Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce
Issue No. 48 - Evidence - November 20, 2018
OTTAWA, Tuesday, November 20, 2018
The Standing Senate Committee on Banking, Trade and Commerce met this day at 1:33 p.m. to study the subject matter of those elements contained in Divisions 3, 4, 6, 7 and 10 of Part 4 of Bill C-86, A second Act to implement certain provisions of the budget tabled in Parliament on February 27, 2018 and other measures.
Senator Douglas Black (Chair) in the chair.
The Chair: Good afternoon, colleagues and members of the general public who are following today’s proceedings of the Standing Senate Committee on Banking, Trade and Commerce, either here in the room or listening via the web.
My name is Doug Black. I am a senator from Alberta, and I have the privilege of chairing this committee. I will ask the senators around the table — and more will be joining us — to kindly introduce themselves to the panellists.
Senator C. Deacon: Colin Deacon, Nova Scotia.
Senator Wetston: Howard Wetston, Ontario.
Senator Klyne: Marty Klyne, Saskatchewan.
The Chair: As always we are assisted by our clerk and analyst who do tremendous work for us.
Today we begin our subject matter examination of five divisions of Part 4 of Bill C-86, a second Act to implement certain provisions of the budget tabled in Parliament on February 27, 2018, and other measures, otherwise known as the Budget Implementation Act 2018, No. 2.
Honourable senators will know that our committee must report our findings to the Senate by no later than December 4, 2018.
Today, we will focus on Division 10 of Part 4, which deals with the Financial Consumer Protection Framework and proposes amendments to the Bank Act and the Financial Consumer Agency of Canada Act.
I am pleased to welcome, in the first portion of our meeting, from the Department of Finance Canada, Eleanor Ryan, Director General, Financial Institutions Division, Financial Sector Policy Branch. Of course, Ms. Ryan has been with us on a number of occasions before. With Ms. Ryan is Jean-François Girard, Director, Consumer Affairs, Financial Institutions Division, Financial Sector Policy Branch. From the Financial Consumer Agency of Canada we welcome Richard Bilodeau, Director General, Supervision and Promotion Branch, and Kevin Thomas, Manager, Policy and Promotion. Thank you for being with us today.
We will begin with opening remarks from the Department of Finance Canada, followed by the Financial Consumer Agency of Canada, and then we will move to questions and answers.
Senators, we understand that we have a tremendous volume to get through this week, starting with this afternoon. I would ask us to be as succinct as we can with questions and witnesses to be as succinct as they can with answers.
Having said that, may we please proceed, Ms. Ryan.
Eleanor Ryan, Director General, Financial Institutions Division, Financial Sector Policy Branch, Department of Finance Canada: I will begin with some background. Division 10 represents consolidation of existing legislation and regulatory provisions applying to the relationship between banks and their customers, as well as new measures intended to address the issues identified in two reports published by the Financial Consumer Agency of Canada in 2018. That first report was a comprehensive review of bank sales practices. The second report examined best practices for the supervision of financial consumer protection.
The Department of Finance, Jean-François, others of our colleagues and I engaged with over 100 representatives from the provinces and territories, consumer groups, banks, and external complaint handling bodies on the measures proposed in Division 10. Overall the proposals were viewed as significantly improving protection for bank consumers.
Before I turn to the specific elements of Division 10, I want to emphasize that the proposed legislation does not include an explicit assertion of exclusive federal jurisdiction over bank customers. The proposed legislation does not affect the provinces’ ability to regulate in the area of consumer protection. Consumers continue to have rights under provincial legislation.
I want to highlight again that the elements in Division 10 do not contain an exclusive assertion of federal jurisdiction. The proposed legislation is intended not to affect the province’s ability to regulate in the area of consumer protection, and consumers would continue to have their rights under provincial legislation.
If I could give a quick snapshot of the elements in it. First, the proposed amendments to the Bank Act and the Financial Consumer Agency of Canada focus around three themes.
The first one requires banks to have new internal processes or practices to further strengthen outcomes for consumers. I would like to highlight a couple of examples of those. For instance, the new measure would require banks to designate a committee of their board of directors to oversee the bank’s obligations to consumers.
The second would be for that committee to report annually to the Commissioner of the Financial Consumer Agency on what the committee did in performing their duties.
Another important measure would require banks to have policies and procedures to ensure the products and services offered to a person are appropriate, having regard to the person’s circumstances and financial needs.
In addition, banks would be required to ensure their remuneration practices, including benefits, do not interfere with the ability of employees and agents to comply with the suitability procedures I have mentioned.
I would now like to turn to the second core element. I am trying to be brief here. There are a number of important elements in the bill, but I would like to highlight the key elements.
The legislation also proposes new tools for the Commissioner of the Financial Consumer Agency of Canada to better align the agency with supervision best practices and promote compliance with the consumer protection framework.
First, it is proposed that the commissioner would have the power to direct banks to take action to remediate non-compliance with their legal obligations under the consumer protection framework. This power would extend to ordering restitution to consumers when banks have collected charges improperly.
Second, the amendments are proposed to the Financial Consumer Agency of Canada Act to increase from $500,000 to $10 million per violation the maximum penalty that can be imposed on banks found by the commissioner to have breached their legal obligations under the framework. As a complementary provision, the name of the bank that would be subject to the penalty would be publicly identified in the commissioner’s decision.
There is a third group of improvements that would further empower and protect consumers. The legislation, for instance,contains new prohibitions that would provide that consumers cannot be provided with misleading information, that there cannot be undue pressure applied and that consumers cannot be taken advantage of under any circumstances.
A number of improvements are made to the way banks handle complaints. For example, there would be a new requirement to keep a record of all complaints, making this information available to the Financial Consumer Agency Commissioner.
There would also be a prohibition on using misleading terms, including ombudsman, to describe a bank’s internal complaint handling procedures.
Furthermore, there would be a new requirement for improved external complaint bodies to publish a summary with reasons for each final recommendation they make.
I have tried quickly, in the interests of being expeditious, to highlight a few items. We are very pleased to answer any questions that you might have.
Richard Bilodeau, Director General, Supervision and Promotion Branch, Financial Consumer Agency of Canada: Thank you for inviting the Financial Consumer Agency of Canada to participate in this study of Bill C-86.
In March of this year, FCAC published a report entitled Domestic Bank Retail Sales Practices Review. The review examined risk drivers related to sales practices risk, including sales targets and incentive programs, as well as the controls in place to mitigate risks associated with sales practices.
Among our key findings was that the retail banking culture encourages employees to sell products and services and reward them for sales success. This sharp focus on sales can increase the risk of misselling and breaching market conduct obligations. The controls banks have put in place to monitor, identify and mitigate these risks are insufficient.
The work that we started on the sales practices review and published earlier this year continues to date. For example, earlier this fall we delivered to each bank that we reviewed detailed institution-specific reports where we identified a number of recommendations. We are now working with them to ensure that they implement the necessary changes to mitigate the risks that we identified in our report earlier this year.
We also published our Report on Best Practices in Financial Consumer Protection, which was submitted to the Minister of Finance after a pan-Canadian consultation. FCAC found that, overall, Canada’s federal financial consumer protection framework is strong. However, we also identified areas for improvement. The improvements recommended include: Certain business practices, better supervision and enforcement tools and measures to better empower and protect consumers.
If enacted, the consumer protection measures in Bill C-86 would bring about very positive developments for Canadian financial consumers. The proposed legislation would reinforce and consolidate the FCAC mandate to protect Canadian financial consumers and to coincide with and support the agency’s adaptation to a constantly changing, complex financial marketplace.
More specifically, the bill would enhance our ability to supervise and enforce compliance. It would clarify expectations of how financial institutions must meet their obligations. It would also increase the severity of consequences should banks fail to meet these obligations.
The proposed changes would also strengthen the agency’s financial literacy mandate. By better integrating financial literacy within our mandated purpose, the bill would allow the agency to better structure our financial responsibilities. The agency has built a foundation for long-term federal financial literacy work, and this work will continue to be a priority for the agency.
Thank you again for the opportunity to appear before you. My colleague and I would be pleased to answer any questions you may have.
The Chair: Thank you very much for those two very good presentations. We will move to questions now.
Senator Wetston: There are about 60 pages in the bill dealing with what you summarized in very short form. I have taken a look at some of the provisions, but I must say that I am a bit overwhelmed by the technical nature of many of them.
Could you enlighten us with respect to what you believe are the major and more significant provisions in the bill as they affect consumers?
I also have a question or two about FCAC. I will give you an example. When you discussed this, Ms. Ryan, you were talking about what the securities industry has done for many years with respect to knowing your client and knowing your product. You are using words like suitability and those kinds of descriptions, which is very common in the securities industry, as you know. Are you developing policies and approaches similar to that?
Jean-François Girard, Director, Consumer Affairs, Financial Institutions Division, Financial Sector Policy Branch, Department of Finance Canada: The legislation is setting up the foundation for this to happen. By design, it is not specific to a certain procedure in the sense that banks offer a variety of products and products change.
The expectation is that banks subject to the legislation will develop policies and procedures that will force them as they sell products to ask the right questions and to ensure that they consider the needs of customers. These policies and procedures would be subject to supervision by our agency.
It is a fairly general requirement that provides flexibility to have our supervisors engaged with the banks and ensure that they have the proper policy and procedures to meet the expectations set out in the legislation.
Senator Wetston: I need some clarity here. For at least 30, 40 or 50 years, the securities industry has regulated the activity of dealers dealing with their clients. I have just described the framework. It has been evolving, as you know, and it continues to evolve. It is important because the regulatory requirements are mandatory.
When you describe what you are describing here, who will implement this? Who will oversee this? Who will have responsibility for enforcement? Are we talking about the same thing?
Let us take any traditional bank and split it in two. On the one side you have banking and on the other side you have a whole dealer network. That whole dealer network has been exposed to IIROC and CSA requirements for many years. It has much of this in place and is still being improved or updated.
In what you have just described to me, are you saying you have not learned anything and that you can’t apply this to the banking side? When you talk about products, look at the product complexity on the securities side and then think about it on the banking side.
Help this committee, please, to understand exactly what you intend to do because at this stage it sounds very general.
Ms. Ryan: We ground a number of our recommendations from the recommendations that the Financial Consumer Agency of Canada made in their report.
Our intention is to ensure that banks, as they design products and services, think about the needs of customers. In this framework, each bank would be obliged to have policies and procedures that take account of the needs of customers.
We don’t impose in the legislation the best interest test as they do in securities law. Instead, each institution would look at their suite of products and services and then figure out how to build in those protections so as to protect the consumer.
