traversy: In each of the last number of years, we answered maybe 60,000 calls, 1,000 of which are complaints. We are also getting many website hits. Effective April 1, 2004, we completed the transfer of the complaints business to the independent CLHIO, and its chair, Mr. Loiselle, was here a few weeks ago.
Our Consumer Assistance Centre is now out of the complaints business because for simplicity sake we finally decided that concerns or complaints should go to the CLHIO, or the OmbudService and they will sort it out.
The Chairman: What you are really doing is simplifying this for the consumers. They come to you and you will direct them to the appropriate official. I looked at these numbers too. It appears the number is not 1.1 million.
Can you tell us the nature of those complaints?
Mr. Traversy: The consumer assistance centre completed the transfer of the complaints handling function over to CLHIO over a year ago. Based on 32 years' experience typically 1 per cent to 1.5 per cent of the incoming calls were complaints. In a normal year of about 60,000 calls in recent years, that would give you about 1,000 or so complaints.
I will just have to refresh my mind on the details. The breakdown regionally was pretty well balanced. In terms of product types, Mr. Witol will answer that question.
Mr. James S. Witol, Vice-President, Taxation and Research, Canadian Life and Health Insurance Association: The Consumer Assistance Centre details are included in annex D of our presentation.
The Chairman: Where are the consumer complaints in this information?
Senator Angus: Mr. Chairman, you will find them on pages 10 and 11.
Mr. Traversy: Looking at complaints by line of coverage on page 13, we see that disability complaints are the largest group of complaints at 43 per cent to 44 per cent. Life insurance, health coverage, travel and a mixed group make up the rest of the complaints. Perhaps not surprisingly, we see on page 12 that claims were about 43 per cent to 45 per cent of the complaints in terms of the company functions.
I believe it is the case that the Canadian Life and Health Insurance OmbudService observed stability in this respect. Their annual report seemed to be in conformity with the historical pattern displayed in the graph.
Senator Angus: This is not a complaint from me, but my question is a complaint through me that I have heard often in the area of health and disability. Canadians pride themselves on having a universal medicare system, which is really quite remarkable in the world. Today, it is under review to determine whether we can afford it in its present form.
Over the years it has been obvious that there are health and disability plans sold by your members that supplement the benefits available under national medicare programs. When individuals try to get that type of coverage or benefits, they run into a brick wall because that type of coverage is available on a group basis only. If six individuals get together, they might be able to get supplementary benefits when they travel outside of the province.
I have heard it over and over again that individuals have a very hard time getting health and disability coverage whereas it is much easier if you work for a firm or company where they have this as part of the fringe benefits of employment.
Mr. Traversy: Senator, the experience that you are recounting at second hand is something that in historical terms is quite accurate. On one of the slides, we noted that approximately 21.5 million Canadians have supplementary health insurance plans and the great majority of that coverage is through group plans.
A number of our companies are entering the market for individual health insurance policies and individual disability policies. Someone wanting individual health or disability insurance coverage can call our Consumer Assistance Centre and get a list of companies that would love to give them a quote.
Senator Angus: Is that coverage available at a reasonable price? We have a big neighbour to the south and there is a debate whether they have a better medicare system than ours. They have Medicare for a certain level of income or society. Then they have these managed care organizations, and so on.
A great number of Canadian citizens have to fend for themselves concerning extended medical coverage. There is a big market in the States where you can buy this insurance but it is quite expensive and it seems to be the same in Canada. Vast arrays of benefits are for groups, and solo players are not included. You have given the answer to just call us up and you will find it is not so bad.
Mr. Traversy: It is an area targeted for growth because Canada is a mature market; Canadians are well insured in a life and health sense. It is an intensively competitive marketplace. Companies recognized years ago that this so-called small group and individual area is a land of some opportunity. Today one would find that a consumer would have a number of choices available and can contact those companies that offer that type of coverage.
Senator Angus: I hope it is true because one of the problems of our system is that instead of living until three score and ten, people are living to well above 90. There is an aging population. These people are retired from their jobs as senators, lawyers, business women or people in society and they do not have a health plan. Once they are retired, all the benefits they enjoyed suddenly stop at a time when they need them the most. It is a great lacuna that I hope your association will address the issue.
Mr. Traversy: The evolution of the marketplace is on its way to addressing those problems.
[Translation]
Senator Hervieux-Payette: Thank you for your excellent documentation. If we had read it all last Friday, we would not have done the rest of our work; however, it enabled us to read your executive summary chapter. I once worked for the Quebec Department of Social Affairs, and we dealt with the issue of pensions. There were many disputes involving workers who were covered by the pension plan, regarding eligibility to either a full or a partial pension, or a full or a partial disability pension. I was wondering who does the assessment if we have an additional individual policy. On one hand, if you determine that a person is partially handicapped, and you provide a certain amount of compensation, and on the other hand, the Pension Board determines that the person is totally disabled, I wonder which has priority. How do you reconcile both aspects? This is very important for the person who does not have the means to retain the services of a lawyer to defend him or herself before a provincial government's administrative commission. How do you administer that? In the end, disability insurance is the most widely sold insurance product, as 36.5 per cent of people have disability insurance coverage. From an operational point of view, how do you proceed in the case of an individual who is already disabled as the result of a very serious incident? I am talking about the process in Quebec, because I am not familiar with the systems in other provinces.
[English]
Mr. Traversy: You point to the important area of disability insurance. I am proud to note that the industry's disability insurance plans are the largest single source of income for disabled Canadians. One of the issues that is always front and centre in an operational way is harmonization of private disability insurance with CPP disability, QPP disability and Régie des rentes. Our industry works constantly with CPP and QPP disability officials on harmonization.
At the outset of a disability, if you are covered by an individual plan or a group disability plan, there is a medical assessment of disability undertaken by your insurer. That is done quite quickly because the industry is very well aware that disabled individuals require income continuity; that is why they have disability income insurance.
Typically the industry's disability policies define disability in terms of inability to do your job. Public sector disability plans, and I am thinking of both QPP disability and CPP disability, talk about severe and prolonged disability. To get a determination of severe and prolonged disability, which would be undertaken by QPP or CPP disability, can take a very long time, up to 18 months or sometimes even years. The industry has worked out an arrangement with public disability officials whereby when someone on a private disability claim appears to be badly disabled, during the period when they are waiting to learn whether they do qualify for QPP or CPP disability the industry pays the full benefit, including the QPP or CPP portion, until such time as it is determined whether the person qualifies for the public sector benefit.
The Chairman: My understanding is that, as disability is the biggest drain on the industry, there is a system, whereby after a year or two the benefits of disabled people are cut off, which requires them to appeal, and the appeal process takes one-to-three years. This is anecdotal, but I know of one case where two years later, a single mother is still unable to work.
