G20 Summit Seoul: PIAC asks PM to support protection measures for consumers of financial products

The Public Interest Advocacy Centre today released a letter to the Rt. Honourable Stephen Harper calling on the G20 to take urgent action to protect consumers of financial products. PIAC, as a member of Consumers International, wants the G20 to create an Experts Group. The group would have a mandate to develop minimum standards relating to:

•  Fair contract terms and charges for financial products and services;
•  Information design and disclosure on financial products; and
•  The governance and functions of national financial consumer protection bodies.

The Experts Group would be charged to report to the G20 summit in 2011 with recommendations supporting effective financial consumer protection around the world.
 
The text of the letter from Michael Janigan, executive director of the Public Interest Advocacy Centre, is copied below:
7 October 2010
The Rt. Honourable Stephen Harper
Office of the Prime Minister
80 Wellington Street
Ottawa, ON
K1A 0A2
Dear Prime Minister Harper:
Re: G20 summit Seoul, South Korea: measures to support financial consumer protection
The Public Interest Advocacy Centre (PIAC), as a member of Consumers International (CI), is joining consumer organisations around the world in calling for the G20 to take urgent action to protect consumers of financial services, through:
The establishment of an Experts Group on Consumer Financial Protection with representation from financial consumer protection agencies, independent consumer organisations, and other experts in the fair treatment of consumers of financial services representing the interests of consumers from both developed and developing nations.
The Experts Group on Consumer Financial Protection should be charged to report to the G20 summit in 2011 with recommendations supporting effective financial consumer protection around the world. In particular, the Experts Group should create and recommend adoption by national governments of minimum standards relating to:

• Fair contract terms and charges for financial products and services:
•  Information design and disclosure on financial product: and
• The governance and functions of national financial consumer protection bodies.

The Experts Group on Consumer Financial Protection should also make recommendations for:

• The promotion of effective competition in markets for financial consumer services; and
• The development of a permanent organisation for international standard-setting and coordination with regard to financial consumer protection.

The consumer banking sector is complex, rapidly changing and carries significant risks for individual consumers and the wider economy. The financial crisis has already demonstrated how ineffective regulation of financial consumer lending practices contributed to the creation and worsening of a crisis that rapidly spread from country to country, threatening livelihoods, savings and social stability. Although Canada may have escaped the worst of the financial crisis, PIAC does not believe this was through adequate consumer protection measures but rather was a product of fortunate circumstances such as a comparatively low exposure to mortgage-backed securities and a
Each year the global economy creates an estimated 150 million new consumers of financial services. Most are in developing countries, where consumer protection and financial literacy are still in their infancy. In a world where banks are highly interdependent, a banking crisis anywhere in the world will further undermine consumer confidence and could have unpredictable international consequences.
In Canada this Fall, the federal government has begun the process of renewal by mandating the Task Force for the Payments System Review with reform of payments in Canada (and in which PIAC is actively participating along with other Canadian consumer groups), as well as consultations on the scheduled 5 year review of the financial institutions. These initiatives present an ideal opportunity to advance a coordinated consumer protection reform effort in this sector in Canada, in addition to the requested measures on the international stage. PIAC is willing and able to assist in such discussions.
The global dimension of financial services and the increasing interdependence of financial markets, as well as the common challenge of effectively regulating complex and fast-moving markets in financial consumer services, adds to the urgency for better regulation of such practices.
International co-operation on financial consumer protection has the potential to deliver substantial savings for national agencies through the co-ordination of research, the development of standards and guidelines, the sharing of best practice and the avoidance of costly crises.
At the G20 Summit in Pittsburgh in September, 2009, the Leaders’ Statement declared, “[O]ur work is not done. Far more needs to be done to protect consumers, depositors and investors against abusive market practices, promote high quality standards and help to ensure the world does not face a crisis of the scope we have seen.” PIAC believes the establishment of the above Experts Group would be an important step towards achieving that goal.
Please raise this issue with your G20 counterparts and support the establishment of an Experts Group on Financial Consumer Protection at the G20 summit in Seoul.
We would welcome the opportunity to discuss this further with you or an appropriate minister.
Thank you for your consideration of this important matter. We look forward to your response.
Yours sincerely,
Michael Janigan
Executive Director
Public Interest Advocacy Centre
Copied to:
The Honourable James M. Flaherty, Minister of Finance
Mr. Mark J. Carney, Governor of the Bank of Canada
Ms. Ursula Menke, Commissioner of the Financial Consumer Agency of Canada
The Public Interest Advocacy Centre (PIAC) is a member of Consumers International, the international federation of independent consumer organisations that is co-ordinating an international campaign calling for all consumers to have access to a stable, fair and competitive market in financial services.
PDF copy:

 

All along the watchtower: seeking the future of Canada’s payments system

Executive Summary
Confusion is impairing the evolution of Canada’s payments system. The Task Force for the Payments System Review’s decision to initiate broad consultations is therefore welcome. Part of its challenge will be to listen to the voices of consumers, in all their complexity: their responsiveness and vulnerability to changes in the payments environment are conditioned by many factors, including their economic and literacy status, and they cannot all be held to the classic canon of “rationality”.
We suggest that the analysis leading a new framework for our payments environment should include a risk management approach and be principle-based. We suggest eight principles that should be taken into account, including (insofar as possible) technological neutrality.
Innovation in the Canadian payments environment is necessary and desirable, yet Canada lags behind even African countries in some respects. One of the major hurdles slowing down innovation is our competitive structure.
As they hold significant influence on the four major payment networks in the country and control access to most liquid assets, the largest deposit-taking financial institutions are in position to thwart competitors. There is a risk that either a marginal, unregulated payments market will develop at the fringe, or that the largest institutions will simply gobble up competitors. A third, more balanced scenario is unlikely to occur without outside support. An analysis of competitive issues in the payments environment should take into account its peculiar characteristics. The relative failure of the Competition Tribunal order in the Interac case to achieve a properly functioning market should be kept in mind.
Privacy also raises issues for consumers using payment mechanisms. Anonymity is a major concern. The fact that payment data crosses borders on a routine basis should also be of some concern.
The Canadian payments system is not always as efficient as it is said to be, and is certainly not as innovative as it could be. We believe part of the blame should go to an antiquated and inefficient regulatory framework which is too convoluted, sometimes unfair and fairly opaque.
Other jurisdictions, including the United States, the European Union (including the United Kingdom) and Australia have acted in recent years to modernize their regulatory framework and facilitate stakeholder involvement. Their example should inspire Canada.
Full Submission:

All along the watchtower: seeking the future of Canada’s payments system
Download File: watchtower_final.pdf [size: 0.26 mb]

Saskatchewan Payday Loan Rate Among Nation’s Highest; Will Hurt Most Vulnerable Consumers in Economic Downturn

The Public Interest Advocacy Centre (PIAC) today condemned the Province of Saskatchewan’s proposed payday lending rate as amongst Canada’s highest.
“The payday loan rate set by the Government of Saskatchewan is ludicrously high and will be taken 100% from vulnerable consumers,” said John Lawford, Counsel at PIAC. Saskatchewan’s $23 per hundred borrowed rate is only surpassed in Nova Scotia and equalled by British Columbia and represents 600% annual interest on a $300, 14-day loan. “Borrowers can expect much misery from loans at this rate and it will only get worse if there is an economic downturn in Saskatchewan,” continued Lawford.
PIAC notes that the rate set in Saskatchewan continues the abdication of responsibility by provincial governments who do not perform thorough reviews of payday loan economics. “The only way to set a rate that is not abusive for these loans is to have a full rate hearing with funded consumer representation,” stated Lawford, “Otherwise it’s just the payday loan companies producing untested studies on their costs that ignore the reality of borrowers and their ability to pay these rates.”