It would be at the design phase and at the selling phase. It would be through the lifecycle, but it isn’t actually taking the best interest test that the securities regulators use and applying it. It is taking a test called suitability, but it is allowing the banks to create the test that best suits their needs while ensuring that the needs of customers are also taken into account.
It is providing some flexibility on the design, but the objective is to respond to the concern highlighted by the FCAC, which was that the needs of customers were not being considered adequately through the selling cycle.
Mr. Bilodeau: In the report we identified the sharp focus on sales, obviously driven for some products by certain compensation structures that could entice employees to sell things that might not be best for consumers.
By incorporating the need to have policies and procedures, by taking into account the needs of consumers, and by ensuring that any compensation or remuneration for employees doesn’t interfere with those policies and procedures to ensure banks do the right thing and train employees to do the right thing, these three things taken together will help achieve or resolve some of the issues we identified in our report.
Furthermore, if and when the legislation is enacted, it will give us the opportunity to go to banks and have a look at those policies and procedures to ensure they are doing what the legislation requires: Did they take the needs of customers into account? Did they implement theses things? Then we can look at the remuneration to see if in fact it is not interfering with the process. If we find that it does, then we can have a conversation with the institution to get it to make changes.
It is just like what we are doing now with the recommendations that we made in our report. We identified a number of issues and what we wanted the banks to do to make it better for consumers.
Senator Wallin: Under what auspices do you have the right to tell a board of directors to form a committee and to staff it up? Do you have the right to do that?
Ms. Ryan: The model we are proposing to use here is a model similar to that used for the audit committee of a bank under.
In the Bank Act we want banks to pay particular attention to two areas. One is obviously the financial soundness of the institution, so we require an audit committee. Also we want banks and their management to avoid conflicts of interest, so we have a conduct review committee.
This is the model we are nearing here. We are asking the banks to pay particular attention to the interests of bank consumers. Indeed, we have this model that has proven to be a very effective model.
Senator Wallin: Sitting on a board, I would say we are in the business of customers. If we are not looking after the interests of customers, then we will not be in business.
There are always exceptions to the rule, but it seems odd that you would have a committee doing your job.
Mr. Bilodeau: We did a review of sales practices at banks, not so much on whether or not they were focused on their customers, but on not enough attention being paid at the board level to sales practices, risks and market conduct obligations.
We were making sure that the banks were complying with the consumer provisions of the Bank Act. We found that they were not being elevated in a detailed fashion to the boards of directors to allow them to have enough information to ask the right questions of management. One finding we identified and flagged was that we didn’t think there was enough focus being paid at the board level to ensure that they were complying with their market conduct obligations.
Senator Wallin: Maybe I don’t understand exactly what this entails. You want this special committee of the board to examine the regulations and look at reports from each institution to say how many complaints they had. In reality, how would this function?
Ms. Ryan: First, the legislation asks the bank to establish a committee. Second, we lay out a mandate just as we do for the audit committee.
The committee will establish procedures for ensuring that they are complying with the consumer provisions. To ensure they have adequate procedures, the committee will establish those. They will review those to see how management is ensuring that those are being adhered to. They will report annually back to their boards of directors, and then the boards of directors will report to the commissioner.
We create a mandate and give them specific jobs. The banks create the procedures, follow up to ensure that those procedures are being observed and report back to the boards, so that the boards can talk about those issues and report to the commissioner.
Senator Wallin: I guess it is that last part I don’t understand. If someone discovers a problem, you will say, “Fix it.” That would happen, presumably quickly at a manager level, never mind kicking it up to the board. Then you want to kick it to a commissioner.
I am trying to find out the purpose of a whole new layer of bureaucracy here.
Ms. Ryan: The idea here is to have an intentional examination of the consumer framework and to have all of the elements brought to one committee, looked at, and then reported to the board. As you said, if there is an issue that needs to be fixed, the board would indeed do that. This ensures that there is a complete picture being brought to the board.
Committees can be useful because boards have so much in front of them. They would then have a specific committee. Many banks actually have nominating committees as well. You give an expert group the role of digging in and understanding the details. Then they report back to the board and summarize what they are seeing.
Senator C. Deacon: To keep building on the same line of questioning, when I took the Canadian Securities Course in the summer of 1979, knowing your client was a big part of the program then. It sounds like you are developing something separate, which doesn’t put the responsibility right at the front line where the pitches are being made. It puzzles me that we are not building from something that we have seen has had effect.
What are you using for your key performance indicators? What will you be watching to say this is actually cost effectively and cost efficiently improving the protection of consumers in Canada and improving the practices of the banks? What KPIs have you put in place to track that?
Mr. Bilodeau: The answer about KPI is harder to identify. If and when the legislation is implemented, we started in anticipation of working with the institutions in anticipation of delivering our expectations to them and saying, “As you are developing your policy and procedures, here is what you need to build in to ensure that when you and your staff are selling products you are taking into account the needs of consumers.”
That can vary by product. You will not build the same thing for every product because not every product has the same characteristics. As was pointed out earlier, different products will have different complexities. Whether you are getting a mortgage or opening a simple chequing account, they are not the same complexities. We will work with the institutions to develop what are those right policies and procedures. We will supervise them. We will ensure they implement them. We will ensure they train their employees on them as well.
As part of our supervision process, we conducted a sales practices review. We will continue conducting industry reviews that can allow us to see how the banks are doing.
Senator C. Deacon: With respect, Mr. Bilodeau, I am not hearing that you have identified exactly what you want to accomplish. You are identifying how you want to accomplish it but not what you want to accomplish. I have not heard anything about benchmarking.
I have heard here is where we are today, and if we make these changes we will be better tomorrow. You are clearly identifying how, but where are we today? Where will we be tomorrow? What will you be tracking to ensure that we will be better and that this is actually worth the effort that has been put in?
Mr. Bilodeau: We have lots of tools at our disposal to supervise institutions. As an initial step we will ensure that the banks have implemented the policy and procedures in a way that we are happy with and that they have taken the consumer needs into consideration. Then we can test those with the institutions.
Whether or not we do another industry review, hypothetically, in three years from now, once everything has been in place for a while we can review how things are being sold to consumers. If you take a step back, we did a sales practices review and in a lot of products consumer needs were not being taken into account.
If we repeated the same exercise, or at least focused on products, we could see how the products were being sold to consumers and say something about whether or not those policies and procedures have changed the conversation between the employee and the consumer on a product-by-product basis.
We have established somewhat of a benchmark with ourselves in practices review, where we have identified a number of issues that were eventually useful in developing the legislation.
Senator C. Deacon: I will change tack for a second, and then maybe ask to go to second round with other questions.
On the federal-provincial jurisdiction issue, what efforts have been made over the period of time since many of the intended changes to the act were originally before the Senate? What efforts have been made to work with the provinces? What agreement do you have with the provinces to make sure that you are working together in an effective and cost-efficient way, not to increase the bureaucratic or administrative burden, but to do a better job of protecting consumers?
What efforts have been made to be very clear not to duplicate and not to have gaps between the chairs in that regard? That was a major concern pushed back toward you from the Senate before.
Ms. Ryan: Right, absolutely. One of the first things the Minister of Finance did was to ask the Commissioner of the Financial Consumer Agency to prepare a report on consumer best practices, looking at domestic standards in consultation and collaboration with the provinces and internationally as well.
Mr. Bilodeau: As part of the consultation, the commissioner met to have a conversation with every jurisdiction to try to find out what were the best practices. It wasn’t the first time she did this exercise. She has engaged and she continues to engage with the provinces on a regular basis to advance consumer protection and to identify what we do, what they do, and how we can work together.
We have in place a memorandum of understanding with IIROC so that we can better work with certain regulators. The best practices allowed us to identify what was going on in the provinces and to see what worked, what needed to be made better, and where gaps existed for consumers of federal banks. We identified those in the report, and many of them are reflected in the legislation.
Ms. Ryan: After we had the benefit of reading the FCAC report, within finance we developed policy proposals and then went out to meet or speak with all the jurisdictions, provinces and territories. We shared our initial thinking about the proposals. We received a number of suggestions about how we might improve those, and those were integrated.
We heard from some provinces. They thought some of our ideas were interesting. They would look at them and in time see how they developed and how Parliament might receive them.
It is probably fair to say that we feel the conversation was very useful. We hope to continue to build on those relationships as we go forward. If Parliament decides to pass this legislation, there will be a number of regulations that will be required. We have already committed to the provinces that we would consult them on those regulations.
Senator C. Deacon: Are you aware of any provinces concerned about the proposals you are putting forward in this act?
Ms. Ryan: We have generally received very good feedback on all of the proposals. There were questions about how we would interpret specific provisions. Those kinds of conversations are ongoing at this point in time.
Senator C. Deacon: Are you aware of any provinces that are not happy with the proposals put forward?
Mr. Girard: We got feedback once we explained the proposal. In particular, not having the most problematic provision in the previous iteration of 2016, the explicit assertion of exclusive federal jurisdiction, was welcomed by essentially every person to whom we spoke. After that discussion we engaged in a productive way in terms of how these proposals could be administered.
Some provinces have experience with something similar in terms of approach in different sectors. Some of the regulators we spoke to have responsibilities in the insurance sector or were financial institutions such as credit unions and not banks.
We got feedback on certain aspects that could be improved or modified and on certain pitfalls that we must be mindful of, such as primarily, the practical aspect of putting the regime in place, and not as much on the legislation itself.
Ms. Ryan explained that to put this regime in place there will need to be an extensive set of regulations. Right now we have over 20 regulations that need to be reviewed, adapted to fit with this regime, and improved where needed. There will be opportunities to consult further to make sure that some of the areas of concern in terms of administration and consistency can be addressed.
For example, one area where provincial and federal regimes somewhat overlap is in regard to disclosure when someone is signing up for a product. In the 1990s, a harmonization agreement set out a framework for areas where there could be a duplication so that the requirements between the Bank Act and provincial legislation would be equivalent. This is one area where tremendous progress has been made through that exercise. Going forward, we are certainly mindful of the need to keep going that way. This is what the actual implementation of the regime will require.
Senator C. Deacon: Can I summarize to say that the provincial response is better than it was last time and there is still a lot of work to do?
Mr. Girard: That is fair.
The Chair: If I can further summarize, do I assume from that comment that all the provinces and territories are working forward with you? There is no one saying, “This just does not work for us.”
Mr. Girard: That is fair.
Senator Klyne: I will dovetail off Senator Wetston and Senator Colin Deacon. I have other questions, so I will wait until the second round and see how it works.
Going back to the customers’ situations, Senator Colin Deacon says it is really in knowing your clients in terms of their circumstances, their needs and their level of financial knowledge. I assume we’re talking about registered and non-registered securities and mutual funds. I thought it was a regulation that anyone selling any of those products needs to be licensed, first of all, even in the trust corporations when it comes to GICs and mutual funds. You have to explain to me if it’s just these products that we are talking about.