How is the consumer protected from these practices, if that is the practice of the industry?
I am speaking of prolonged appeal processes that leave the appellant destitute while the process proceeds. These people need income to live and funds to pay legal fees in order to pursue their appeal.
Mr. Traversy: Anything connected with disabled Canadians is a front-burner issue for our industry. I am very interested to hear even anecdotal evidence on that subject. As I said, the industry is very conscious that people buy disability insurance so that their incomes are not interrupted. That is the whole point of the product, and that is the product that is delivered. The industry takes pride in paying those benefits quickly after the incident and in sustaining them while the person is disabled.
Obviously, from time to time there may be some difference of view between a company and an individual or an individual medical practitioner about whether someone still qualifies for benefits. In the past, the only recourse for someone who was not satisfied with their company's interpretation of their own circumstances would have been the courts, which as you properly point out, is a financially demanding route. That is why the industry has played a supportive, catalyst role in the development of the OmbudService, the purpose of which is to settle disagreements like this at no cost to the consumer as quickly as possible.
We are completely onboard with the objective you have identified. I hope the industry is doing its job excellently in that area. I am not aware of systematic or widespread problems in that area, but if you are aware of any problems, we would be happy to follow up on them.
The Chairman: We would be interested in you delving into this issue with your members to see whether there are some egregious practices that might be corrected. We find that as we uncover these things, practices are changed.
[Translation]
Senator Hervieux-Payette: I have a question, out of curiosity. Recently, there has been talk about a drug like Vioxx, that can cause some people to die. Do the families or the heirs receive an immediate compensation? Do you turn to these companies, or is the risk absorbed by insurance companies?
[English]
Mr. Traversy: It is not an area in which, to the best of my knowledge, any of our companies would undertake legal action. As you say, it would simply be absorbed as one of those very tragic things that occur.
[Translation]
Senator Hervieux-Payette: You do not take action against the ones who may be responsible for the cause of death?
[English]
Mr. Traversy: I am not aware of any of our companies that would take legal action in parallel circumstances or in this particular case.
Senator Oliver: Twenty-five per cent of Canadians are illiterate, and one of my concerns is that those people cannot read and understand the policies, which become complicated when you get into considerations of exclusions.
The Chairman: With all due respect that applies to everyone in this room. We can read, but we cannot understand some of these policies. I am sure that applies to our three witnesses as well.
Mr. Traversy: Hear, hear, Mr. Chairman.
Senator Oliver: What are you doing to overcome the arcane language used in the various policies that consumers read?
Mr. Traversy: As the Chairman was reflecting and all levity aside, it really is a challenge in this industry. You mention that the Consumer Assistance Centre is there and their leading line of work is responding to product inquiries. I am sure many of these questions arise from what you said.
Literate or not, people are asking, “What does this mean?” or “I have been suggested to do this or that and I had better get advice.” That is how that centre started.
Just by way of market forces, of course, companies are out there trying to put information on their products, make it accessible through the Web, and through their sales forces, but there is just no doubt, that simplification and communication is a challenge when it comes to life insurance.
We welcomed the opportunity to assemble this information for you and we all learned a lot during the exercise. We were surprised to learn that beside the obvious fact that policyholders have enormous protections, that there are substantial protections for potential customers aimed at ensuring people get something suitable to their needs and resources. Most of the laws, regulations and industry standards that focus on potential customers focus on clear disclosure and understanding by the client. Unlike many other kinds of insurance policies, life and health is in place for a lifetime or for many years. There is no point in having someone get insurance that they neither want nor need and have them discover that fact shortly after making the purchase. Over the years, we have built protections into the system but that is no reason for complacency. It is a continuing challenge and something we have to struggle with and work at all the time.
[Translation]
Senator Plamondon: My comments are along the same lines as those made by Senator Oliver, with some clarifications, however. Before becoming a senator, I spent my time defending consumers, and we did a study on plain- language contracts. Following Bill C-8, the life insurance industry was supposed to use plain-language contracts, and we are not seeing that now.
Contrary to what was said earlier, I would consider information requests as complaints. When we ask for information about a product that we do not understand, and the product will influence what we buy and all of the coverage we want in life, that is to my mind a complaint.
The main complaint with travel insurance revolves around preexisting conditions. People do not understand the notion of preexisting conditions well enough. Taking medications, even if it is not prescribing medications, is a preexisting condition.
People also think that since they have not been sick for a year, they do not have any preexisting conditions. None of that is clear. People do not have a good grasp of distinct funds either. Nor do they understand the nature of universal life insurance products.
As for disability insurance, with all the products available and all of the timeframes after which the amount received will change, people are lost. In my opinion, emphasis should be on the consumer's protection. You undoubtedly know how many calls come from people who do not understand their product. It is a product that is put away in a drawer, and the widow or the widower will have to use the product.
The product can stay in the drawer for 20 years, and if it is not understood when it is purchased, no one will even know it is in the drawer. So contracts should be written in plain-language.
My second question deals with commissions. When we meet with someone who examines our needs and sells us the right product, curiously we end up being advised to purchase other products. One person once told me that she had a good insurance agent, but the agent had collected commissions three times.
I would like you to tell us about your commissions. Why do you have a “high-low” commission system, instead of a flat-rate commission system? I would also like to know if you have had any requests under the Patriot Act.
In the United States, American companies that have invested in Canada can request any information that may be held in Canada on individuals. Has the Canadian Life Health Insurance Association put out directives on that, or have you examined the problem?
As regards the complaint body, we started with five ombudsmen, now we have three. There was talk about an ombudsman for complaints, but the banking sector says it is different from the insurance sector, and each insurance sector has its own characteristics. How do you see the ombudsmen for complaints system evolving?
How has the industry in Canada evolved over the past ten years? How many insurance companies were there ten years ago, and how many are there today?
[English]
The Chairman: We have another five or six minutes left for questions. There may be time for another question or two. For those questions that you cannot answer, please give them to us in writing.
You have been asked a starburst of questions, and we want you to respond to the entire starburst.
Mr. Traversy: Thank you, Mr. Chairman. They were excellent questions, and each one invites a long and interesting discussion. I will touch on them briefly.
There is no doubt that clarity and understandability is a challenge. We have been working on that, but we will never achieve perfection.
Since Christmas we adopted a new product disclosure guideline, which is in our material, which attempts to address some of the issues the senator has raised.
In terms of commissions, last December we unveiled a five-part consumer information and confidence initiative. One of those initiatives focuses on the area of compensation disclosure. We have a reference document on intermediary disclosure that includes compensation disclosure, which is now in implementation.