Consumers Left Out in the Code

(OTTAWA)— Consumers will face higher transaction costs and lose consumer rights in debit and credit payment transactions if the Minister of Finance’s Draft Code of Conduct for the Credit and Debit Card Industry in Canada is implemented, says the Public Interest Advocacy Centre.
PIAC yesterday filed its comments on the draft Code, stating that: “Implementation of some of the Draft’s provisions would significantly increase consumer search and transaction costs and clash with consumer rights as legislatively implemented, without providing consumers any compensatory benefit. It would also be unlikely to provide effective remedies to the problems encountered by merchants, which are real.”
PIAC highlighted the draft Code’s provision allowing merchants to direct consumer payments to the merchant’s preferred network on so-called “co-badged” debit cards now entering the Canadian market. “Removing consumer control of payments is unacceptable and unnecessary” said John Lawford, counsel for PIAC, “Instead, consumers should be provided with the ability to choose easily which network they prefer.”
Merchant discounting and surcharging of various payment methods would also likely be unwieldy, more costly and lead to significant confusion among and burden upon consumers, said PIAC of another practice recommended in the draft Code.
“This Code is not the answer,” continued Lawford, “the real issue is the regulation of all electronic payments in Canada under clear and enforceable rules – which is what is lost in this debate.”
PIAC’s comments to the Minister of Finance A ghost in the machine? The consumer perspective on the draft code of conduct for the credit and debit card industry [pdf file: 0.3mb] are available for download.
For more information, please contact:
John Lawford
Counsel
Public Interest Advocacy Centre
ONE Nicholas Street, Suite 1204
Ottawa, ON K1N 7B7
(613) 562-4002×25 (Tel)
(613) 562- 0007 (Fax)
lawford@piac.ca

Regulate Financial Planners in the Public Interest

(OTTAWA)— The Public Interest Advocacy Centre (PIAC) called upon the provinces to regulate the practice of “financial planning” in a report released today entitled, “Holding The Purse Strings: Regulating Financial Planners.”
PIAC’s report noted that the practice of financial planning in Canada is comprised of several self-regulating bodies, except in the province of Quebec where these services are regulated. The lack of provincial regulation allows certain activities that are clearly not true financial planning services to be promoted as such, thereby misleading consumers.
PIAC counsel and report co-author John Lawford noted that individuals could claim to be “financial planners” in most provinces with no qualifications whatsoever: “The term ‘financial planner’ should be one consumers can understand and trust. Consumers are confused by the multiple agencies granting similar titles, and say they need consistent, enforceable mechanisms for consumer protection when using these services.”
The report also recommends that the federal government look into the availability of comprehensive financial planning and its potential value to Canadians as a part of the government’s commitment to investigating financial literacy in Canada.
PIAC’s report is based on two focus groups undertaken in Toronto by Environics Research Group with financial planners and their clients in November 2008.
The full report –– Holding The Purse Strings: Regulating Financial Planners–– is available for download at: http://www.piac.ca
PIAC received funding from Industry Canada’s Contributions Program for Non-Profit Consumer and Voluntary Organizations. The views expressed in the report are not necessarily those of Industry Canada or the Government of Canada.
A copy of the report is found here: Holding The Purse Strings: Regulating Financial Planners
Executive Summary [pdf file: 0.02mb]
Sommaire [pdf file: 0.02mb]
For more information, please contact:
John Lawford
Counsel
Public Interest Advocacy Centre
ONE Nicholas Street, Suite 1204
Ottawa, ON K1N 7B7
(613) 562-4002×25 (Tel)
(613) 562- 0007 (Fax)
lawford@piac.ca

New PIAC Report Studies Importance of Credit Cards to Canadians

While credit cards have become a preferred and sometimes essential means of payment, a growing group of citizens cannot get access to a card. A new report by the Public Interest Advocacy Centre (PIAC) studies the consequences of not being able to obtain a credit card and the use of substitutes by such individuals. The report also provides a history of credit cards, an overview of the Canadian credit card market and presents some possible alternatives to credit cards for Canadian consumers.
The PIAC report was informed by the results of several focus groups and concludes by making policy recommendations that seek to assist and protect Canadian consumers who are not able to obtain a conventional credit card. These recommendations include implementing requirements for better transparency by credit reporting agencies, and the creation of products that can assist in the establishment of creditworthiness by individuals who have not established sufficient levels to qualify for its extension.
“The use of credit cards and credit products are becoming an ordinary incident of being a full participant in economic society,’ said Michael Janigan executive director of the Public Interest Advocacy Centre (PIAC). “In turn, we have to work to ensure that a reasonable opportunity is afforded all consumers to eventually become fully participating”.
Funding of the research on which this report was based was received from Industry Canada’s Contributions Program for Non-Profit Consumer and Voluntary Organizations. The views expressed in the report are not necessarily those of Industry Canada or the Government of Canada.
The report “Credit cards and access to the digital marketplace: A priceless necessity?” is available at:
http://www.piac.ca/downloads/creditcardsaccesstodigitalmarketplace.pdf