Knowing that the banks or financial institutions do this investigation or interview to understand the clients’ levels of knowledge, circumstances and needs, how do the amendments differ from what is currently being done? What is it that you’re trying to fix, if you will, that is not there currently?
Mr. Girard: Just to be clear, banks have subsidiaries that deal in securities. These firms need licences and people sell products as part of these firms. They are registered and they have to hold certain licences that fit with their duties.
What we’re talking about here are banking products. It could be a credit card, a line of credit, a mortgage. It could be the products that banks sell as banks. Right now, the starting point is in the act where there are no specific requirements for a bank to assess the needs of the customer.
There are areas of risk in the report the agency produced because the teller in front of the customer might have incentives to sell certain products that are better rewarded and that may not be suitable for the customer.
What we’re putting forward is a requirement that they actually start asking questions. If a credit card is offered, they should ask about spending patterns: Do you intend to carry a balance? Do you expect to carry a balance or not? These would help determine, among the suite of credit cards a large bank can offer, which one is best for the customer as opposed to the one that will get the teller more scorecard points as a bank employee. This is what is put forward in this bill.
Senator Klyne: There is an amendment that allows the minister to establish a body corporate that would look at issues or complaints that haven’t been resolved.
I am trying to understand how that will be different or an improvement versus what is already out there in terms of ombudsman and the like of other avenues that someone can pursue, including legal pursuit.
Ms. Ryan: Currently the legislation in the Bank Act actually creates a framework where banks are required to have internal complaint-handling processes. If customers are not satisfied with the outcome of that internal complaint process, they can go to an external complaint-handling body. All banks must be members of either one of the two that have been approved by the minister and follow the standards the Commissioner of the FCAC assesses them against.
The legislation continues that framework and makes some improvements to it. The improvements are around, for instance, making sure that there isn’t confusion around the use of the word “ombudsman.” It is not used by banks when it’s for their internal processes. That term is reserved exclusively for the external complaint-handling bodies. It makes some improvements around disclosure.
That model is currently used in the act by the minister. There is a second model that already exists in the legislation where the minister could, if he wanted to, designate one complaint-handling body to serve the needs of all customers of banks. That has not been used by the government.
Currently two models are available in the act and the government uses the model that allows for multiple external complaint-handling bodies to be approved, and banks have to be members of both.
Senator Klyne: If what exists already through an ombudsman, the Office of Consumer Affairs or the use of legal action is not working, am I to understand the minister could establish a body?
Ms. Ryan: There is authority.
Senator Klyne: What I should ask is: What is not working?
Mr. Girard: If I understand your question correctly, you might be making reference to some stakeholder groups that have identified problems with the regime.
Senator Klyne: There is a proposed amendment to allow approval of a body corporate by the minister to deal with complaints against institutions that have not been resolved.
What is the ombudsman, Consumer Affairs or legal action not solving?
Ms. Ryan: We can talk first about the changes we proposed.
Mr. Girard: Yes. The complaints are an important component of the regime. We want banks to resolve complaints when they are brought to their attention. That is how the system is designed and that is the expectation of banks.
We have made a number of proposals in this bill. One is that the banks must keep records of the complaints they are receiving. This is an important issue for us and for the banks because the agency in its supervision has advised us that some banks keep some records and that some keep different records. It’s difficult to ascertain what is going on and how they are managing complaints if they are not recording them. It makes it difficult to compare the performance of the institutions.
The second problem is that they could hide systemic issues. I will give you an example of Wells Fargo in the United States. This bank was opening accounts without the consent of their customers. Their complaints-handling procedures were that the accounts of those people who were calling were closed, and they were reimbursed if there was a fee charge. If they don’t keep records, senior management of the bank would have no information about the systemic issues and misbehaviour of concern in the United States and in other banks in Europe.
Knowing that, we made improvements. We want banks to keep records of the complaints. We want them to make this information available to the commissioner. As Ms. Ryan explained, if the complaints are not resolved to the satisfaction of the customer, they can be brought to an independent external complaints-handling body.
Another issue was brought to our attention. The current process for the external complaints body is that the parties to the complaint bring evidence before the body and the body makes a recommendation. Then, historically, the banks have taken that recommendation in every case. This said, there were concerns that the process was not transparent because no one else would know what were the considerations taken into account and what was the outcome.
We’re proposing a requirement that the external complaints body publish a summary of their recommendation. For example, it could set out what is the product or the service to which the complaint pertained. What were the circumstances? What facts were taken into account, and what was the conclusion?
On the one hand, by making it public, it allows the public to see what happened. It provides further incentive for the external complaints body, knowing that its recommendation will be made public. It’s a further incentive to ensure that the fairness of the process is kept and that the outcomes we’re looking for are achieved.
Senator Klyne: This is to rectify the process where it gets to an external complaints body.
Mr. Girard: Yes.
Senator Klyne: I think I understand that and what you’re trying to resolve.
Maybe I will ask the question another way. Why is there an amendment that allows the minister to establish a body at corporate level to handle the things that aren’t resolved, and who will pay for that?
Mr. Girard: This is included in the bill, but two paths can be taken in the existing legislation.
One is where the minister approves the provisions of the external complaints-handling body being used today.
Another path is where the minister could designate a single external complaints body. If the minister were to designate that body, the other approvals would be extinguished. This is how the regime would go forward. That aspect of the legislation is what is in the Bank Act today. It has not been changed. It has been carried into this bill. We are moving around sections in the act so that they can be together. It is reproduced here, but the specific drafting of these sections is the same as it is in the Bank Act today.
Senator Klyne: What I thought was an amendment on page 272 is not an amendment.
Mr. Girard: It is not an amendment. That’s right.
Senator Dagenais: My question is for Ms. Ryan. We are all aware that some clients often find themselves in a rather vulnerable position when they go to a financial institution, as they are not always able to request or understand some of the information. The fine print is notorious, if I may say so.
Let’s take financial products or investment products as an example. To what extent will the changes you want to make through Bill C-86 require banks to declare in writing their interest or involvement in a corporation?
Mr. Girard: The regime that applies to investment products is subject to the provincial securities regime. There is no change, no specific provision, proposed to that effect. The provisions apply to products offered by the banks.
To improve the quality of the communication of information and address fine print issues, as you mentioned, a new provision will require that all contracts and product application forms include a box of summaries identifying the main features of the product. This approach is appreciated by clients since contracts can be quite complex and daunting. Information relevant to informed decision-making will be presented in plain language inside that box.
That’s a great improvement. Some products in the legislation are already subject to such a requirement, but it will now be extended to all banking products.
Senator Dagenais: In your presentation, if I understood correctly, you indicated that banks could be subject to fines. You even cited a maximum penalty of $10 million for serious violations of consumer rights. That amount is huge, to say the least.
Are you able to tell us whether, over the past four or five years, any institutions have been sentenced to the maximum fine set out in your legislation? If so, how often? What justified the increase in the fine?
Mr. Girard: The maximum fine currently provided for in the act is $500,000. In our review of the legislation, those amounts were compared with those imposed for violations in other federal regimes and other jurisdictions as well. We were surprised to find that the maximum amount of $500,000 was relatively low. We also think the incentive to comply will be much more persuasive with higher amounts. At the federal level, we discovered that a maximum fine of $10 million can be imposed on some large entities.
In Canada, we are dealing with major banks for which $500,000 would not really be substantial whereas such a fine could hurt some very small institutions. We have therefore added certain criteria to our proposal to allow the person responsible for administration, a commissioner under the agency’s legislation, to take into account a number of factors in determining the amount of the penalty.
To answer your initial question, I will give the floor to Mr. Bilodeau.
Senator Dagenais: To wrap up the topic of fines, has the $10 million fine you mentioned ever been imposed?
Mr. Girard: That amount is new. The law has not yet come into force. However, I would like to add that the provision dealing with the decision of the commissioner in charge, who will require that the bank be identified, is also an incentive. Both operate in parallel. We have checked with regulatory agencies and, in their experience, the amount of the fine alone or the naming alone are two incentives; putting the two together takes us much further. That is reflected in the bill.
Mr. Bilodeau: To quickly answer your question, the commissioner imposed the maximum fine of $500,000 on only one occasion.
Senator Dagenais: Was the name of the institution disclosed?
Mr. Bilodeau: No, not in that case.
Senator Dagenais: Thank you very much.
The Chair: Before we move to the second round, I have a couple of quick questions, if I may.
From both of the organizations, can you summarize what you believe is the impetus for these proposed changes?
Ms. Ryan: The first impetus is that the framework in the Bank Act was difficult for someone to understand as it was spread out over the legislation in many regulations. Perhaps at the beginning we began with the idea of creating one part or one division of the act where all the rules could be read together, so that consumers, their representatives and parliamentarians could read that part. Then they would understand how banks should treat their customers.
The Chair: Would I categorize that as housekeeping?
Ms. Ryan: Yes, although through that exercise it caused us to go back and ask what was underlying all these provisions. We ended up creating titles that guide the reader better.
The second impetus was rightly pointed out by the committee. When we first brought the legislation forward a couple of years ago, we were asked to go back and look at whether or not the legislation represented the best protection for bank customers. The FCAC report was helpful in highlighting key elements of a strong consumer protection framework. Those have been embedded in this framework, and I will turn to Richard Bilodeau to talk a bit about those.
The third was, as you’re aware, the efforts of the FCAC to look at the bank sales practice and highlight areas where we want to get the incentives right for consumers. Though many consumers that go to their banks feel well treated, they will have confidence that the person who is selling them a product has the incentive of thinking about their interests.
Mr. Bilodeau: I don’t want to repeat what Ms. Ryan said, but there are two things to point out in addition. We are heavily involved internationally as well through various committees. I think you learn a lot from working with other jurisdictions. A lot of that was reflected in the report on best practices that we submitted to the minister.
First, we want to keep pace with what is going on internationally. Second, on a day-to-day basis we supervise banks. We see what is working well in the legislation, and we learn lessons from that. Working collaboratively with our colleagues in the Department of Finance, we can inform discussions at the policy level and say what is working in the marketplace and what needs to be better. We can feed that into the work they do, and the result is the legislation you have before you today.
The Chair: A modernization agenda, is that how you would characterize it?
Mr. Bilodeau: Generally, I would describe it as modernizing what is there. It takes into account certain things we have seen internationally and domestically, and the work we have done in the best practices report from looking closely at the banks over the last 1.5 years in terms of how they sell products, organize themselves and the governance they impose on market obligations.
The more you learn about institutions, the more you see what needs to get better and what needs to be addressed. We can feed that to our colleagues at the department.
