Say NO to ATM Convenience Fees!

Since January 2002, some financial institutions have been charging convenience fees ranging from $1.25 to $1.50 to individuals using their automated teller machines (ATMs) who are not that bank’s customers. This fee is in addition to the INTERAC fee (which ranges from $0 to $1.50). Certain financial institutions (National Bank, Royal Bank and Caisse Desjardins) are charging this convenience fee at all of their ATMs while others (CIBC, Scotiabank and TD Canada Trust) are only charging them at their off-premise or non-branch locations.
PIAC invites you to express your discontent with these fees by sending the letter that follows to the president and/or chief executive officer of the financial institutions charging convenience fees at their ATMs:

• Mr. John Hunkin, Chairman and CEO, CIBC
• Mr. Réal Raymond, President and CEO, National Bank
• Mr. Gordon M. Nixon, President and CEO, Royal Bank
• Mr. Peter Godsoe, Chairman and CEO, Scotiabank
• Mr. Edmund Clark, President and CEO, TD Bank Financial Group
• M. Alban D’Amours, Fédération des caisses Desjardins du Québec

Speaking Notes on Bill C-38

Speaking Notes Before the House of Commons Standing Committee on Finance

Public Interest Advocacy Centre
barrados@web.ca
www.piac.ca
Thank you for inviting us to present our views on Bill C-38 to the committee. First I’ll say a few words about the Public Interest Advocacy Centre (PIAC). PIAC is a non-profit organization which provides legal services and research to Canadian consumers and the organizations that represent them. Our work primarily concerns important public services including telecommunications, broadcasting, energy, financial services and public transportation. PIAC has a national board of directors and members that include individuals, groups and organizations representing 2.5 million Canadians.
Like several other consumer organizations, we have been following the financial sector reform process closely, and have advocated strongly for great consumer protection in the sector. We are generally pleased with the results of reform process and support the consumer oriented provisions of Bill C-38. Good as the Bill is for consumers though, there are several important gaps in its provisions. The committee can rectify these gaps, and I would urge you to take this opportunity to improve the Bill for Canadian consumers.
My presentation will focus on three topics:

1. Rural bank branch closures
2. Accountability of the proposed Financial Consumer Agency of Canada (FCAC)
3. Holds on Cheques

Rural Bank Branch Closures

PIAC recently published a study on rural bank branch closures. We determined that in the ten-year period between 1989 and 1998, about 45% of rural bank branches had closed. Since 1998 many more branch closures have been announced. The situation is considerably worse now than when the Task Force on the Future of the Financial Service Sector published its recommendations, which is why we feel that additional measures to address the problem should be considered for Bill C-38.
When a bank branch closes in a small town, it causes difficulties for consumers and businesses in the entire area who are faced with having to travel long distances to do their banking. Small towns tend to revolve around the gas station, the local shop, the post office and the bank. Once the bank closes, the shop and the gas station may be next, and then who will want to stay there? This situation is very hard on communities. When we published our report, one comment I heard many times was “its nice to know that at least someone in Ottawa cares about what’s happening here”. I would like to urge the members of this committee also to become people in Ottawa who care about the fate of our small communities.
We have several practical recommendations that are not overly interventionist to address the problem:

• Keep a close eye on the problem. Track where branches are closing, if banks are leaving ATMs where there were branches, and what replacement services, like post office agencies, are appearing;
• Make sure banks are accountable to consumers. Get the banks to report on what they are doing to solve the problem;
• Provide the know-how communities need to organize alternative banking services. Community leaders need to know what is involved in establishing a credit union branch, what the options might be for post office banking or other arrangements, and what other towns have done in similar situations;
• Make sure Canada Post’s activities in retail banking are beneficial to consumers. Post office banking clearly has the potential to enhance rural consumers’ access to financial services, but there is no public interest to be served by the Canada Post promoting services that could compete with credit union branches, or offering low quality services such as white label ATMs.

Accountability of the Proposed Financial Consumer Agency of Canada (FCAC)

The establishment of the FCAC is a very positive step, and key to the overall consumer protection framework. We are quite concerned, however, about some the detail in its enabling provisions in the Bill. In particular, we would urge the committee to ensure that:

• There is full public reporting of FCAC activities. It is going to be very disappointing if the FCAC reports do not really tell us about what monitoring has been undertaken and what the results of this monitoring have been.
• The FCAC has an adequate mandate. The expectation is that the FCAC will generally oversee consumers matters in the financial services sector, and it should have the mandate to match this expectation. At the very least, section 3 of the Bill should be brought in line with the mandate outlined in the government’s white paper.
• A consumer advisory committee is established. The implementation of the legislation depends on regulations. Put consumers on an equal footing with the industry in the process to develop these regulations by making sure a there is a fair, effective way for consumer interests to be heard.