Are You Sure You Want to Continue? Consumer Authentication at the Crossroads

FOR IMMEDIATE RELEASE
Attention: News and Business Editors
October 23, 2008
(OTTAWA)—The Public Interest Advocacy Centre (PIAC) today released “’Are You Sure You Want to Continue?’: Consumer Authentication at the Crossroads,” a report that calls for a major overhaul to Industry Canada’s “Authentication Principles”. The report laments the Authentication Principles’ failure to provide Canadian consumers with adequate protection when using the Internet to conduct business transactions such as online banking. The report offers a host of recommendations aimed at protecting the security and privacy of consumers who use electronic authentication to access finances or to shop online.
“Banks and retailers are not adequately protecting consumers who use their services online,” said John Lawford, Counsel for PIAC. “There is more they can do to reduce fraud and increase online security with little effort by upgrading their customer authentication systems but they have not been held to any real standard by these voluntary principles.”
The report notes that consumers are becoming increasingly wary of growing security and privacy risks, such as phishing, that are threatening the way they conduct online retail and banking transactions. In order to ensure consumer safety and confidence in online commerce, the report urges a greater role in the regulatory process be played by both the federal and provincial governments, and recommends that much stricter authentication regulations be applied to financial institutions under the Bank Act and other federal financial legislation.
To adequately protect consumers’ privacy while online, PIAC suggests the Authentication Principles be amended to include direct references to the standards of the Personal Information Protection and Electronic Documents Act (PIPEDA) and that consumers be given more choice in how to protect their privacy, such as the ability to decide which personal information will be used for authenticating them during an online transaction.
The report warns that consumer liability should also not be increased by new authentication and that contracts issued by banks and retailers make the provider of the payment system responsible for losses due to authentication failures, fraud and hacking. The report calls for consumer education about authentication coupled with disclosure requirements for banks and retailers to ensure consumers are told of problems with authentication systems.
Finally, the report suggests that a federal regulatory body, such as the Office of the Superintendent of Financial Institutions of Canada, be instructed to audit the authentication systems of financial institutions, in order that industry standards and the new Authentication Principles and legislation are followed, and that a similar audit system should occur at the provincial level to oversee retail authentication systems.
For more information, please contact:
John Lawford
Counsel
Public Interest Advocacy Centre
ONE Nichloas Street, Suite 1204
Ottawa, ON K1N 7B7
(613) 562-4002×25
(613) 562- 0007 (Fax)
Full text of the report:
 
 

Are You Sure You Want to Continue? Consumer Authentication at the Crossroads
Download File: authentication_final.pdf [size: 0.6 mb]

Consumer Group Report Reveals High-interest Borrowing Pitfalls

For immediate release
Attention News/Business/Banking/Student News Editors
Consumer Group Report Reveals High-interest Borrowing Pitfalls
Not Ready for Prime Time: Canadians In the Sub-Prime, High-interest Lending
(OTTAWA)—A report released today by the Public Interest Advocacy Centre (PIAC), “Not Ready for Prime Time”, sets out some key findings of its research in the field of high-interest lending which includes payday loans and subprime mortgages. Among others, it pinpoints the early misuse of credit in consumers’ financial lives as a main factor in causing them to resort to high cost borrowing later in life, as evidenced by the outcome of focus groups conducted in Edmonton, Toronto and Vancouver. Somewhat surprisingly, one of the chief credit problems for focus group participants arose with student loans, particularly when the education for which it was undertaken was not finished.
“We have a program designed to better the life prospects of Canadians that, if the focus group results are borne out in the general population, may be a contributing factor to low financial status. That result would be exactly the opposite of what is intended,” said Esteban Uribe, the PIAC researcher who wrote the report.
The report notes the accepted view that the differences in the Canadian and American mortgage markets make a repetition of the recent events in the United States unlikely. At the same time, the report sets out concerns that, through financial vehicles such as securitization, risks of default appear to be increasingly transferred to investors and borrower households, possibly without their full understanding of the same.
The report makes specific recommendations for early consumer education, and stresses the need for transparency and better consumer awareness of the consequences of high cost transactions. It suggests that each province should independently review lending practices and control interest rates through public hearings not only to accord with the intent of the federal government reform to decriminalize usury in these transactions, but also with a view to protect the interests of users from onerous and abusive terms.
The Report is available at:
 
 

 
 