The Chair: Mr. Bilodeau, my last question is for you. You mentioned financial literacy which is a great concern to members of this committee.
Talk to us briefly about what you propose to do to ensure Canadians are financially literate.
Mr. Bilodeau: We always like to say at the agency that we protect consumers. We do that in two ways: One is to supervise banks and the other is by working collaboratively with others to increase the financial literacy of Canadians.
We have done a number of projects over the years. Jane Rooney, our Financial Literacy Leader, has been instrumental in establishing a national steering committee for financial literacy. It is a committee that meets on a regular basis to discuss initiatives related to financial literacy.
They have also created a research committee to feed into and to help organizations develop initiatives to better help Canadians understand their financial rights and responsibilities and take control and charge of their finances.
We have done a number of concrete things. The agency has put in place a number of tools. We have a budgeting tool on our website that consumers can use to help plan their financial lives. We have a tool that helps consumers select the right mortgage for them. We have a tool that helps credit card and account selection. We have a database of resources for Canadians on our website. Depending on what are their specific needs, they can see who in their community can help them with those needs.
It is very much a collaborative approach, and it will continue under the changes in the legislation. I would argue that it will allow the agency to better integrate all the functions we have so that we can come out of it even stronger afterward.
The Chair: That was very helpful, and I am sure many people listening today have found that very helpful.
Senator Wetston: I think it is Financial Literacy Month, is it not?
Mr. Bilodeau: It is, until next week.
Senator Wetston: I am surprised you are not handing things out to everyone. Financial literacy is a tough nut to crack, as we all know. It requires a lot of effort. I congratulate you for doing it.
I am very supportive of enhanced authority for FCAC. It is time and it is timely. I am also supportive of enhanced consumer protection because it is very critical. We have observed that the securities industry for many years has been much further ahead of the banking industry with respect to sales practices and sales practices associated with consumer protection. It also is challenging because it is a hard nut to crack.
To clarify the record, I would like to get some comments from the panel. First, there is no mandated best interest standard in Canada with respect to the securities industry.
Second, I understand the government made an effort last year to bring forward the consumer code. The reason it was pulled, I believe, was because of the exercise of paramountcy on the part of the government. Going to the issue of the provinces was probably a necessary and useful thing to do, given the extent of provincial jurisdiction.
Following up on Senator Klyne’s comments, if I might add in asking you a question, in 2012 the federal government formally established and sanctioned a competitive model for dispute resolution, the ombuds service. The next panel will talk about that.
I must say that was against the recommendations made by the CSA. The CSA challenged the federal government not to do that but to appoint OBSI as the ombuds service, the main reason being it wanted to ensure that there were no conflicts in the choice of an ombuds service. We have recently seen a number of banks pull out of OBSI once again. Perhaps there will be some discussion around that issue.
I would like clarification of this but I believe, today, that the minister can designate one body as being the ombuds service and does not need to continue to sanction a competitive model for dispute resolution. Is that correct?
Ms. Ryan: Yes. Two models are currently allowed in the Bank Act. One is where there could be multiple approved, and that is what we currently have. The other available in the legislation is where the minister could designate one body.
Senator Wetston: Right now the banks need to be a member of one body. They do not need to be a member of two bodies. Is that correct?
Ms. Ryan: Right, exactly. Currently they have to choose to be a member of one of the two approved bodies.
Senator Wetston: Are you aware of the fact that under the securities rules, just to put it more broadly, they must use the services of OBSI? They have no choice but to do that under securities rules.
Ms. Ryan: Yes.
Senator Wetston: That is to clarify the record. We can see that between banking and securities services there is a difference we have continued to develop in the marketplace.
The question I have is: Do you think that helps consumers?
Ms. Ryan: The current framework allows the minister to make an assessment about which model best serves the needs of consumers. The framework will continue to allow that as proposed.
Toward the end of our consultations, stakeholders asked us whether we were going to revisit this issue. They were asking questions. I am aware that in other places there has been some discussion about that.
We take those issues very seriously. Naturally we say to ourselves that this is an area on which we should be focusing our attention next.
As for what is the better model, the current legislation allows for both. It is the minister’s role to make the decision about what is in the best interest of consumers as to which model is best.
Senator C. Deacon: I want to keep building on the same point, noting that we are two-thirds of the way through Financial Literacy Month.
Mr. Bilodeau, you spoke about the available resources and tools data, but do you have usage data? Are you benchmarking or measuring the engagement of consumers or of partner organizations that are using those tools with the work you do? Do you have any sense of the effectiveness?
I don’t think you will get anyone here debating the intention of your work and of the proposals being put on the table. The only thing I am looking for is evidence that you are achieving great results and that the changes being proposed will help achieve even better results.
Your new mandate, as I understand it, is to strengthen the financial literacy of Canadians and to promote consumer awareness about the obligations of institutions. One of the best ways to protect consumers is to arm them with better information and the ability to make better decisions.
How do you track that? Have you benchmarked it? Do you have key performance indicators in place that say we are delivering an effective and cost-efficient result to Canadians, that we know how many more Canadians we need to get to, and that we know who we will work with? This is an important job.
Mr. Bilodeau: I agree, and thank you for that excellent question. I don’t have all the numbers at my fingertips, but let me answer you in this way.
I mentioned the Canadian Financial Literacy Database earlier with around 1,400 resources available to consumers to reference there. I don’t know how often they access information. We could obviously get that through a website visit.
There are other things we do. For example, every year we conduct public opinion research on consumer rights and responsibilities. We have asked a series of questions for three times now about consumer rights and responsibilities.
An easy one is this: We asked consumers if they know whether they can share their credit card PIN with their spouse, a friend or anybody else. Based on the results, you might not be surprised that a significant number think it is okay to share your PIN, not knowing that sharing your PIN can invalidate any protections you have with your credit card.
Based on those results, we developed a campaign and material that we could push out to consumers to educate them on this principle. A lovely character was used to do that through YouTube channels. We told banks that we wanted them to promote this material as well.
We can go back and measure again how consumers are doing with that answer so that we can gauge any progress there. It is not something that changes overnight. It is something that changes through repetition and seeing more and more of it.
We have a number of initiatives. I will probably get some of this wrong, but we have a partnership with something called the Carrot app that helps consumers save money and develop better behaviours. We can track their progress over time to see how they are doing and if they are getting better at it. We may not be able to measure the progress of every Canadian, but we have a number of initiatives to see if we are moving the needle a bit.
It is challenging. It is difficult to reach many Canadians. We push out a lot of consumer education material on a number of topics.
Senator C. Deacon: Can I ask which organizations you partner with to distribute this information to consumers and actually have partnership agreements where you are working together to ensure that you get it out there?
Mr. Bilodeau: I don’t have a list of the actual written partnership agreements on the top of my head. The commissioner has the Consumer Protection Advisory Committee, and a lot of the partners around that table make our content available on their websites. Protégez-Vous makes a lot of our content available on a number of topics. We have a lot of organizations and stakeholders, as I like to refer to them, that are linking to our material, promoting our material, and providing our material to their constituents, whether it is an organization for Aboriginals, youth or seniors. We have material developed for all of those communities and partnerships with a lot of those stakeholders.
Senator C. Deacon: They are all great things. I would ask you to start tracking engagement. How often are they used? How well are they used? Are they causing changes in behaviour?
Doing things doesn’t actually achieve a result. If the 1,400 resources are not being used or are only being used by a tiny percentage of the population, it will not achieve a result. Your mission is important. I encourage you to benchmark and start tracking key performance indicators that say you are making a difference, to figure out who you are partnering with and to extend your reach to the small-business world and the start-up world.
I encourage you because it will get more complicated for consumers with all of the fintech apps coming toward them. They need your help more than ever. You need to start tracking usage and effectiveness.
Mr. Bilodeau: We do track usage. I just don’t have the numbers at my fingertips now.
Senator Tannas: Could you provide them?
Mr. Bilodeau: We can look into that to see what we could provide to you.
Senator C. Deacon: That would be helpful.
Senator Klyne: I want to talk about whistle-blowing for a moment. I don’t think that is necessarily an amendment in the act. Maybe some housekeeping got moved around.
With whistle-blowing, where someone has reasonable grounds to suspect that there is some wrongdoing by an institution, there are efforts to protect their identity to ensure that they don’t feel any repercussions of dismissal or some internal irregularities in their movement, progress and so on.
What are the financial institutions currently doing to protect whistle-blowers? If this is an amendment, how is this an improvement upon that?
Mr. Girard: Right now there are no requirements in the legislation for banks to have a whistle-blower program, and there are no explicit protections for whistle-blowers in the Bank Act.
Many banks are reporting issuers under securities law. These laws have certain requirements for whistle-blowing, but they do not extend to all the retail banking activities of the bank. This is one gap that we are trying to fix.
In terms of what is available today, there is a prohibition on certain forms of retaliation in the Criminal Code. In reviewing that, it was clear that putting something into administrative law rather than criminal law would facilitate the administration of it. Putting something in the Bank Act would also increase awareness of bank employees so that they feel protected.
You might have seen in the spring some testimony before the House committee on the sales practices in the context of the sales review. It was clear that the people who testified were former employees of banks. No current employees of banks testified, except for senior management of the bank that were invited.
We saw that as a clear sign something needed to be done. Protection has been proposed to require banks to have a whistle-blower program and to provide protection to employees who report a wrongdoing.
Senator Klyne: What provisions are here to protect someone, even though their identity is confidential? Just by their knowing, sometimes there can be a connection because only they know this information and only they can ask that question. How are they protected in that way?
It is confidential, but in some instances you can connect the dots and say that it was a certain individual. The identity is not protected in that case. What measures are there to protect them from any harassment or undoing?
Mr. Girard: If you look at clause 334, subsection 979.4 of the Bank Act on page 305 of the bill set out the prohibition. It essentially states:
No bank or authorized foreign bank shall dismiss, suspend, demote, discipline, harass or otherwise disadvantage an employee, or deny an employee a benefit of employment, by reason that:
Then there is a list that essentially is reporting a wrongdoing.
Senator Klyne: Sometimes the financial sector is a small network, so they may have trouble crossing the street to go to a progressive career movement. I will leave it at that.
The Chair: You raised an important point you raised.
Senator Stewart Olsen: I will be brief. I have one question for you. It may have been asked, and I apologize if it was.
When you are talking about your financial literacy apps, how is your cybersecurity? How do you manage to ensure people’s security if they are to use the one where you are tracking how they are doing and if they are making money? That one was fairly intriguing.
Mr. Bilodeau: That is a good question. I referenced the Carrot app. That is not an app we host. That is someone we have partnered with.