With regard to the CLHIO, these are independent organizations and they make up their own minds. However, our industry is delighted that the chairs of the four organizations — CFSON, GIO, CLHIO, and OBSI — have been working together to drive ahead on the area of integration. We are proud that CLHIO is taking a lead role in that integration. On the board of CLHIO, we have Mr. Loiselle; Lea Algar, who is also the chair of GIO; and Mr. Raymond Garneau, and all three of them are now on the board of CFSON. We are very supportive of the move to greater integration.
I will turn to Mr. Bernier with regard to possible demands for personal information of Canadians arising from the Patriot Act.
[Translation]
Mr. Jean-Pierre Bernier, Vice-President and General Counsel, Canadian Life and Health Insurance Association: We are just as concerned with the U.S. Patriot Act as the British Columbia Privacy Commissioner is, to precisely the same extent. Bear in mind that there are exceptions to protecting personal information. One of the four exceptions is when it is in the public interest. That term remains to be defined. We are monitoring the debate. It concerns us a great deal. It is more of an American situation. When a request comes in from the United States for personal information on our policyholders, are we to protect the personal information that has been entrusted to us by our policyholders or side with the person or the organization that is inquiring about the matter?
Senator Hervieux-Payette: Add the question of tests that are not allowed in Canada, including AIDS testing, to your short list of questions that you will answer at a later date. Some companies, to reject customers — and to whom they do not reveal the results — have the test done in the United States, contrary to what is authorized here in Canada. A citizen is thus denied a life insurance policy, even though this disease is now controlled through medication just like other serious illnesses.
[English]
Senator Moore: Mr. Traversy mentioned that there are 20 million policyholders, of Canadian companies, I presume, in 20 other countries. Are some of those policyholders in the United States?
Mr. Traversy: Absolutely, senator.
Senator Moore: Will their information, which is held by a Canadian company, be subject to the Patriot Act?
Mr. Bernier: Yes, it will be.
Senator Moore: It is a Canadian company selling its products in the United States to American citizens. Therefore, you say that those citizens and the information held by that Canadian company with respect to those policyholders, who are American citizens, will be subject to the privacy act.
Mr. Bernier: Yes. The transaction takes place in the United States and is subject to U.S. legislation.
[Translation]
Senator Plamondon: How many insurance companies were there 10 years ago, and how many are there today?
Mr. Traversy: There were about 150 companies 10 years ago, and now, there are about 110 that are active in the marketplace.
[English]
Senator Moore: On page 6 in your information, you say that it is essential to emphasize that this intense competition is not at the expense of the industry's financial strength. You say that in the fourth quarter of 2004, OSFI data indicates that on average the available capital of Canadian life and health insurers was 218 per cent of the required level.
What is the required level?
Mr. Witol: Required capital is determined on the basis of the risks that the life insurance company undertakes. The various risks include mortality, lapse and default. We apply a factor to the risk element using the best actuarial principles available to determine the required capital for that company's business. The company also calculates the available capital. There are definitions of what counts as available capital and you simply take the ratio of the available capital over the required capital, and it turns out that for the industry as a whole the number is 218 per cent.
Senator Moore: That does not answer my question.
Senator Hervieux-Payette: OSFI has some requirements below which you do not operate. What rate does OSFI impose on the industry for the range? It could be 150 per cent or 160 per cent, but there is a formula.
Senator Moore: Do you have different levels of capital requirement for the various categories, of which there are not that many?
For example, if the coverage is $1 million for life policies, what do you have to keep on hand over the actuarial period for that policy?
Mr. Witol: The formula is very complicated. It depends on the particulars of the policy. For a number of simple life insurance policies, it might be 50 cent per $1,000 of coverage.
The formula is 100 hundred pages long and is an assessment of the risk for every kind of policy that you can imagine. The minimum requirement is 100 per cent in that you must have available capital of at least 100 per cent of the required capital. OSFI suggests that you need 150 per cent and that 100 per cent is not acceptable. Therefore, all companies have more than 150 per cent.
Mr. Traversy: In annex I, you will see the capital and surplus requirements. Unfortunately, it is not paginated but I believe on the fourth page you will see a table that shows, at the industry level, the determination of available capital and the capital that is required. As Mr. Witol said, the formula involves capital requirements in relation to a number of specified risks.
The four main categories are in here: asset default risk, market risk, insurance risk and interest rate risk, plus others. This calculation is for the whole industry. With the click of a mouse on OSFI's public website, you can get this for any of the companies. Depending on the line of business, they are in and the kind of risk, you can look at the whole composition of their available capital and the capital they are required to have.
The Chairman: I believe that you heard the evidence of Mr. Claude Gingras, who told us that, as a former employee, he believed there was a conflict at the director's level of insurance companies between separating those funds available to participating life holders and those who have straight life, and so on. His argument, which was quite cogent, was that the company directors from a consumer protection side do not segregate those funds. For instance, he alleged that GNA was applied to both of them without any representation on the policy side within the structure of insurance companies. You heard that allegation. I call it an allegation because he worked in the industry and did not seem to have an axe to grind but rather wanted to make this point.
Do you have any comments? If you want to make more ample comments, you can provide them in writing because of the limited time available today. We are talking about the conflict between directors of insurance companies making a fair allocation of those costs.
Mr. Traversy: Having heard the prior testimony and seen the submitted documents, I am truly delighted that this question has come up because the industry is proud of its record of accomplishment in dealing with par policyholders.
I could go on at some length but there are some important things to say. Some 23 million Canadians are policyholders. About 4 million of those are par policyholders. Over the past decade, because of regular policy dividend payouts, those 4 million have received about $17.7 billion in regular policy dividends. They have also received special payouts of $3.3 billion in cash for demutualization and shares valued at $6.7 billion, at the time of issue, which today are worth $21 billion.
The Chairman: Mr. Traversy, I understand that there have been huge payouts but that is not the issue.
Is there an internal conflict in terms of allocation of costs between the power shareholders and others?
If there are some internal checks and balances, we would like to hear about them.
Mr. Traversy: There are internal checks and balances. There have to be separate accounts for participating policies. The appointed actuary has to provide a written opinion of whether the method for allocating those costs is fair and equitable. That opinion and a description of the allocation method have to go to OSFI. OSFI has specific statutory powers to disallow anything that is not fair and equitable. The companies must have a written dividend policy and file it with OSFI. A summary of the dividend policy has to accompany the financial statements.
The Chairman: If you give us a written detailed response, we will look at it and weigh it against any allegations and claims. When I say “allegation,” I do not mean to be unfair to Mr. Gingras because his argument was very cogent. We want to give you an opportunity to respond and we will weigh that response.
Mr. Traversy: We welcome the opportunity to do that and to talk about the subject at greater length.
The Chairman: The committee has concerns about disability payouts and the processes of appeal. You heard my earlier question and I will repeat what is anecdotal: Insurance companies periodically stop disability after a period of time on the evidence of their doctors and then the person, perhaps a senior with a disabled person in the home or a single mother with a child, find themselves in a very serious state.