Holds on Cheques

This is one area of the Bill’s access provisions that could be improved. More and more consumers are going to cheque cashing outlets to cash their cheques, where they are charged very high fees, and don’t get the benefits of having an account. Why? The main reason is the holds of up to ten days banks place on many cheques. Most people need their cash right away. All the other provisions which promote access to bank services by vulnerable consumers are undermined by these hold policies.
Rather than merely requiring banks to state what their hold policy is, the Bill should actually limit the hold periods. In particular, cheques cashed within a province should be held for no longer than two days, and all government cheques, both federal and provincial, should not be held at all.
More detail on our recommendations can be found in the submission we made to the committee this summer. Thank you for this opportunity to address the committee. I would happy to answer any questions.
 

Rural Bank Branch Closures

Letter to Finance Minister about Rural Bank Branch Closures

Hon. P. Martin P.C., M.P.
Minister of Finance,
Department of Finance,
21st floor,
140 O’Connor Street,
Ottawa, Ontario, K1A 0G5
Dear Minister Martin,
Please find enclosed a copy of our most recent report, Banking in Rural Canada: Ensuring that Rural Consumers Have Adequate Service.
The key finding of this report is that rural Canadians are losing access to banking service at an alarming rate. The measures contained in Bill C-38 are an important advance in consumer protection in the financial services sector, but unfortunately do not directly address the problem of rural bank branch closures. The Bill’s provisions are based on the recommendations made by the Task Force on the Future of the Canadian Financial Services Sector, but our report shows that since the Task Force released its report, the problem has worsened considerably.
We call upon you to renew the commitment you made in July 1998 that the federal government would not stand by while rural Canadians lose access to adequate banking services. Please carefully consider the five recommendations the report contains on how to address the problem of rural branch closures.
In particular, we would call your attention to the need to ensure that Canada Post’s activities in the banking sector accord with the public interest. We are concerned about Canada Post’s placements of white label ATMs in rural post offices. These ATMs offer minimal service at high fees, and may block the development of better banking services in these areas. We recommend that the federal government develop a consumer-friendly strategy on post office banking, and ensure that Canada Post operates within it.
Yours sincerely,
Angie Barrados
Researcher
cc.
The Honourable Lyle Vanclief, P.C., M.P.
Minister of Agriculture and Agri-Food and Minister Coordinating Rural Affairs
Andy Mitchell
Secretary of State (Rural Development)
(Federal Economic Development Initiative in Northern Ontario) Frank Swedlove
Executive Director, Financial Sector Review Group
Department of Finance

Comments on Bill C-38

Submission to the House of Commons Standing Committee on Finance
Comments on Bill C-38

By:
Public Interest Advocacy Centre
1204 – 1 Nicholas Street
Ottawa, Ontario
K1N 7B7
piac@web.net
www.piac.ca
Table of Contents
About PIAC
Introduction
1. Public Reporting on the Compliance Program
2. Monitoring of the Overall Consumer Protection Framework
3. Transparency and Openness
4. Branch Closures
Conclusion
Appendix A Background Information on White-Label ATMS
Appendix B Banking in Rural Canada: Ensuring that Rural Consumers Have Adequate Service Executive Summary

About PIAC

The Public Interest Advocacy Centre (PIAC) is a non-profit organization which provides legal services and research to Canadian consumers and the organizations that represent them. This work primarily concerns important public services including telecommunications, broadcasting, energy, financial services and public transportation. PIAC’s members include individuals, groups and organizations representing 2.5 million Canadians. PIAC has been extensively involved in the reform of the financial service sector since its submission to the MacKay Task Force, both in making submissions to parliamentary committees and in co-operating with other consumer organizations to put forward consumer concerns at the working level.