In terms of the tools on our website, like the mortgage calculator, the account selector or the budgeting tool, we don’t require the personal information of consumers.
As for specifics on cybersecurity, I would have to refer to my IT folks and government infrastructure. It is not my area of expertise. We don’t collect personal information, as far as I know, when we use those tools.
The Chair: We went longer than I anticipated, but I think it is because senators had some good questions to try to get at the work you are doing. I thank all of you for being here today and for the work you do for us every day.
I am pleased to welcome the witnesses on our second panel today. From the Canadian Bankers Association, we have Angelina Mason, General Counsel and Vice President, and Sandy Stephens, Assistant General Counsel; from the Ombudsman for Banking Services and Investments, Sarah Bradley, Ombudsman and CEO; from the ADR Chambers Banking Ombuds Office, Britt Parsons, Ombudsman; and from the Public Interest Advocacy Centre, John Lawford, Executive Director and General Counsel. Thank you for being with us today.
We look forward to brief opening remarks and then senators will have questions. I am looking to Ms. Mason first.
Angelina Mason, General Counsel and Vice President, Canadian Bankers Association: We would thank the committee for inviting the Canadian Bankers Association to participate in its review of Bill C-86. The CBA works on behalf of over 60 domestic banks, foreign bank subsidiaries and foreign bank branches operating in Canada. There are over 280,000 employees.
Building and maintaining strong client relationships remain of fundamental importance for Canada’s banks, and banks continue to be an essential part of the daily lives of Canadians. Some 99 per cent of Canadians have an account with a financial institution, so millions of Canadians turn to banks every day for products, services and financial advice. Banks help Canadians safeguard their money, finance a home, manage their savings, plan their investments and prepare for retirement.
Banks in Canada take very seriously their role in the lives of individual Canadians. Canadians trust their banks and value the products and services they provide. Banks have worked hard to make banking more convenient by extending branch hours, introducing mobile banking and payments, enhancing online banking, and enabling banking literally around the clock and around the world.
Bill C-86 consolidates the consumer protection provisions that exist in federal legislation as they have evolved over many years, as well as adding new measures into a single, comprehensive Financial Consumer Protection Framework within one part of the Bank Act. Consolidating the Federal Consumer Protection Framework helps to ensure that Canadian consumers continue to benefit from consistent, safe and high-quality banking products and services.
We support the Financial Consumer Agency of Canada having continued oversight of the consumer protection provisions under the Bank Act. The FCAC was created in 2001 to strengthen oversight of consumer regulation and expand consumer education. The industry has a long-standing and strong working relationship with the FCAC. In fact, the CBA and its members often partner with the FCAC on consumer initiatives, particularly in the area of financial literacy.
The CBA and its members have long supported a strong federal regulatory framework for consumers. Although Canadian consumers already benefit from a strong consumer protection regime for financial services, the federal framework proposed in Bill C-86 is a further step to provide a consolidated and comprehensive regime.
More clarity about the implementation of the Federal Consumer Protection Framework will be provided through the development of subsequent regulations. We look forward to engaging in that process with the government to achieve a workable, efficient and flexible approach for the benefit of Canadian consumers.
I will now speak on a matter under Bill C-86 that is separate from the consumer protection framework. It relates to protection of legally privileged information provided to the Office of the Superintendent of Financial Institutions.
Bill C-86 includes provisions that protect legally privileged information provided by federally regulated financial institutions to OSFI, including clarifying that providing this information to OSFI does not waive privilege. The banking industry supports these amendments. Privilege is recognized as a quasi-constitutional right that is fundamental to the proper functioning of our legal system. These amendments balance the need for protection of this information while supporting the continuation of a transparent and cooperative relationship between banks and OSFI as a prudential regulator.
We look forward to your questions.
Sarah Bradley, Ombudsman and CEO, Ombudsman for Banking Services and Investments: The Ombudsman for Banking Services and Investments is Canada’s independent, not-for-profit dispute resolution service for banking and investment complaints. When we began our operations in 1996, the largest banks in Canada were our first participating firms. Since then, over 100,000 Canadians have contacted us seeking help with their financial services disputes, and we have opened nearly 10,000 investigations.
The people we help come from across Canada: 42 per cent of them are over 60 years of age; 60 per cent of them are working, either employed or in their own small business; and the average user of OBSI services has a total household income of less than $80,000 per year. In other words, these are main street, middle-class Canadians that we’re serving every day.
In the past year, over 5,300 Canadians have contacted OBSI with inquiries about complaints. We opened 760 investigations, more than half of which concerned retail banking. OBSI provides a valuable public service that supports confidence in the financial services sector. We take our public service mandate seriously. That is why we have the support of consumer advocates such as PIAC, CARP, the Consumers Council of Canada, FAIR Canada, and the Canadian Federation of Independent Business.
That is why since 2012 provincial securities regulators have required all 1,300 investment firms in Canada to use OBSI. Notably, this includes all of the investment subsidiaries of Canada’s biggest banks.
Turning to the consumer protection framework set out in Part 4, Division 10 of Bill C-86, I will begin by saying that the government’s commitment to improving financial consumer protection for Canadians is commendable. The provisions in the bill aimed at strengthening of FCAC in particular are an important step toward establishing FCAC as a true market conduct regulator for the federal banking sector. This is an important advancement toward an important goal.
In particular, the consolidation of the consumer protection measures and the provisions giving FCAC the mandate to issue directions and to conduct special audits hold great promise for increasing the commission’s ability to conduct effective, systemic investigations and provide improved protection for Canadian bank customers.
Combined with the whistle-blower provisions and the additional sanctioning powers that are added to the FCAC Act, the groundwork is laid for FCAC to step forward with greater visibility and vigour and for Canadians’ confidence in FCAC and their financial institutions to be strengthened accordingly.
Unfortunately, however, Bill C-86 does not go far enough in the protection of Canadian consumers. Despite clearly expressed concerns from many consumers, consumer advocates, leading media and others, Bill C-86 does not address the issue of ombudsmanship for Canada’s bank customers. Under the current legislation, Canada’s government allows banks to choose the ombudsman who will investigate and decide on their customers’ complaints, and the consumer has no choice in the matter.
Bill C-86, as it stands today, continues to support this model, and in doing so it let’s Canadian consumers down. Independent dispute resolution for financial consumers is a recognized standard by the G20 high-level principles on financial consumer protection. A single financial services ombudsman has been mandated by many comparable countries with progressive financial sectors, such as the United Kingdom, Ireland, Australia and others. The competitive model of ombudsmanship ignores this international best practice.
The fundamental problem with the competitive model is that it creates an inherent conflict of interest. It puts ombudsman services in the position of having to compete for bank business, and it puts banks in the position of choosing their own referee.
Whose interests are advanced by this system? A competitive dispute resolution model leads consumers to rationally question the impartiality and independence of the system. This perception of conflict of interest can undermine public confidence in the financial services sector. The only way to remove that potential for conflict of interest is to legislate a single independent, not-for-profit ombudsman dedicated to the public interest.
We believe the government’s bill needs to be amended. As Senator Klyne was referring to, I believe there was a proposed amendment today to establish a single not-for-profit ombudsman dedicated to accessibility, openness, transparency, independence, fairness, and efficiency for consumers and banks. Now is the time.
Retail banking is core to Canada’s social and economic development. It touches the lives of every Canadian. Yet our banking consumer protection framework, even with the improvements that are proposed in this bill, is still falling behind modern best practices for consumer protection. Canada has a strong banking system, one founded on the principles of trust and fairness. A just and effective complaint-handling system is essential to maintaining that trust.
I would be pleased to take any questions you may have. Thank you.
Britt Parsons, Ombudsman, ADR Chambers Banking Ombuds Office: I am honoured to be here on behalf of my 25 colleagues at ADR Chambers and the 2.3 million Canadian citizens we are providing ombuds services to. I am a lawyer and I serve as Ombudsman with the ADR Chambers Banking Ombuds Office, ADRBO, now in its tenth year of operation. I am proud to use my professional skills to serve a public good by helping citizens and customers who believe that they have been wronged.
ADR Chambers is an organization that provides dispute resolution services to citizens across Canada and internationally, including integrity commissioner services for the City of Markham, the City of Kitchener, the City of Waterloo, the Regional Municipality of Niagara, the Township of Woolwich, the Town of Niagara-on-the-Lake, the Township of Wainfleet and the Town of Richmond Hill, the Town of Georgina. We also serve as the municipal ombudsman for York, Halton and Durham regions.
Our core business is providing ADR services, including mediation, arbitration and investigation, and administering large-scale ADR programs for both the private and the public sectors.
ADRBO began in 2008, with RBC as our first member bank. We have expanded since then with the addition of TD in 2011 and DirectCash Bank in 2014. We were regulated by the Financial Consumer Agency of Canada alongside OBSI on June 15, 2015. National Bank joined us in 2017, and most recently Scotiabank in 2018.
Over the years, we have developed an excellent roster of highly skilled investigators, many of whom are senior lawyers or judges. Each investigator is an independent contractor, which means that there is no obligation for us to continue working with said investigator if that work is not satisfactory.
Overall, I applaud the spirit of the proposed changes in the Budget Implementation Act which seek to better protect consumers and their interests. I would like to give some concise and specific feedback today on two proposed Bank Act changes that affect the external complaints body space. The first is in terms of the online posting of recommendations and the second will be on reputation.
In terms of the online posting of recommendations, I direct you to subsection 627.49(i). As an external complaints body, I must preface that we are not an arbitrator and our recommendations are non-binding. Still, in our 10 years of operation, we have never had a member bank refuse to follow a recommendation. We operate in a manner similar to most ombudsmen in Canada, such as the Ontario ombudsman, the patient ombudsman and the ombudsmen for students at most universities. We publish our recommendations in the aggregate, with a more in-depth discussion of systemic issues where they arise.
We prefer to reserve the publication of our recommendations in detail for our “go public” power when these recommendations are not followed. Subsection 627.49(i) asks us to publish all of the information we would normally only publish in cases where we are exercising our “go public” power and our recommendations were not followed. There is a spot where the same piece is referred to again, so I would request that I specifically cover afterward the other spot where reputation is mentioned.
We review complaints on a case-by-case basis. I have some concerns that a complainant may review online summaries of recommendations similar to their case and decide not to pursue their complaint further. There is a slight risk of a chilling effect there, and I wanted to note that.
Alternatively, we would ask the Senate to recommend that if complainants so choose they are permitted to opt out of having their recommendations posted. Many complainants appreciate that their concerns are handled in confidence and would not support the recommendations and details of their matter being online within 90 days, even with the identifying information removed. That would be the alternative recommendation.
