Monday, December 5, 2016

The Standing Senate Committee on Banking, Trade and Commerce has the honour to table its

NINTH REPORT

Your committee, which was authorized to examine the subject matter of those elements contained in Divisions 3, 4, 5, 6 and 7 of Part 4 of Bill C-29, A second Act to implement certain provisions of the budget tabled in Parliament on March 22, 2016 and other measures, has, pursuant to the motion adopted by the Senate on November 22, 2016, examined the said subject matter and now reports as follows.

The committee held meetings on November 30^th and December 1^st, 2016, during which it heard from nine officials from two federal departments, as well as representatives from the academic and financial services sectors.

DIVISION 3: AMENDMENTS TO THE CANADA EDUCATION SAVINGS ACT

Division 3 would amend the Canada Education Savings Actto address the replacement of the Canada Child Tax Benefit with the Canada Child Benefit, and their use as an eligibility criterion for the Canada Learning Bond.

An official from Employment and Social Development Canada informed the committee that Division 3 would amend the eligibility criterion for the Canada Learning Bond to include both the family’s adjusted income and its number of children.

DIVISION 4: AMENDMENTS TO THE CANADA DISABILITY SAVINGS ACT

Division 4 would amend the Canada Disability Savings Actbecause of the replacement of the term “Canada Child Tax Benefit” with the term “Canada Child Benefit.” It would also amend the term “phase-out income,” which is the income threshold above which the amount of the Canada Disability Savings Bond begins to be reduced.

An official from Employment and Social Development Canada told the committee that eligibility for the Canada Disability Savings Bond, which is a federal contribution to the registered disability savings plans of low-income Canadians, was established with reference to the Canada Child Tax Benefit. The current income threshold for eligibility for the Canada Disability Savings Bond is $26,364.  Bill C-29 would align that threshold with the Canada Child Benefit, which is currently $30,000.

DIVISION 5: AMENDMENTS TO THE BANK ACT

Division 5 would amend the Bank Act to consolidate existing consumer protection provisions and to create a new financial consumer protection framework that would apply to banks.  Most of the proposed framework, which would be contained in proposed Part XII.2, currently exists in the Act and associated regulations.

The purpose of proposed Part XII.2 would be to establish a comprehensive and exclusive financial consumer protection framework in relation to banks’ dealings with their customers and the public in order to: “provide those customers and the public with uniform protection on a national level; allow [banks] to carry on the business of banking, consistently and efficiently on a national level; and ensure the uniform supervision of [banks] and enforcement of provisions relating to the protection of their customers and of the public.” The intention of the federal framework proposed in Part XII.2 is to supersede any provincial provisions related to either consumer protection or banks’ business practices regarding consumers.

Proposed Part XII.2 would be based on the following principles:

•  Basic banking services should be accessible.

•  Disclosure should enable a bank’s customers and the public to make informed financial decisions.

•  A bank’s customers and the public should be treated fairly.

•  Complaints processes should be impartial, transparent and responsive.

•  A bank should act responsibly, considering its customers and the public, as well as the efficiency of its business operations.

As well, Division 5 would require a bank’s directors to designate a committee of the board of directors that would, among other things, ensure management’s compliance with the proposed framework. A bank’s director would also be required to report to the Commissioner of the Financial Consumer Agency of Canada (FCAC) in relation to the committee’s activities.

Other provisions in proposed Part XII.2 relate to access to basic banking services, business practices, disclosure, complaints, accountability and regulations.

An official from the Department of Finance informed the committee that the proposed consolidation of existing financial consumer protection provisions would demonstrate the comprehensive nature of the framework, make provisions easier for Canadians to understand and ensure consistency across banking products and services.

According to the Canadian Bankers Association, the proposed consolidation would improve the efficiency of financial services regulation, ensure consistency across the country, prevent confusion among consumers, maximize product availability and augment the FCAC’s capacity to fulfil its mandate. However, the Public Interest Advocacy Centre suggested that the proposed consolidation would result in a more rigid framework.

Officials from the Department of Finance and the FCAC, as well as the Ombudsman for Banking Services and Investments, suggested that the principles on which the proposed framework would be based would clarify the interpretation that should be given to the consumer provisions contained in the proposed framework. The Ombudsman for Banking Services and Investments also said that the proposed principles are appropriate and well-founded. In the view of the Public Interest Advocacy Centre, however, the legal impact of the proposed principles is unclear.