The test is evolving and, as you said, there are two tests: the normal test that you mentioned and the more severe test in respect of public employees. I am talking about the public test because the cases I have heard are more on the public side than on the private side.
I would like you to explore that with your members and find out if these people face an unfair burden. These are people that can least afford to claim and maintain what they consider to be their lifeline, which is their receipt of disability.
This question is not only for you but also for the unions and for the public service. I have heard that complaint and I have seen some specific examples that are horrendous. Please explore that to see if there is any evidence to support these anecdotes. This issue is of major concern to this committee and others. We are concerned about the people who can least defend themselves. I hope you understand that we are not being critical but simply trying to improve the system.
Mr. Traversy: Mr. Chairman, we will certainly follow up on that area of active interest within the industry. We welcome the opportunity. I should mention that we have had an opportunity to do some work for one of the committees of the other place over recent years and have done a considerable amount of work with HRDC in terms of the interface. We will get back to you in writing on that work.
The Chairman: I thank the witnesses today. Mr. Traversy, I thank you for your brief, which is of the sort that we welcome. We are critical of other witnesses who have not stepped up to our particular mark. This is an excellent model.
Mr. Traversy: Thank you. It has been a privilege.
The Chairman: Ladies and gentlemen, senators, witnesses, members of the viewing public we welcome the witnesses for the continuation of the study by the Standing Senate Committee on Banking, Trade and Commerce of consumer items and consumer protection within the financial sector.
We are delighted today to have witnesses from Industry Canada and the Department of Finance.
We will allow you to decide how to proceed. You know our ground rules: We like a short presentation to allow senators ample time to explore your testimony. If there is something we have not covered that you wish to amplify, please do so in writing.
Mr. Gerry Salembier, Director, Financial Institutions Division, Financial Sector Policy Branch, Department of Finance Canada: Thank you, chairman. It is a pleasure to be back here again to discuss consumer issues in the financial sector.
I will ask Ms. Diane Lafleur to introduce herself and her staff.
Ms. Diane Lafleur, Director, Financial Sector Division, Financial Sector Policy Branch, Department of Finance Canada: I am the director of Financial Sector Division, which is the division responsible for more sector-wide initiatives. With me is Terry Winsor, the chief of the intergovernmental issues section, which is responsible for federal- provincial relations on financial sector issues that include things like securities regulation. I should point to the presence of Ms. Pierce in the front row, the chief of the Financial Stability Section, which looks at things like our OSFI and CDIC.
Mr. Salembier: Since our last presentation, there have been some developments. The Minister of Finance released as part of this year's budget a consultation paper on financial sector policy issues to solicit stakeholder views on the changes to the financial institutions statutes that will be coming up in 2006. It is part of our regular five-year review of the federal financial institutions statutes. The objective of that is to ensure that the statutes remain relevant. The budget this year committed the government to take action in a number of other areas of interest to the committee's program of work, in particular, financial institutions governance, deposit insurance and securities regulation. We will have more to say on each, but let me say the work of this committee on consumer issues is quite timely, given our legislative exercise.
[Translation]
Overall, this legislative review will be based on the solid foundation resulting from recent reforms. Its main objectives will be to promote consumer interests, to make laws and regulations more effective, and to adapt the framework to new developments.
I would like to start by highlighting some of the issues raised in the public consultation document appended to Budget 2005, which might interest committee members in the context of this work. One of the main functions of the regulatory framework is to ensure that consumers' rights are adequately protected. In this regard, we are focusing our attention on several issues, namely strengthening provisions governing disclosure, e-transactions, and cheque hold policies.
As regards disclosure, you will perhaps recall that Bill C-8 not only created the Financial Consumer Agency of Canada, but also strengthened existing disclosure provisions. One of the pillars of our strategic framework for the financial sector is to ensure that consumers have access to the information they need to make informed choices.
The other pillar, of course, remains competition, to ensure that consumers have a broad range of financial services and products to choose from. Federal financial acts and regulations contain several provisions that require financial institutions to disclose important information to consumers. These include, for example, fees, interest rates, penalties, and conditions that apply when consumers sign contracts for financial products or services.
Moreover, a dynamic financial sector means that the products and services being offered are in constant evolution. As a result, as part of this review, the government is seeking to update disclosure requirements.
[English]
I understand from your comments and those of some of the other witnesses during your proceedings that consumer redress is an important issue for your attention.
The Chairman: That issue is cost-effective, timely, sensible and clear-headed redress. Redress, generally, is a broad topic. Our problem has been that is very confusing to the consumer based on the number of opportunities they have for redress. We are trying to simplify this as best we can. It is complex to do so.
Mr. Salembier: In Bill C-8, we established a requirement that federally regulated financial institutions have dedicated procedures and personnel in place for complaint handling. We have worked with the financial services industry to establish these third-party dispute resolution mechanisms, which may be the ones to which you have referred in terms of complexity. These are the various industry level ombudsman services and the CFSON, to which the previous witness referred.
There are challenges to be sure, but we think we made substantial progress in establishing a single window of access through the CFSON through which a consumer who does not know which of the various industry-level ombudsmen is appropriate for his or her particular complaint can go and get referral to whichever of the industry-level ombudsmen is appropriate. We do not believe that is enough. We also feel it is important to ensure Canadians know these redress mechanisms exist, particularly at the time when they have a complaint. An explicit requirement to inform consumers of the existence of these redress mechanisms is one area we are looking at in terms of improvements to the disclosure regime.
In addition to redress, we are seeking views in our consultation paper on updating the disclosure provisions. We feel the existing disclosure provisions merit examination, particularly in the area of investment-focused products, like index-linked GICs, registered plans, either RRSPs or RESPs, and deposit accounts. The work of this committee can make an important contribution to ensure that consumers are aware of their rights.
Electronic transaction is another area we are examining, and this is a good example of how the Canadian financial sector is evolving. We have noted comments made by this committee and have been following them with great interest, particularly concerning debit cards. You will know from the Canadian Payments Association, within the past decade electronic payments have surpassed other methods of payments and are now Canadian's preferred method of paying for products and services. We are the world's highest per capita users of debit and credit cards. Rapid advancements of these electronic payment systems do raise a number of issues from the consumer protection point of view. There are various codes and regimes in place, but they tend to be specific to the product that is at issue. We have been giving some thought to how to come up with an approach of more general application in relation to electronic transactions that would still adequately address the fundamental principles of disclosure and issues like consumer liability as well.
[Translation]
Furthermore, although cheques are used less and less, consumers and businesses still use them for various operations, namely for their payrolls and occasional payments. So that consumers are in a position to make informed decisions, as part of Bill C-8, we put in place the obligation for banks to disclose to consumers the maximum hold time for cheques drawn on a Canadian institution.