In terms of reputation that I touched on briefly, in the proposed section of the Bank Act the external complaints body must maintain a reputation for being operated in a manner consistent with the standards of good character and integrity. My concern is how this is measured and how the use of the word reputation can introduce ambiguity into the requirement. I note it is coming out of the regulation and into the Bank Act. I would like to see that section clarified to read instead, “must be operated in a manner that is consistent with the standards of good character and integrity.” The ADR Chambers Banking Ombuds Office would appreciate that change for clarity and the same with the corresponding reference.
Thank you, senators, for your time spent examining Division 10 of Part 4 of the Budget Implementation Act. I hope I can be of assistance with any questions you may have. I appreciate your taking the time to look in depth at issues that can directly affect how Canadians interact with an ombudsperson person to have their rights protected.
John Lawford, Executive Director and General Counsel, Public Interest Advocacy Centre: The Public Interest Advocacy Centre is a national non-profit organization and registered charity that provides legal and research services on behalf of consumer interests and, in particular, vulnerable consumer interests concerning the provision of important public services.
PIAC has been active in the retail banking sector for several years now. We are pleased to speak to the Financial Consumer Protection Framework.
We were before this committee in 2016 to criticize then Bill C-29, which also claimed to deliver a Financial Consumer Protection Framework. We are pleased that the present bill does a much better job in creating an effective framework for consumer protection in retail banking in Canada, although it does not provide a true financial consumer code as we would wish.
This bill, however, creates a home for consumer protection measures and various mechanisms for the proper functioning of these measures in the Bank Act. At present, these consumer protection requirements are few. They are spread throughout the Bank Act, in the regulations and in several voluntary codes, which at least in name the major financial institutions follow.
Before this bill, there were clearly inadequate controls on the banks’ behaviour toward their customers, as was clearly demonstrated by the FCAC and OSFI reviews of sales practices in the banking industry.
The FCAC report detailed a culture of sales in Canada at major banks, which clearly overrode regard for consumer welfare or basic fairness. In response, the government has correctly sought to address these failings, which relate in large part to misleading, aggressive and inappropriate sales of bank products and services to consumers. This is the first advance.
The bill, therefore, contains provisions that prohibit false or misleading statements to consumers at subsection 627.03; undue pressure on consumers in relation to any bank service or product, but in particular to tide selling, at subsection 627.04; and inappropriate product or service sales to consumers at subsection 627.06.
This last requirement is effectively a suitability standard for those familiar with securities sales as the bank must ensure the products or services are appropriate for the person, having regard to their circumstances including financial needs.
The second main advance in this bill is a bit hidden. It is the increased scrutiny of the external complaints bodies, which are supposed to resolve consumer complaints with banks that banks cannot resolve themselves. It is necessary, effective and appropriate to have external complaints resolution.
Ideally, such resolution would take place with only one external complaints body as is done in telecommunications. At present we have two for banking, which is unfortunate and detrimental to consumers.
However, this bill will place a number of reporting and other requirements on ECBs and will permit the minister to compare the two present ECBs and their results as well as their compliance with these new transparency requirements. If an ECB is seriously deficient, the minister can revoke that ECB status, meaning bank customers will have to take their external complaints to the other complaints body. Although we are not happy with the “battling ECBs,” these new provisions will allow the minister to decide for himself or herself.
The third advance is also related to the banks’ internal complaint resolution system.
First, the FCAC commissioner must now be satisfied with the internal complaints procedure in a bank, presumably on the basis of what is fair to consumers.
Second, the banks may no longer call their dispute resolution officers ombudsmen. It is really hard for us to convey just how important that is to help consumers understand the process of complaints resolution in Canada.
Third, the FCAC will be providing quarterly reports of internal complaints, which should allow them to identify systemic or major consumer issues sooner.
Fourth, the public annual reports of banks on their internal complaints will now have to categorize the nature of complaints received. Had this been done earlier, consumers, media, political parties, academics and consumer groups would likely have seen sales practices issues coming much sooner.
On whistle-blowing, we note the bill introduces this new part. It is clearly needed in light of the sales practices debacle in which a number of employees wished to speak out but were concerned about retaliation or lawsuits. We hope that this new act will act as a warning system.
Thank you very much for your time. I look forward to your questions.
Senator Klyne: Anybody on the panel can answer these questions.
First, to go back to the whole issue of knowing your clients and understanding their needs and their literacy levels in terms of financial knowledge, it has been a long time since I have been in a bank past the ATM, the automated teller, but I don’t think that tellers are selling a credit card applications. They may hand an application over. If they were to sell a credit card, is this proposing, then, that they would need to understand the client’s needs and level of knowledge to recommend one of the eight credit cards that they carry under that one line, or is that overstepping the intention here?
Mr. Lawford: That is exactly what it’s trying to do to slow that process down. When you go to a teller, the teller can’t just say they have a great credit card that I think is ideal for you and ask if they can sign you up for it. Before you know it you’re signed up, which is what is going on right now.
This is a speed bump for sure. It will slow down the process of the way banks sell but the number of questions that have to be asked for securities are very simple. You have to ask people’s timeline on their investment, how much money they have, and what they are looking to achieve with their investment. I am sure three simple questions could also be included on the suitability of credit cards.
Senator Klyne: What happens with the department stores that may entice a client to apply for their cards? Now you’re not in a financial institution; you’re in a department store. They get a Capital Bankcard signed up and there you go. You’re all done and you got 10 per cent off on your purchase.
Mr. Lawford: I would have to see who is regulating them. If it’s another financial institution that is federally regulated, I suspect they would have to follow these rules. If it’s a provincially regulated entity that is a different matter. Perhaps somebody else knows this.
Ms. Mason: I can jump in here. The way the provisions have been drafted, it applies to the banks and third parties that would sell on behalf of the banks. I will step in on a couple of points.
Banks in Canada are deeply committed to doing what is right by Canadians and acting in an ethical manner. On the sales practices review, I would like to say that it was an extensive review. Our members cooperated fully and there was no widespread misselling found. Risks were identified by the FCAC, and our banks readily looked at ways of addressing those risks.
Banks support ensuring that we have the right products for our customers. We’re in the customer business. We want long-term relationships with our customers, so it is very important to us that we’re ensuring the products we provide our customers are suitable for them.
Yes, we should be asking those questions and we do ask those questions. This is creating a framework where our regulator can look at the specific questions being asked and how we’re managing our policies and procedures. We have training. We have guides to determine what products should be provided to consumers.
Some risks were identified. We are addressing them. What this does is it provides an oversight of our regulator to specifically ask on those points.
Senator Klyne: You would say, then, that the amendment addresses some of the practices that may negatively affect consumers?
Ms. Mason: I want to say that we were already addressing those risks. This provides an avenue for the FCAC to have the conversation about them in a more specific fashion.
Senator Wetston: Parts of this legislation go beyond just dealing with dispute resolution. I want a better understanding of your concerns around the privilege issue, Ms. Mason, and where you’re going with that.
Ms. Mason: On the privilege point it really is just to address an issue that arose out of case law which called into question whether that protection would be available to us. Obviously privilege is a fundamental right to keep in confidence your discussions.
Senator Wetston: Client privilege.
Ms. Mason: Yes, to keep in confidence the discussions you have with your counsel.
Because of the important role that OSFI plays as a prudential regulator, we have always had a cooperative relationship with them. We would share some information that was privileged because it was important for OSFI to be able to assess safety and soundness. That could include, for example, understanding the scope of a particular risk in a litigation.
This simply ensures that information is protected. It provides a statutory protection so that when we share with OSFI it doesn’t waive privilege so that some third party could then have access. It really supports and continues to support a transparent relationship that we have with OSFI.
Senator Wetston: It is only for a third party.
Ms. Mason: Yes.
Senator Wetston: OSFI could still act on the information.
Ms. Mason: The protection goes to third parties. It also respects what we understood OSFI always did when we provided privileged information, namely, that they wouldn’t use it against us in pursuing us in a particular action.
Senator Wetston: That is the standard.
Ms. Mason: That is standard. It is consistent with what happens in other markets also.
Senator Wetston: Ms. Parsons, I would like to talk a bit about ADRBO. I guess you are the ADRBO.
Ms. Parsons: Yes.
Senator Wetston: I have never actually asked anybody if they were the ADRBO. I just had to do that.
Ms. Bradley talked about the number of complaints they deal with at OFSI and the nature of some of the complaints. How many complaints do you actually deal with from the public? Obviously it is the banks, primarily, but are you ever contacted by members of the public as opposed to the banks referring complaints to ADRBO, to yourself?
Ms. Parsons: It typically goes through — and this is true of both organizations — the internal complaints process at a bank.
Senator Wetston: At the bank, yes.
Ms. Parsons: That looks like you have level 1. Then you usually have level 2. Then you have the ombudsman level. After that, complainants come to us as an external complaints body to review.
In terms of numbers, I don’t have my numbers in front of me. I can tell you that we had roughly 1,200 contacts last year. Then I would have to refer to our numbers for further details on that.
Senator Wetston: Do you have any breakdown of the nature of those complaints?
Ms. Parsons: I do. Again, it is not in front of me. It’s usually around policies and procedures.
Senator Wetston: Can you provide it to the clerk?
Ms. Parsons: I absolutely can.
Senator Wetston: It would be helpful because we are in pre-study of this legislation.
Ms. Parsons: Right.
Senator Wetston: We always seem to be in pre-study of something, but we are here. It would be useful to think about it in comparison. You may have heard me say that when I was involved in the securities industry, we made a very significant effort to just have one.
I should tell you that it isn’t about the banks. It’s not about that and it’s not about ADR Chambers. It’s about the institutional design. It’s about confusion for consumers. Also, since it was a requirement of the securities industry investment dealers, we felt it would be more prudent to simply have one dispute resolution organization responsible for that. It wasn’t about ADR Chambers and it wasn’t about the banks and how they might perform.
Some of this information might be helpful. Also, if you could provide how many of these complaints are resolved in favour of the banks versus consumers, that might be of some help as well.
Ms. Parsons: Yes.
Senator Wetston: I suspect, Ms. Bradley, you could provide the same information around similar lines so that I have a better appreciation of the relationship, if you don’t mind.
Ms. Bradley, I have a question about this important issue. As you can tell, we have some interest in it. One of the most important things about consumer protections is consumer confusion.
Just to clarify, what is your concern about conflict of interest here? I mean it is important for you. A consumer makes a complaint and they can choose a reputable respectable body with professionals doing this work. What would be the basis of this concern? I would like to understand it better.
Ms. Bradley: As you pointed out, this is not an issue about any particular organization. It is not really about OBSI in particular or the conduct of any bank. It really is a question of the establishment of a system that works for consumers, for industry and for the regulatory environment.