Regarding the amendments that would affirm the proposed framework’s paramountcy over provincial consumer protection provisions, the Department stated that the intention is avoid overlap between federal and provincial rules, and ensure that bank-related consumer protection provisions are clear, comprehensive and uniform across the country. However, the Public Interest Advocacy Centre did not support the proposed amendments related to the proposed framework’s paramountcy. According to it, consumer protection rules that apply to credit unions in a number of provinces would provide consumers with protection that is better than that which would exist in the proposed framework.  As a result, consumers could have a disincentive to use banks to meet their financial service needs. It also suggested that Quebec’s consumer protection rules could be found to be inoperative following enactment of the proposed amendments, which could result in constitutional challenges and legal uncertainty.

The Department indicated that the proposed amendments would provide improvements in the following areas: access to basic banking services; rules in relation to business practices; disclosure of information by banks to consumers; public reporting regarding complaints; and the accountability of banks’ management teams in relation to consumer protection. The Ombudsman for Banking Services and Investments supported these proposed changes, suggesting that they would provide important clarifications.

In the view of the Public Interest Advocacy Centre, the proposed framework would not address existing issues related to bank’s business practices. In particular, it mentioned that the proposed framework would not prohibit banks from unilaterally changing provisions in their terms and conditions or from unilaterally including, in those terms and conditions, provisions that deny liability for their errors or negligence. It highlighted Ireland’s Consumer Protection Code as a regime that provides relatively better protection to consumers, noting that Ireland’s Code requires banks to act with due skill, care and diligence in the best interests of its customers.

The ADR Chambers Banking Ombuds Office supported a number of the proposed amendments in relation to complaints resolution. It made particular mention of proposed provisions that would ensure that banks provide external complaints bodies with all of the information and documentation that are needed to conduct thorough and meaningful investigations of consumer complaints, and that would benefit consumers by helping to ensure that the information received is easy to understand. According to the Public Interest Advocacy Centre, however, the proposed framework would not address existing issues related to complaints resolution; for example, a bank could still choose the external ombuds service that it wishes to use.

Carleton University professor Saul Schwartz, who appeared as an individual, supported the inclusion of the proposed framework in the Act, but – given its proposed paramountcy – only to the extent that its provisions are at least as strong as provincial consumer protection provisions.

In addition, Mr. Schwartz suggested that banks treat low-income customers in an indifferent and disrespectful manner, which would be inconsistent with the proposed principle that banks should treat their customers fairly. In providing an example of banks’ treatment of low-income customers, he said that banks have been reluctant to help these customers establish a registered education savings plan, which may explain why only one third of eligible Canadians receive the Canada Learning Bond. In his view, regulations that will be enacted following the coming into force of Division 5 should require banks to undertake empirical investigations of their treatment of low-income customers; the aforementioned committee of the board of directions that is proposed in Division 5 could be responsible for such investigations, with directors held liable for non-compliance with this obligation.

The Public Interest Advocacy Centre proposed that Division 5 should be withdrawn from Bill C-29. In its opinion, the Department should undertake public consultations with a view to developing a new financial consumer protection framework that would be comprehensive, more effective, enforceable and consistent with Canada’s constitutional regime. According to it, such a framework could establish minimum protections across provinces. It also suggested that this framework should be developed as part of the upcoming review of the Act.

As an alternative to the framework proposed in Division 5, Mr. Schwartz advocated the creation of an organization that would be similar to the U.S. Consumer Financial Protection Bureau. In his view, such an organization would be more effective than the FCAC, which is limited in its ability to make and enforce rules. He said that, at a minimum, such an organization could generate knowledge that the provinces could use to implement better consumer protection measures at their level; particular mention was made of the alternative financial services sector, such as payday lenders, pawn shops and cheque cashing services. As well, he stated that such an organization could develop federal regulations to improve protections for financial consumers.

The FCAC mentioned that, in anticipation of the framework proposed in Division 5, it has developed a new supervisory framework that will be launched in spring 2017. The Canadian Bankers Association supported the FCAC’s sole oversight of the proposed framework.

Because witnesses had contrasting views about the financial consumer protection framework proposed in Division 5, the committee believes that – if Division 5 is enacted in its current form – the proposed framework should be comprehensively examined as part of the 2019 review of the Act.