Contact:
Michael Janigan
Executive Director and General Counsel
Public Interest Advocacy Centre
(613) 562-4002×26
Fax No. 613 562-0007
Esteban Uribe
Research
Public Interest Advocacy Centre
(613) 562-4002×26

Comments regarding the creation of a new framework for electronic fund transfers in Canada

While a better framework for electronic payments in Canada is urgently needed, the scope of the consultation currently held by the Department of Finance and the process it has put in place appear unlikely to lead to significant improvements.
The process must allow for real debate and must therefore provide a fairly specific basis for discussion An effective framework must be based on a set of overarching principles. It would also preferably be established by legislation. In addition, experience shows that the current Canadian Code of Practice for Consumer Debit Card Services is not a sound basis for discussion, yet the process proposed by the Department curtails debate, it is based on the current code and it is so imprecise as to scope and other issues that it is difficult for stakeholders to frame comments.
We propose eight principles on which a new framework should be based: universality, neutrality, security, accountability, transparency, liberty, enforceability and legitimacy. We note the growing complexity of the electronic payments field in Canada.
We submit that a new code should have the broadest scope and, in particular, not be limited to a subset of card-based payment mechanisms. We disagree with the view that such new code should not cover payment methods which may be partly regulated otherwise, as a number of important issues remain in fact unregulated. Regulatory underlap and gaps can be more damaging than overlap.
The rationale for risk allocation between market participants must be discussed in depth before issues such as liability and redress can be addressed.
Increased disclosure is not an adequate remedy to unconscionable contractual requirements or business practices, which should be prohibited outright.
Finally, governance issues regarding the payments universe in Canada should be considered carefully, taking heed in particular of current developments in Australia and the United Kingdom.
Read full Report:
 
 

PIAC Comments on Proposed Electronic Funds Transfer Code
Download File: piac_eft_comments_final.pdf [size: 0.34 mb]

Government Must Go Further with Reform of Income Trusts Consumer Group Concludes

August 16, 2007
For immediate release
Attention: News/Business Editors
OTTAWA—Ordinary consumers and investors alike were ill-served by the financial rollercoaster ride of the income trust, says the Public Interest Advocacy Centre (PIAC) in a report released today. While supporting, in principle, the Conservative government’s introduction of a tax intended to place income trusts units and corporate shareholdings on an even tax footing, the report notes several shortcomings in the tax policy process and the governance of trusts that should be addressed to avoid future controversies.
John Lawford, PIAC legal counsel and co-author of the report, notes: “Income trusts were a tax accident waiting to happen. Tax policy reform is needed before the next major taxation controversy erupts. Investor protection and the taxpayer voice are sorely lacking – but obviously are needed – well before immense corporate investments make changing tax policy expensive to individuals and companies alike.”
The report takes a comprehensive overview not only of the history and function of the income trust, but also chronicles the tax policy questions, including the ongoing dispute about the size of the “tax leakage” caused by income trusts question. The report describes some of the major corporate reorganizations that occurred or were about to occur under an income trust structure, noting the unanticipated effect on corporate governance in major regulated industries such as energy and telecommunications. The report calls for changes to equalize the position of shareholders and trust unitholders in terms of rights. Finally, the report criticizes the general lack of transparency in tax policy-making and the seeming reluctance on the part of the federal government to release information on tax policy-making under the Access to Information Act.
The report’s recommendations include the creation of a regulatory oversight framework for income trusts comparable to that for securities offerings (shares) as well as increased efforts by the federal government in investor education through the Financial Consumer Agency. Finally, the report recommends the federal government no longer attempt to prevent disclosure of source documents involving tax policy on the grounds of “national security”.
PIAC is a non-profit organization 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 was established in 1976.
PIAC received funding for this report from Industry Canada’s Contributions Program for Non-Profit Consumer and Voluntary Organizations. The views expressed in the report are not necessarily those of Industry Canada or the Government of Canada.
A copy of the report is available on the PIAC website at:
 

PIAC Income Trust Report: Income Trusts – A Challenge for Regulators
Download File: piac_income_trust_report.pdf [size: 0.49 mb]

For more information:
John Lawford
Counsel
Public Interest Advocacy Centre
ONE Nicholas Street, Suite 1204
Ottawa, Ontario
K1N 7B7
(613) 562-4002×25
(613) 447-8125 (Mobile)
(613) 562-0007 (Fax)
jlawford@piac.ca