In my view there is a fundamental difference between an organization that is not for profit, functioning explicitly in the public interest, and focused and committed to principles such as transparency, and one that is not. There is also the pivotal issue of the bifurcation of the service.
That creates incentives to align one’s services in the interests of the party that gets to choose. It also divides the information in a way that renders it a lot less useful to regulators and a lot less useful for making valuable observations that benefit the public or industry around best practices and so on.
There is the issue of consumer confusion. Most of the consumers that call us require redirection. They require information to be provided. They are calling the Ombudsman for Banking Services and Investments because they have some complaint that somehow relates to some financial service. Very often it is not a complaint that is within our mandate. We staff our phones. We do our best to redirect consumers to the place they need to go.
It is clearly the case that our financial services regulatory framework is incredibly complex. It is complex way beyond the understanding of a typical consumer. There is a whole host of reasons for that. We’re all familiar with those reasons, but to the extent possible it is my view that consumers should be shielded from that type of confusing environment, especially when they are in stressful situations. They have encountered a problem. They have contacted their institution. They have tried to work through the issue. Yet, the problem remains.
Whether or not it is justified, they need a place they can reach for help. It is very confusing whether they should go to FCAC, a securities regulator, an SRO or whoever might be out there. There are many potential organizations they could go to. We are answering the questions of those consumers every day.
Senator C. Deacon: Ms. Mason, why do the banks want to have the ability to direct with whom their customer is dealing when the bank hasn’t been able to resolve a dispute that is escalating? Why does the bank want to control that next step? What is the purpose of that?
Ms. Mason: It is about a competitive market and choosing who they feel can provide the better service.
I remind the senators that an entire framework supports the external complaints body and that there are uniform regulatory requirements. In order to become an external complaints body you have to be approved by the minister after the recommendation of the FCAC. There is an entire set of regulations to support the external complaints body which include independence, timeliness and transparency. The requirements include that every person who acts on behalf of the external complaints body in connection with the complaint is impartial and independent of the parties to the complaint. Independent of the parties of the complaint means not only the customer but obviously the bank. They also include publication of annual reports with prescriptive details, including results of feedback from members and persons who have made complaints. This is also supported by transparency and FCAC regulatory oversight.
When we talk about why a bank would choose one particular complaints body over another, the focus of the bank is on who will provide the best service to the customer. At the end of the day we still want to serve our customers best, even when it is through a complaints process.
Senator C. Deacon: When it gets to that point, how often will banks retain a customer when they haven’t been able to resolve the problem internally?
Ms. Mason: Whether or not they retain the customer, that is our customer. We want to ensure our customer is getting the best dispute resolution that we consider appropriate. It does us no favours.
Senator C. Deacon: You would reasonably expect it to be internal, and you haven’t been able to resolve it internally.
Ms. Mason: Then it goes external. The vast majority of complaints are managed internally. We are talking about a handful of complaints compared to the transactions that occur.
Senator C. Deacon: What is the breakdown?
Ms. Mason: I don’t have the breakdown. If you look at the public reports, they have statistics. I am happy to come back to the committee on that.
Senator C. Deacon: It would be awesome if you could provide that.
Ms. Mason: Banks want to resolve issues with their customers. If it ends up going to an external complaints body, it is because we feel there is truly an issue that needs to be settled. It is in our best interest to address our customer issues.
Senator C. Deacon: Ms. Parsons, you spoke about a mediator not working out. If it is not a satisfactory conclusion, you can change mediators in your organization or in your model. I am interested in what is not satisfactory? Define for us a satisfactory outcome.
Ms. Parsons: A satisfactory outcome for us is one in which a full evidentiary review has taken place. The investigator has spoken with the banks and the contacts there, has reviewed the bank file, has looked at all information concerning the complaint. The investigator has taken the time to fully speak with the customer to get their side of the story and with any other witnesses there might be. If for any reason we felt that a report was defunct or that there wasn’t enough detail, we would have the opportunity to reassign it to a new investigator and not continue to use that investigator’s services.
It is our quality control. These investigators have their own practices, usually as arbitrators or mediators. This is a side part of their business. It allows us to build a strong roster in terms of quality control.
Senator C. Deacon: I like the answer. It is the completeness of the information. How is success measured in terms of their being a resolution of some form?
Ms. Parsons: Could you rephrase that?
Senator C. Deacon: You are looking to get to an outcome, so part of the process is getting complete information on the table. Then at some point there has to be some form of resolution. One party may not be happy, another party may not be happy, or both parties may not be happy.
How do you monitor that next step? I like the first part a lot on the completeness of information. In the second part how do you monitor success?
Ms. Parsons: We have an internal dual review process. The deputy ombudsman and I review every report that comes through. After that process, we give each side an opportunity to make comments or to respond to any information within the report. All of those comments are considered, and then finally the recommendation is rendered. That is how it looks in terms of our process.
Senator C. Deacon: Thanks to all of you for your answers. I was pleased in today’s hearing, finally, to be hearing data on people tracing incidents.
I was interested that 90 per cent of the disputes that you see, Ms. Bradley, don’t proceed to investigation and 10 per cent do. Did I get the numbers right that out of 100,000 disputes there are 10,000 investigations?
Ms. Bradley: It is 100,000 inquiries. Those are individual Canadians who have called us. They get logged individually into our system. They are usually assisted through information services. As I mentioned, most are redirected because their complaints are not within the OBSI mandate.
They may be in regard to insurance or about a bank. They may not have already taken up the issue with their bank, so they might be redirected back to their bank. They might be seeking a regulatory outcome, in which case they might be signposted to the appropriate regulator. There are all kinds of reasons why the person might be redirected. That is why about 10 per cent are identified as being within mandate and proceed from there.
Senator C. Deacon: Could you describe the process that you follow in those investigations? I would like to see how it might differ from that of ADR Chambers.
Ms. Bradley: We have case assessment officers that will first review the complaint to ensure that it is within our mandate. A few formalities need to take place in terms of consent letters and so on. We then request the file from the financial institution. At that point the file is assigned to an investigator.
The investigator will speak to both parties and will assess the information in the file. Then the investigator will proceed with essentially an inquisitorial process. All of our investigators are specialists that work full time in financial services dispute resolution. They are highly familiar with the laws, regulations and best practices that apply. They will use their expertise to determine what if any issues there may be with the conduct that has taken place.
If the bank is correct essentially in its analysis of the consumer’s complaint or if fairness doesn’t warrant compensatory or other non-monetary action to be taken, then our service shifts to an information service where we take care to explain fully to the consumer, both on the telephone and in writing, why we are not recommending compensation or other action being taken in their case.
Some consumers remain unsatisfied at that point, but it is our goal to try to get to a place where the consumer understands and is satisfied that an independent expert has reviewed their complaint, has received information that is necessary from the bank and has reached that conclusion.
In those cases where we think some form of compensation or other action is necessary or would be called for on the facts of the case, we will engage in a mediative process with the parties. We will inform the financial institution that we think compensation is warranted and why. They have the opportunity to explain to us their perspective of why we may be wrong, to illuminate any facts that we may have mistaken or to make other legal arguments if that is the case. Ultimately, we will get to a place where we will have concluded our reasoning and investigative processes and will have a firm recommendation on the case.
In over 22 years, we have never had a bank refuse a recommendation that we have made. These cases ultimately result in what we consider to be fair outcomes for consumers. We have had some refusals on the investment side, but that is another story.
Senator Stewart Olsen: Getting back to the legislation itself and what is in it and perhaps what is not in it, Ms. Parsons, you mentioned the publishing and the increased transparency that the legislation is attempting to bring about.
Could you tell me from your understanding what exactly consumers would want contained in the new legislation to protect their names and information? I think that was where you were going when you said that it was maybe too much information. Could you expand a bit on what you said?
Ms. Parsons: As I mentioned, currently we publish our statistics and decisions in the aggregate. We believe that is consistent with most ombudsman services across the country.
In terms of what we would be asked to publish, it would be a description of the nature of the complaint that is the subject of the final recommendation, the name of the institution, a description of any compensation provided, and the reasons for the final recommendation along with any prescribed information. That would be what the summary would look like.
I assure the committee that we are prepared to do that if it is passed. We had some concerns that it would be a dramatic change from what is out there currently and a dramatic change from the ombuds space generally. It warrants a second look in terms of publication because these are the factors we would include if we were to go public about a decision that the bank had not followed.
As was recently mentioned, both external complaint bodies have a clean record in terms of all our recommendations to be followed. I am not sure how that would operate in a new space where we would be required to publish every recommendation.
Senator Stewart Olsen: Ms. Bradley, would you agree with that approach, or do you have problems with the increased transparency?
Ms. Bradley: We don’t have any problems with the increased transparency. I think it is consistent with the approaches taken by some other financial ombuds services internationally, such as FOS U.K.
It is a departure. We do not currently report on every case. We publish anonymized case studies. Usually once a month we publish on our webside an interesting anonymized case that illuminates a particular issue or problem that consumers have. We have a bank of dozens of those on our website now.
It might be interesting for consumers to understand particularly why cases do not result in a finding of compensation. There is a lot to be worked out with FCAC in terms of the way this requirement is implemented. It is important because it could quickly become a deluge of information. The information will need to be presented in a machine readable format or a sortable format so people can quickly search for the relevant records they are looking for. A lot of work is yet to be done in terms of how this will be implemented, but the intention behind it is commendable.
Senator Stewart Olsen: That would be covered by regulations, I am assuming.
Ms. Bradley: I assume so.
Senator Stewart Olsen: Ms. Mason, do banks have a problem with the increased transparency in reporting that is being mandated in this legislation?
Ms. Mason: In principle they are supportive of transparency, but if there are sensitivities on how that would play out for consumers and their comfort level, obviously we would want to see those addressed.
Senator Wallin: My first question is for Ms. Mason. How would you describe these hundreds of pages of documents? Are they onerous, redundant, realistic, unnecessary, doable or costly? How would you react to this?
Ms. Mason: I will start with comprehensive. Obviously there will be some need for implementation time because there are some significant changes with respect to how information will be delivered when you talk about the information boxes.
In a lot of cases it is really building on what banks are doing. When you talk about something like a whistle-blower, that is formalizing a whistle-blowing provision within the Bank Act. However, banks operate under codes of conduct for internal whistle-blowing protection in internal processes. This makes it more formalized and statutory where there are concerns for employees, but it is building off processes.
Senator Wallin: It is not redundant; it is formalizing.
Ms. Mason: It is formalizing and enhancing. I would say it is similar to looking at the needs of your client. It is making it more formal in the sense of regulatory oversight. I would say our process has been to look at the needs of our clients to ensure we are providing the right products.