However, it seems that certain people still face longer holding periods for cheques, even if they are drawn on another Canadian institution. Moreover, an evaluation conducted by the Financial Consumer Agency of Canada showed that only 50 per cent of bank branches comply with the Cheque Holding Policy Disclosure Regulations.
We are therefore seeking advance in our consultation document on the possibility of establishing a maximum cheque-holding period.
[English]
I will turn to my colleague Ms. Lafleur now.
Ms. Lafleur: In addition to seeking views on cheque holds, we are proposing to modernize the cheque clearing process. Under the present clearing process, paper cheques can take several days to clear the payment system and for customers' financial institution to know if a cheque will be honoured. With advances in technology, it is possible to create an image of a cheque and transmit it electronically rather than have to move it physically. Some credit unions in Western Canada, as well as some other countries such as the United States, have taken steps to implement the electronic imaging of cheques. While cheque imaging would not change how consumers use cheques, it would help modernize and improve the efficiency of Canada's cheque clearing process. Electronic processing could help reduce cheque hold times by decreasing the time it takes to trace cheques and recreate statements and could lead to the development of new products and services.
[Translation]
I have also taken note of the points expressed by some committee members on the level of deposit protection by the Canada Deposit Insurance Corporation. As you know, Budget 2005 increased CDIC coverage to $100,000. Consumers of financial services are not just borrowers, but also people who deposit money in financial institutions. And ensuring protection for their deposits is part of our objective to protect their interests.
Deposit insurance also plays an important role in promoting public confidence in Canadian deposit institutions. When a level of protection is established, the limit must be fair and must provide a sufficient degree of protection for the majority of depositors in Canada.
When the CDIC was created in 1960, the level of protection was $20,000, which was increased to $60,000 in 1983. Budget 2005 announced an immediate increase in this coverage to $100,000.
[English]
The Chairman: Should we be thanked for that particular reform? At the time, it was a tenuous issue. We saw it in the budget, and if this committee has not accomplished anything, at least we have accomplished that and we thank you for sharing the credit.
[Translation]
Ms. Lafleur: This increase will help ensure that the deposit insurance system put in place for Canadians will always be appropriate and deliver on the commitment by the government to ensure consumer protection. Increasing the amount protected will also promote competition among deposit institutions and help Canadians save safely for their retirement.
[English]
In relation to securities regulation, you may recall we noted the work of the Wise Persons' Committee on Securities Regulation. The WPC recommended that a single securities regulator was indeed the best securities regulatory structure for Canada. Consolidating Canada's existing securities regulators into a single regulator would provide significant benefits, including greater regulatory efficiency, more timely policy innovation and development, improved investigation and enforcement, and a stronger international voice for Canada.
The House of Commons Standing Committee on Finance in its pre-budget consultation report recommended that the Government of Canada meet with provincial and territorial governments with a view to reaching agreement on a national securities regulator. The IMF in its most recent review of Canada also echoed this position. In September 2004, all provinces except Ontario either signed or committed to sign an MOU to establish a passport system of securities regulation. The passport would allow participating provinces to recognize each other's rules but keep their own separate securities commissions in place. The passport model developed by the provinces, while it is an improvement over the status quo, simply does not go far enough to provide the kind of dynamically robust system that Canada deserves.
In the budget 2005, the minister reiterated the government's commitment to improve the efficiency and effectiveness of Canada's capital markets and to move forward on the WPC recommendation. Discussions are ongoing with provincial deputy ministers responsible for securities regulation to stress the importance of this matter and the need to pursue more ambitious objectives than those currently on the table.
I will now turn back to Mr. Salembier for discussions on other initiatives separate from the legislative review.
Mr. Salembier: In addition to the upcoming five-year legislative review, we stand ready to take initiatives, legislative actions included, in between the five-year reviews.
I want to highlight some of the work we have been doing in issues of corporate governance. Promoting investor confidence in Canadian capital markets is an important priority for us. Over the past years, there have been a number of significant steps taken both by industry and by federal and provincial regulators in that vein. We have strengthened enforcement, improved financial reporting, and enhanced market disclosures.
To improve the quality of the audit process, we established the Canadian Public Accountability Board for an independent public oversight of the profession. The board issued its first public inspections report last October, and will continue working to ensure that Canadian standards in this area remain among the most rigorous in the world.
[Translation]
In 2001, the Canada Business Corporations Act, which governs most federally incorporated companies, was reformed and modernized. To equip financial institutions and their stakeholders with the same modern governance tools, we proceeded to bring legislation governing federal financial institutions to the level set out in the Canada Business Corporations Act.
In early 2003, we published the discussion paper on modernizing the corporate governance framework for financial institutions. Many proposals in the discussion paper cover the role of directors, rights of shareholders, and modernizing governance practices.
The document also contains provisions on governance for policyholders in insurance companies, in particular as regards increased disclosure to ensure that policyholders and directors have the information they need to make informed decisions. This subject has, I believe, also been raised before this committee.
In the recent budget, the government made a commitment to table a bill this spring to update the corporate governance framework for financial institutions.
[English]
I want to thank the committee for the opportunity to bring you up to date on the work that we have been doing, and we are happy to respond to any questions.
Mr. Michael Jenkin, Director General, Office of Consumer Affairs, Industry Canada: I want to clarify some of the testimony you have heard concerning the issues relating to the treatment of consumers and what we do at Industry Canada, both on consumer financial issues and other issues. Allow me to explain the role of my office, and perhaps you will understand the roles and capacities of others in the system such as the Financial Consumer Agency of Canada.
In 1994 as part of government-wide reorganization, the consumer protection function was confirmed to be with departments that have line responsibility for the industry with which consumer's trade. Consumer issues on transportation are handled by Transport Canada and energy issues with Natural Resources Canada.
Industry Canada is the department responsible for manufacturing service industries and generally for governance of the marketplace. It is now responsible for the marketplace policies that affect consumers such as measurement, competition policy and misleading advertising. The minister has a general responsibility to protect and promote the interests of Canadian consumers.
The policy and information functions that resided in consumer and corporate affairs were transferred to the office I am in charge of now. We are a small organization. We have 25 FTEs, an operating budget of $800,000 a year, and we run a program for grants and contributions of $1.6 million that assists voluntary consumer organizations with funding on a competitive basis for research protects and organizational development projects. That program provides the principal source of funding for research by consumer interest NGOs in Canada. It is the only source of that funding.
In your package there is a list of awards that have been distributed in the past few years on financial services issues to consumer organizations. In addition to those topics, a large number of other research topics are funded, such as automobile sales and redress, and many other issues in today's marketplace.
For a long time we did a fair amount of work in the financial services area, and we still do, including debt and asset accumulation, analysis of spending patterns, policies issues, and redress and complaints management in the marketplace. We have worked on issues such as biotechnology, electronic commerce, and identity theft.