DIVISION 6: AMENDMENTS TO THE ROYAL CANADIAN MINT ACT

Division 6 would amend the Royal Canadian Mint Act to allow the Royal Canadian Mint to generate profits from its dealings with the Government of Canada or its agents. It would also confirm that certain non-circulating $350 coins are legal tender, and would allow directors of the Mint to be appointed without experience in the field of metal fabrication or production, industrial relations or a related field.

As well, Division 6 would provide the Mint with new powers that are subject to approval by the Minister of Finance and are consistent with the Mint’s most recently approved corporate plan. In particular, the Mint would be able to issue, promote, deal in or trade in financial services and products related to gold, silver and other metals.

An official from the Department of Finance told the committee that the Mint’s ability to generate profits from its dealings with the Government of Canada would foster innovation, and would lead to lower overall costs for the Government.

In its written submission to the Committee, the Mint noted that the amendments proposed in Division 6 would help to clarify the Mint’s mandate and greatly expand the pool of potential candidates for appointment to its board of directors.

DIVISION 7: AMENDMENTS TO THE FINANCIAL ADMINISTRATION ACT, THE BANK OF CANADA ACT AND THE CANADA MORTGAGE AND HOUSING CORPORATION ACT

Division 7 would amend the Financial Administration Act, the Bank of Canada Act and the Canada Mortgage and Housing Corporation Act to provide explicit authorities for existing activities or operations of the Minister of Finance, to give the Department of Finance greater operational flexibility in relation to its management of Crown funds, and to offer new tools to certain Crown corporations to safeguard their assets.

An official from the Department of Finance informed the committee that Division 7 would explicitly authorize the continuation of a number of activities that are currently ongoing, including the Minister of Finance’s power to enter into contracts that hedge against currency exchange risks or to make payments that reduce the public debt, as well as the Bank of Canada’s power to manage the Crown Borrowing Program that facilitates the lending of government funds to Crown corporations. According to the official, at the present time, these activities are deemed to be within the power of their respective authorities; the proposed amendments would provide greater clarity in this regard. 

Furthermore, the Bank of Canada noted that Division 7 would allow it to offer custodial services to Canada Mortgage and Housing Corporation (CMHC) in relation to the management and safeguarding of assets. It would also enable the Bank to pay interest on CMHC deposits.

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APPENDIX – List of Witnesses

Meeting of December 1, 2016

Richard Bilodeau, Director, Supervision and Promotion Branch (Financial Consumer Agency of Canada)

Sarah Bradley, Ombudsman and CEO (Ombudsman Banking Services and Investments)

Thérèse Couture, Director, Funds Management and Banking Department (Bank of Canada )

Toni Gravelle, Chief, Financial Markets Department (Bank of Canada )

Andrew Kidd, Senior Legal Counsel, Executive and Legal Services Department (Bank of Canada )

John Lawford, Executive Director and General Counsel (Public Interest Advocacy Centre)

Anthony Polci, Vice President, Government Relations (Canadian Bankers Association)

Marshall Schnapp, Ombudsman (ADR Chambers Banking Ombuds Office)

Saul Schwartz, Professor and PhD Coordinator, School of Public Policy and Administration, Carleton University (As an Individual)

Meeting of November 30, 2016

Glenn Campbell, Director, Financial Institutions Division, Financial Sector Policy Branch (Department of Finance Canada)

Michelle Demery, Director, Programs Division, Office for Disability Issues, Income Security and Social Development Branch (Employment and Social Development Canada (ESDC))

Jean-François Girard, Chief, Financial Institutions Division, Financial Sector Policy Branch (Department of Finance Canada)

Mark Joshua, Senior Economist, Funds Management Division, Financial Sector Policy Branch (Department of Finance Canada)

Jessica Kerr, Director General, Canada Education Savings Program (Employment and Social Development Canada (ESDC))

Nicolas Moreau, Director, Funds Management Division, Financial Sector Policy Branch (Department of Finance Canada)

Christine Nagy, Analyst, Operational Policy and Legislation, Program Operations Division (Employment and Social Development Canada (ESDC))

Eleanor Ryan, Senior Chief, Financial Institutions Division, Financial Sector Policy Branch (Department of Finance Canada)

James Wu, Chief, Funds Management Division, Financial Sector Policy Branch (Department of Finance Canada)