Senator Wallin: Do you agree with the notion of a special board of directors committee to oversee, study and focus on consumer issues?
Ms. Mason: We appreciate the flexibility that finance has provided by not having it be a specific committee. The responsibilities can be conducted by another board committee. There is always the challenge of creating board committees and getting board members, as you must know. We are supportive of being able to address the internal oversight for sure.
I have a question for Mr. Lawford.
Over time we on this committee have looked at the issue of payday lenders and the reason that people go to payday lenders because banks won’t do business with them. Perhaps we will get into a situation where the banks are being asked to be much more subjective in terms of how they deal with individual consumers and testing them on what are their spending plans or their credit ratings. I guess I want to look at the flipside of this.
Mr. Lawford: I don’t think there is that negative flipside. I don’t agree that will happen. If you go and get sold on a credit card you didn’t need, that is detrimental to you. You are not being shoved into the arms of a payday lender because you can’t get a service. You are getting too much service from the bank, if you will. I don’t see that reflective effect happening. I am not concerned about that.
Senator Wallin: We did have testimony to the contrary. People looking for credit couldn’t get it there. They didn’t meet the standards already of a bank.
I know there are cases of people signing up for a credit card that they didn’t want or can’t afford, but this seems to give bank tellers and the banks, in general, a lot of reasons to say no.
Mr. Lawford: It should drive people toward a product that is suitable for them, which in more cases will be more affordable and will keep them on the right track financially. I think that is the idea.
If there were an effect where some people were unable to get bank-level credit, that is something FCAC should watch. If that occurs, I would agree it is a problem because the other financial lenders are even less advantageous.
Senator Dagenais: Ms. Bradley, could you explain to us the three or four main complaints you receive from consumers and to what extent those complaints are resolved in favour of the complainants?
Ms. Bradley: I apologize. I will answer in English.
The most frequent complaint we receive from Canadian bank consumers relates to mortgages: mortgage penalties, mortgage portability, and complaints of that nature. There is a great deal of consumer confusion about the terms and conditions that apply. Sometimes consumers are surprised by the application of those agreements.
The second most common and growing area of complaints that we see relate to credit card fraud in particular and credit card chargebacks more broadly as well. A great deal of disagreement can arise when a consumer has unwittingly participated in a fraud and has used a credit card in the participation in that fraud. Those would be the biggest complaints that we see from bank consumers.
Another significant area is where a relationship has ended. Banks have the right to do business with whom they wish. If they decide to terminate a business relationship with a client, they have the ability to do that. Consumers generally are unhappy in those circumstances.
In all of those cases we would engage in the process I described earlier for Senator Colin Deacon. The outcomes depend on the facts of the case. When we are looking at credit card chargebacks and credit card fraud, in particular, the provisions of consumer protection legislation are highly relevant. It depends on the province in which the consumer is located, the specific rules that would apply, and the actions that both the consumer and the bank would be obligated to take.
Senator Dagenais: My question follows on the one I asked earlier. In your opinion, is there anything missing in the bill that could reduce or help reduce the number of complaints related to everything you just mentioned?
Ms. Bradley: I think that is a very interesting question and one that is not very easy to answer.
In reflecting on what some of the other commentators have said, the bill creates an interesting framework. In particular, the ability of FCAC to make directions is an interesting power granted in numerous sections of the act. It gives the commissioner the ability to react and respond to circumstances as they exist and don’t require a specific rule-making exercise around what might be discrete problems or might be institution-specific problems. That in particular is a flexible type of framework to put in place.
One of the positive things about the framework that has been created is that it depends quite a bit on principles rather than proscriptive regulation. That is appropriate when we are dealing with consumer disputes and consumer protection because the situations and circumstances that can arise are as variable as the individuals that would walk into a bank branch. Having a coherent set of principles that banks can focus their attention on and work with to give the FCAC some flexibility in terms of how they apply the principles and the specific requests they can make and can oblige financial institutions to comply with are positive steps.
I don’t have any specific drafting changes to suggest. I think overall this is a positive step.
Senator Dagenais: Thank you very much, Ms. Bradley.
Senator Klyne: I have two questions, if we have time. The first one is in two parts and is directed to Ms. Bradley.
Is an amendment being proposed to allow a body corporate to be appointed by the minister if a complaint against an institution is not resolved?
Ms. Bradley: I believe what the senator is referring to is an amendment that was made in the house committee recently to remove the multiple ECB section from the Bank Act, which would leave the single ECB path in the Bank Act.
As described in the previous panel, these two paths both exist within the Bank Act right now as it is. The proposed amendment to remove the multi-ECB or the competitive-ECB path, which would have the effect of leaving just one. My understanding is that amendment was defeated today, perhaps unsurprisingly. That is the latest news.
Senator Wetston: To follow up on that point, currently the minister still has the authority to do that despite this amendment. It is important to recognize that.
Senator Klyne: Is it a good time to amend that now? Could it be improved upon?
Ms. Bradley: The amendment I was referring to was in the house. I believe it is within the power of the Senate to make a similar motion for amendment.
Senator Klyne: Would anyone on the panel like to share some input into how that could be improved upon?
Ms. Bradley: If the multiple ECB provision in subsection 455.01 were removed, the minister would be obliged to name a single dispute resolution service, and all federally regulated financial institutions that are banks would be required to participate in that service.
Mr. Lawford: No, that is not quite right. The minister would not be required to, and that was the problem. The history behind this is subsection 455.1, which is the one you are talking about where the minister could say only one ombudsman. The minister never used it. ADRBO came into existence and then the ECB regulations were passed to authorize the existence of ADRBO, which had popped up with Royal Bank as a customer and TD had gone over to them. That is the history.
From our organization’s point of view, it is such a travesty that the minister never told the banks to get back under the umbrella and use that section. We would like to have subsection 455.01 taken out of the act so that the minister is required to or only has one choice, which is to have only one ECB.
Ms. Mason: To clarify, in the way the legislation is right now the minister still retains that option. Nothing is stopping that.
Senator Wetston: We have ambiguity when it is unnecessary. It is still a discretionary decision that the minister could make. I guess we can consider that.
Ms. Mason: Obviously we prefer competition, but I don’t want there to be any misunderstanding as to what is currently available under the act.
Senator Wetston: Ms. Bradley, you mentioned that the banks never refused to pay when a finding was made, but you also mentioned that some investment dealers have refused to pay.
I would like to ask you, Ms. Bradley, about your thoughts as a former law professor at Dalhousie in corporate and securities law and as a former chairman of the Nova Scotia Securities Commission. In the framework of the discussion, why do you think directions would be a useful tool if developed in a very open, consultative environment in which there is input with respect to those directions?
I would be concerned that the suggestion is unlike rules that are more prescriptive. As you know, they are never developed without a great deal of public consultation, discussion and ongoing adjustment where appropriate. What are your thoughts about that?
Ms. Bradley: You raise some very good points, Senator Wetston. I think your concerns are well founded.
I would respond, though, that the landscape for financial services regulation and the world in which financial services entities operate are rapidly changing. What should be asked of a financial services regulator becomes more demanding by the day. The process of rule creation, as I believe you would agree with me, is an onerous and long process that creates good results in the end.
Senator Wetston: Particularly in Canada.
Ms. Bradley: It is not the most responsive to changing needs, and a rule can at times overreach. For example, if a particular discrete issue is identified by the commissioner, the directives power is a flexible tool. Of course, the government and Canadians would need to entrust the commissioner with the discretion and the faith that the power would be exercised appropriately.
My recollection from the bill is that any directive is court enforceable and could be appealed to the Court of Appeal or the Supreme Court. If that power were exercised inappropriately, it could be challenged.
Senator Wetston: I didn’t finish the first part of my introduction. I am getting carried away as usual here. Are any of those investment dealers, if you can tell us, bank-owned dealers that refuse to pay?
Ms. Bradley: That is correct. No bank-owned dealer has refused to pay an OBSI recommendation.
If a bank or an investment adviser has refused to pay, the final outcome is publication. That is our final recourse in the situation. It’s fair to say that it is an effective deterrent for large institutions in terms of creating an incentive to comply with the recommendation.
However, there is an important point to be made here as well. We focus a lot on big banks, and rightly so. They serve a lot of Canadians, but there are a lot of smaller banks in Canada and a lot of potential new entrants into the traditional banking space. I is important that the government be mindful of the changing landscape of financial services offerings around the world and on our doorstep. Those are changes that could impact Canada’s banks. A level playing field among all institutions is a very important objective for the institutions themselves and for the customers of those institutions to make sure that all businesses offering banking or banking-like services in Canada are held to the same standards. That is very important.
Senator C. Deacon: You’re right where I want to have a conversation, Ms. Bradley. It’s really the emerging digital financial institutions that will be increasingly disrupting the landscape and how well prepared we are through the changes being proposed in this legislation to adjust and to be able to manage the new emerging problems in terms of protecting consumer rights and making sure that everybody is behaving well. I will leave that with each of you.
How much time have you taken to look forward, given the rapid changes we are seeing, to see how well we are protected? Looking backward, we have heard that a lot in here is pretty good, but how much effort has been placed in looking forward?
Ms. Mason: On looking forward, one of the benefits is going to a technology-neutral approach as we look at consumer needs and requirements. Whether online, mobile or in person, we need to ensure that we have the flexibility to achieve appropriate ends through the means available to us in the various channels so that we can support innovation and still protect consumer needs.
Sandy Stephens, Assistant General Counsel, Canadian Bankers Association: The Bank Act, by its title, is by institution, so you are regulating by institution. There has been some work by the federal government to look at regulating by function, such as the Retail Payments Oversight Framework. When you are looking at a digital disruption or revolution, there would be some merit in also examining regulation by function.
Mr. Lawford: The section on misrepresentation and undue advantage is one of these pan-company or pan-provider provisions. It is forward looking because it says any misrepresentation and any undue pressure.
We are well aware of our present financial institutions and what may or may not have come out in the sales practices, but we haven’t seen anything yet. People could come into this environment in Canada and could certainly act ethically or could disrupt in a way that is not beneficial for consumers. Having provisions to measure against their coming here and doing business in an unethical way is important going forward.
Senator Klyne: My question is on whistle-blowing. Do you think what is being amended goes far enough? Do you have any thoughts or comments on that? Do they protect the whistle-blower?
Mr. Lawford: The way I read them, yes, they do. If the wording that was quoted to you before about no intimidation or dismissal goes through, it would do wonders for the sector and give protection where it has been demonstrated that we need it.
The Chair: Thank you very much for your tremendous contributions. You are extremely informed panellists, and we have taken a lot of knowledge from what you have shared with us.
Thank you, senators, for your great questions. Onward and upward.
(The committee adjourned.)