We are the only government agency with a mandate to conduct policy research on the broad range of consumer marketplace issues. Last June, we hosted the first ever symposium on consumer research with the academic community, NGOs, business and government researchers, and policy experts on future directions and on socioeconomic trends impacting on consumers. We hope to release a major report on consumer trends this summer.
The Chairman: It may not be ready in time for our report.
Mr. Jenkin: I am not sure. It is in production.
The Chairman: The study would be helpful if it offers any recommendations.
Mr. Jenkin: We could provide a brief overall summary to the committee.
We do a lot of work through federal-provincial-territorial networks. Under the Agreement on Internal Trade, the Consumer Measures Committee was created and our payday lending work is conducted under that committee.
I will say why it is up for discussion at the federal-provincial-territorial level. Provinces have the power to control these companies' business practices, but there is a discussion that revolves around cost controls. That hits upon the federal power over institutions that would otherwise be solely provincially regulated. This is referred to in section 347 of the Criminal Code. I know you have discussed those issues in the last few months.
Much of the work of the CMC focuses on harmonization of consumer legislation and on collaborative consumer policy and information work. It touches on financial services a well. This is an important area of inter-government collaboration since consumer protection is the responsibility of both levels of government.
I have included in your package information products produced and our current three-year business plan. They cover issues that reflect the range of issues and concerns consumers face in the marketplace today. You will see mention of our websites, Consumer Connection and the Canadian Consumer Information Gateway, both of which have received awards. They host products such as the credit card and bank service charges calculators, which allow you to choose the least expensive products to suit your requirements. You will also find the Complaint Courier on the Canadian Consumer Information Gateway, which instructs you on how to complain effectively and links you to complaint handlers such as provincial governments, the Competition Bureau, and the Centre for Financial Services OmbudsNetwork.
The gateway is emblematic of how we do our work. It is a partnership of over 400 organizations from federal departments, provincial and territorial ministries, and 150 NGOs in the consumer information and redress management areas. It provides information to Canadian consumers on how to deal with consumer issues in the marketplace.
There are also voluntary codes in the package and code development publications that we have published in partnership with the private sector, consumer organizations, and the provinces and territories. We originally negotiated The Canadian Code of Practice for Consumer Debit Card Services that my colleagues in the Department of Finance now administer. In addition, we led the development of voluntary codes for consumer protection in electronic commerce and in the moving industry. These codes are an example of another part of our work whose goal is to expand the area of consumer protection by developing new approaches beyond traditional and regulatory mechanisms.
We also do a lot of work in this area with the International Organization for Standardization, the OECD, and Consumers International. The task of the Office of Consumer Affairs is to address challenges faced by policy-makers and consumers in a complex marketplace.
The Chairman: We have many questions and we do not have much time. We would like your responses in writing if you do not have an opportunity to answer all the questions now.
Senator Angus: A lot of water has gone under the bridge since you were our first witness when we started this study. I am pleased to know that you have been following our deliberations.
I find myself with a terrible problem. I am fighting the impulse to ask what advertising agency produced all these pamphlets and brochures.
Mr. Jenkin: Senator, they were done in-house.
Senator Angus: Are they, even the design?
Mr. Jenkin: Yes, we do contract out for design work but they are conceived in our office.
Senator Angus: That is quite all right. I have my impulse under control for today.
There were three points that came up that particularly intrigued me during our study, and you mentioned all of them. First, I want to thank you for sending us the Wise Persons' Committee on Securities Regulation report. It is quite an important document for our ongoing work at this committee and it seems to be very hard to come by. Thank you for that.
Ms. Lafleur, you mentioned that the provincial initiatives are not good enough to implement the recommendations from the WPC. Mr. Salembier, you alluded to other work we are doing in this area.
I have to tell you we are all very curious because we recognize that although it is prima facie provincial jurisdiction, strong political and administrative will is required to fix the problem. It stands out as a huge problem for consumer protection and in other matters relating to business in Canada.
Is there something more you can tell us that we can do to push the issue, or that is going on that we do not know about and do not want to make a mistake in case it is in process?
Mr. Salembier: The reference in my remark to other work that is going on was really other initiatives in train in the budget like the work on the corporate governance bill, which we hope is forthcoming. On the securities front, Ms. Lafleur can reply more directly.
Ms. Lafleur: We are working full time on going forward on securities. The government has indicated that its preferred approach is to find a collaborative federal-provincial-territorial solution to move forward.
We have just recently had a conference call between deputy ministers that are responsible for the securities file in the provinces, minister that are not necessarily with the finance departments but from a variety of different departments. That call took place on April 14 and it allowed for a very good airing of different perspectives. We expect that this will be the first of many discussions on this subject.
The provinces continue to move ahead on the initiatives they have in train, and we are continuing to approach willing provinces to see what we can do to move forward. In the budget, we said we wanted to come to an agreement before year-end on a way forward toward a single securities model for Canada.
To be realistic, moving forward on this does not mean we are going to have everyone in at the start. We have to move toward an opt-in model where willing provinces can come on board and work with us to design, and others can come in and join whenever they are ready.
Senator Angus: We will keep the pressure on.
Of course, a corollary to the lack of a single blue-sky process in this country is the laxity or the failure to date to address some of the issues that the corporate governance bill will address, which leads to the lack of enforcement resources, including money and mechanisms.
We do have this image, and the witnesses have corroborated it, but it is in front of us every day with all of the publicity in the U.S. with the post-Enron environment and the prosecutions and the enforcements procedures that followed. There is always that little dig, which bothers this committee, that Canada is a great place to do insider trading, and to ignore the basic rules.
I am not pointing a finger of blame anywhere in particular. We are all Canadians and we want to make it a better system. I believe that we have a big problem and that because we are not putting enough money into it people are flouting the law. Our police and other enforcement agencies do not have the tools to enforce the law.
Is that a fair comment? Do you have anything to add? I recognize it is sensitive subject but we have to get to the bottom of it.
Ms. Lafleur: Clearly, we agree with you that having a single securities commission model for Canada would provide for better enforcement, generally speaking, and potentially allow us to redirect greater resources to that side. However, it is not that we have not been doing anything on enforcement of late.
Last year, there was legislation passed that stiffened the penalties for white collar crime in Canada. In budget 2003, we allocated $30 million a year to create IMETs, Integrated Market Enforcement Teams.
The Chairman: To give you some insight, Senator Kelleher raised this issue about IMETs financial capacity. This is something we will get at, and I have an agreement with our deputy, who was not here during Senator Kelleher's comments; he now agrees, and you can see from his comments, that we intend to call IMET here to talk about their capacity to deal with issues. We have heard they do not have the financial capacity to proceed.
Ms. Lafleur: That may be a premature judgment; that is my own opinion. The IMETs are still coming on line. A number of teams are up and running but there are three more still to come. We need to allow them time to get running and to do their work.
The Chairman: Government is a work in progress but it is a question of urgency and timing. I just tell you this from a personal experience; I was an executive assistant and special advisor to the first Department of Consumer and Corporate Affairs. I drafted the bill. In the bill, one of the major recommendations in 1965-66 was for a uniform securities commission. Here we are 40 years later no closer to that reality, except we are closer to our pension, as Senator Angus said, and harmonization has taken effect. Harmonization is much better and the system is working better, but it still is not working as well as it could.
We are going to call these people forward because if the government has not responded smartly to a critical problem, our job is to bring that to the government's attention.
We thank you that there is a work in progress, but there is an urgent work in progress based on what we have heard so far.
Senator Angus: I think we are all probably ad idem on this, but we have to raise the temperature and the level of profile. Whatever parties are in power or whoever needs money, the evidence is clear to us. I take it you all agree.
Mr. Salembier: We absolutely agree. When we say it takes time to get up and running, because we have not had adequate enforcement mechanisms in place in recent years, when we create something like IMETs one of the first things we have to do is train law enforcement officers in the investigation of these sorts of crimes. As you can appreciate, it takes a fair bit of effort and training in addition to the resources to prepare these people for their jobs. They deal with very clever who are involved in the perpetration of some of these schemes and have to be able to get into their minds to successfully investigate and launch prosecutions of these crimes. Ms. Lafleur mentioned that these teams are coming but the sheer educational effort involved in getting them up to the standard where they can hand over to the prosecution a case that is likely to be successful takes time.
Senator Angus: An earlier form of this committee travelled to New York, and we went to Mr. Spitzer's office and saw all of his people. The people in New York face the same dilemma of conflicting jurisdictions between state and federal jurisdictions.
Mr. Spitzer has proven to be effective, thank God, in what he has done to put focus on the insurance business and mutual funds.
We need to get it out in the face of everyone and the politicians.
The last item to discuss is the topic of the payday loan companies. Mr. Salembier, and Mr. Jenkin do you know of a solution to this problem? If you do, we would like to include the solution in our recommendations.
Mr. Salembier: We are cognisant of this problem, as I indicated in my last appearance before this committee. I cannot help but be cognisant as there is one of these businesses in the corner of my building. I do not mean to be flippant about it. This industry has experienced a major growth over the past while and we are trying to determine what is behind the growth of these service providers. We want to know what drives individual Canadians to purchase this particular financial service from this particular provider.
Senator Angus: I believe that consumers use these payday institutions because of the failure of the banks to satisfy their banking needs.
Mr. Salembier: We have done some inquiries into this issue, and most of the explanations are inconclusive.
The Chairman: I want to thank Senator Plamondon, and we are taking her time, because this is a topic dear to her heart. I have visited a number of these Money Mart places and I was surprised that in addition to cashing cheques they also give car loans. I am under the impression that car loans are easy to obtain. The payday companies are not only growing but also the nature of their services is expanding.
Senator Angus put his finger on it based on our preliminary thoughts that there is a lacuna in the banking services in this area. It is highly costly to those people in the community that use this particular service because we believe that they do not have an alternative. It may not be that it is the complete reason, but it is certainly a partial reason. We have to get at this problem. It has gone from one dollar five years ago to over $5 billion a year. We are concerned about this problem.
Mr. Jenkin: We share Mr. Salembier's fear. These businesses are growing rapidly, and it is difficult to get good data on them. What is more important is the lack of information on why people are using the industry, because it is not entirely clear and I suspect a broad spectrum of people use the industry.
We financed two of the only three Canadian studies to look into this industry, and neither of them has been able to get sufficiently robust statistical data on the circumstances of the people using this industry, particularly for borrowing purposes. We do not understand why they are not using traditional financial institutions to get money, which is infinitely cheaper. Even getting a cash advance on a credit card is a cheaper way of borrowing money than getting funds this way.
Is it ignorance? Is it that people just do not understand what they are doing? Is it a disclosure issue? Is it that these people do not have access to other forms of credit?
It is difficult at this stage of the game to know what drives people to do things that on first blush seem to be irrational.
Senator Angus: These are people who need money quickly. There is just this money mountain. You heard when I cross examined that I talked about these poor people that have built up for whatever reasons a lot of debt, and they into these credit agents, like Equifax, and they cannot get out from underneath. Then, they need to go to the underground deals.
The Chairman: To be fair to Senator Angus, he and I have expropriated the territory that has been explored by Senator Plamondon. She has been our teacher and our guide in this area, and she has convinced us that this is a serious problem, so we will allow her to explore the problem with you.
[Translation]
Senator Plamondon: I will not talk about “Payday” companies, because I will just get mad. I am going to talk about other problems. My bill is going nowhere. Everyone is waiting to find data that will allow then to come up with a perfect solution, and during that time, my bill is dying, slowly but surely. In the meantime, we hope that you are aware enough of the situation to be able to continue your research.
[English]
The Chairman: Senator Plamondon, to be fair to the committee, your bill will be considered on June 1.
Senator Plamondon: We will not be here in June.
The Chairman: I will be on June 1. I hope you will be as well.
Senator Plamondon: I will take you on your word.
[Translation]
Senator Plamondon: I would like to go back to Mr. Jenkin and to a comment that our chairman made earlier. You used to be an advisor at the Department of Consumer and Corporate Affairs, and we are still examining your proposals. I know that the budget for the Office of Consumer Affairs is $800,000. I do not know the proportion of the budget for the Department of Industry — I do not dare ask — but I must say that until we have a Department of Consumer and Corporate Affairs, consumers will always be last. It will be when it is convenient and when the entire financial services industry agrees.
You should have much better means to come up with potential solutions. There should even be a new minister, a new Department of Consumer Affairs. Perhaps we would have people of Senator Grafstein's stature who could be advisors and who could move things along.
I would also like to congratulate you on a program that I am very familiar with: Complaint Courier. I invite senators to try it; they will see that it is one of the best software programs for helping consumers.
Having said that, I would like to ask Mr. Salembier why he has not sped things up so we would have plain language contracts in financial services? All consumers hoped that once Bill C-8 was adopted we would have contracts in plain language. Our previous witnesses told us that most complaints dealt with requests for information on products. That is always the case. The contracts are not written in plain language. People buy financial products that they do not understand. I even doubt that the people who are selling them fully understand them. All eyes are on the commission. I would not want to be unpleasant, I am not saying that you are dragging your feet, perhaps the Department of Finance has other priorities. As a consumer service, you could have put the pedal to the metal and demanded contracts in plain language, since that is the main issue people complaint about. They do not understand what they are buying nor do they understand the impact of the consent they give on these forms. That is the main problem.
My second question deals with debit cards and it is for Mr. Jenkin. Having spent five years working on the voluntary code of practice of the Canadian Code of Practice for Consumer Debit Card Services, I remember a meeting that dealt with electronic financial services in general.
That is what you are proposing today, except that it was so broad that it has been reduced to a Debit Card Code. What has happened to lead you to believe you are able to resolve all of the problems linked to electronic financial services with a single code? It was unthinkable at that time. It took five years to arrive at that point.
[English]
The Chairman: Again, this is another very serious set of questions, and we are out of time. If you are not able to respond to in this cluster of questions, please respond in writing. Our time is running out, so please try to be brief in your response, and we would appreciate a more amplified answer in writing.
[Translation]
Senator Plamondon: I have two questions for you. The first deals with the cheque imaging service. It is doable, and some banks have already started using it. However, were you aware that the fees for this service were quite high? Viewing a check can cost $1.50. Will we have to relive the battle over service fees that we had a few years ago in Canada? When you use a computer, you do not bother anyone, so how is it that this service generates such high fees?
My second question deals with on-line financial services. More and more seniors will use this system, but what security measures will protect them? Bank transactions are not simply limited to paying bills, but also include transferring funds. Ill-intentioned people could take advantage of seniors who must receive home care or who are very ill, for example. Often, a stranger provides this care.
How can we protect seniors who will make electronic transactions on their computers? The personal identification number on debit cards must remain secret, yes, but at home, there are no cards, just a computer. As people grow older, it becomes increasingly difficult for them to remember all the codes they need to remember by heart, and if these codes are posted somewhere, someone may access them.
All the codes, cheque imaging and that type of thing worry seniors. You are asking for one-stop shopping for securities, but what would you make of a government which says that we need a Department of Consumer Affairs?
[English]
The Chairman: To be fair to the witnesses, we only have another minute or so. There have been many questions. We will try to find some additional time for you to come back to respond to some of the questions that have been raised and to give you some time to consider them. These are important issues. They go to the heart of what our recommendations may or may not be.
To be fair, if you want to respond quickly for 30 seconds or so, that is fine. We will expect them in writing in any event, but we will try to make room in the week of May 25 to come back, because these are important questions and they go to the heart of our inquiry.
Mr. Salembier: I will respond quickly but not to all the questions. I will take you up on your offer to have some of the responses in writing. We will happily appear again if you ask us to do so.
In terms of plain language contracts, we did, in the early stages after the adoption of Bill C-8, make some progress on some of the plain language model-alone contract documents, for example, in the area of mortgages, credit card applications and credit card agreements. Those were the first deliverables on the MacKay task force report. At that point in time, we did press ahead quickly, but not in all areas. Some of these contracts are more complicated than others, and some are more difficult to render into plain English.
Upon the establishment of the Financial Consumer Agency, they have used various means of contacting consumers, including their call centre to come up with a better database on just what has to be made clearer. The Financial Consumer Agency has very much in mind the task of ensuring compliance with the cost of borrowing regulations that require plain language disclosure. There is a program of work underway.
I take no offence whatsoever from your comments, senator, but in the early stages of CA we did try to make some progress on this issue.
When it comes to the debit card code and electronic transactions, we have successfully negotiated some changes to the debit card code in the area of consumer's liability. There has been work with the Canadian Payments Association to bring the same sort of regime under the debit card code to apply to online transactions.
On cheque imaging and the costs of consumers getting access to their cheque information, cheque imaging is a technology that will bring about further efficiency in the system. It will work hand in hand, I hope, with initiatives we have taken on a low-cost account. One of the features of the low-cost account that we negotiated with each of the major banks, the MOUs we negotiated do require the bank to offer cheque writing privileges as part of that low-cost account.
I hope upon the introduction of cheque imaging that it would have the effect indirectly of ensuring the cheque writing privileges that consumers pay for can fall within the basket of services provided for $4.00 a month.
The Chairman: Thank you. You will get an opportunity to read the transcript, and you may want to amplify those answers.
I want to leave you with two thoughts, one that you could be very helpful with and the other a question of opinion that you may not want to help with.
I believe Mr. Jenkin pointed out and you have alluded to one of the systemic problems with self-regulation. We heard the young witness yesterday talk about the systemic problems with self-regulation because there is an inherent conflict of interest with respect to self-regulation.
Senator Angus: We need to be sure they have seen Mr. Kyle's submission.
The Chairman: Mr. Kyle submitted it yesterday, and although in many instances his statements lacked support, perhaps you could address them because he raised a fundamental issue of the nature of the regulatory regime.
Senator Angus: Do you mean the IDA and so on?
The Chairman: I would like you to give us your opinion, if you can, as public servants, about the nature of the regime within the government. We have now heard that, as opposed to Senator Plamondon's idea of a competing department of consumer affairs that could deal with these measures more forthrightly, perhaps, and with a larger budget, successive governments have decided that these measures of consumer protection would go to their client groups, transport or whatever, as you pointed out. Finance is an example, and I am not raising the spectre of direct conflict of interest but a philosophic conflict of interest, as it applies to public administration.
Perhaps you could address whether the system we have adopted within the federal government is an appropriate system. It is, in effect revisiting her idea and the idea that we had at the outset, back in the 1960s. I pay credit to former Prime Minister Turner, who was the first Minister of Consumer and Corporate Affairs, and I was his chief of staff. We confronted that problem 40 years ago. We thought her model was the appropriate model, and it has now morphed into a separate model.
You have heard our concerns about moving forward as a central organization, and we are sensitive to the fact that harmonizing is one step in that direction. We will not get to the question of a single regulatory unit for securities very soon. However, in absence of that, there is a means of dealing with a central overview based on enforcement. We have heard Senator Angus talk about the American model. We have heard about IMET.
What are the necessary steps for us to take if we decide to proceed along those lines?
We would value your advice on this subject. In other words, you talked about training, enforcement, and budgeting. If we decided to have a central enforcement agency to beef up IMET with regulators and federal prosecutors on the other side, can you tell us what steps we should take to ensure that would be an appropriate step?
It would be very helpful, because we believe, and Senators Angus and Plamondon have summed it up, you will see that the public is saying to us that we must revisit the system. We do not want to revisit it needlessly and cost ineffectively.
I want to thank you all because you are working on the front lines on this subject matter. We are not talking to the uninspired or the uninformed.
Senator Angus: We will support you. We should work together.
The Chairman: We are asking you to be brave. If you cannot deal with this because of your political masters, we will try to deal with that issue.
Senator Angus: We will change the masters.
The Chairman: My friend Senator Angus has to go back in the box. He has been such a good boy, and all of a sudden for some reason, he is not a good boy today.
Thank you very much. We may have you back again if we can crunch some time in. If we cannot, please give us your thoughts in writing. Thank you for your work on our behalf.
The committee adjourned.