Introduction

The Task Force on the Future of the Canadian Financial Services Sector (MacKay Task Force) presented a strong case for greater consumer protection in the financial services sector. According to the MacKay Task Force:
The current framework is not as effective as it should be in reducing the information and power imbalance between institutions and consumers. Empowering consumers is an important part of our strategy to enhance competition and make it more effective, for the benefit of all.(1)
From the point of view of consumers, the MacKay Task Force report was a major step forward, as it recognized that making sure financial services are accessible to all Canadians is an important public value, and that fairness to consumers is consistent with a healthy marketplace, not, as the industry has argued for so long, counter to competition. Even more importantly, the MacKay Task Force’s recommendations provided a blueprint for government measures to improve consumer protection in the sector.
We are pleased that Bill C-38 would implement some important MacKay Task Force recommendations by setting up the Financial Consumer Agency of Canada (FCAC), and introducing new consumer protection rules. We strongly support the consumer-oriented provisions of Bill C-38. However, we do have some serious concerns about the detail of the proposals contained in the Bill. In particular, we are concerned that the FCAC will not be publicly accountable enough, its operations will be less than open and transparent, and that it will be too limited in its ability to address legitimate consumer issues, including matters raised by the MacKay Task Force. Also, we are concerned that the issue of bank branch closures has become more serious since the MacKay Task Force made its recommendations, yet the government has not taken any action to address the emerging problem. Accordingly, we make recommendations for four amendments to Bill C-38, presented in the following four sections of this submission.

1. Public Reporting on the Compliance Program

In the new structure proposed in Bill C-38, an effective FCAC is key to improving and enforcing consumer protection. We are very concerned that the present wording of the Bill would prevent the FCAC from reporting specifically enough on its activities to be an effective and accountable oversight agency.
Reforming Canada’s Financial Service Sector (the White Paper) stated that the FCAC would report on its monitoring of voluntary codes, giving as an FCAC responsibility: monitor and report on industry self-regulatory initiatives (emphasis added)(2)
Yet, subsection 3(2)(b) of the bill omits reporting, giving as an object of the Agency simply to: monitor the implementation of voluntary codes of conduct…
Section 34 requires an annual report:
The Minister shall cause to be laid before each House of Parliament… a report showing the operations of the Agency for that year and describing in aggregate form its conclusions on the compliance of financial institutions with the consumer provisions applicable to them in that year. (emphasis added)
Taken in conjunction with section 17 on confidential information, it is clear that the annual report would contain only very general information. Subsection 17(1) states that: information regarding the business or affairs of a financial institution or regarding persons dealing with one that is obtained by the Commissioner or by any person acting under the direction of the Commissioner… and any information prepared from that information, is confidential and shall be treated accordingly.
The only provision for publishing the results of specific FCAC audits or investigations is in section 31, which states that:
The commissioner may make public the nature of the violation, the name of the person who committed it, and the amount of the penalty involved.
This section does not require that the violations be made public, nor does it require the FCAC to report on issues less serious than violations that may arise from audits and investigations.
Public reporting of audits and investigations, and their results, for both legislated provisions and voluntary codes is very important for the following reasons:

• Consumers need information about how consumer protection rules are working;
• Consumers should be able to find out how their concerns are being addressed by the FCAC;
• Public reports would encourage all financial institutions (even those not the subject a report) to make sure they are in compliance with consumer protection rules;
• Public reports would demonstrate to both the industry and consumers that the government is serious about consumer protection.

There is a real danger that the FCAC’s compliance activities will only be discussed publicly in the most general terms, and that the public will have no basis to evaluate either the FCAC’s effectiveness or financial institutions’ record on consumer protection.
The administration of the Community Reinvestment Act (CRA) in the US involves publication of extensive information about financial institutions’ service to communities. The success of the CRA in changing financial institution’s behaviour shows that public reporting is key to effective enforcement. While the oversight structure proposed by Bill C-38 is different from that in the CRA, the successful use of public reporting to improve consumer protection should be noted as an example for the FCAC.
It is important that the Standing Committee take steps to ensure that the FCAC is effective and publicly accountable. The Bill should therefore contain a provision that the FCAC must issue public reports on all of its activities and the findings of these activities to fulfill the objects listed in subsections 3(2)(a), (b) and^©. Also, section 17 should state that only financial institutions’ proprietary information is confidential, and where the Commissioner judges that the FCAC reporting may release propriety information, the reporting would exclude the financial institutions’ name.

2. Monitoring of the Overall Consumer Protection Framework

The White Paper promised that part of the FCAC’s responsibilities would be to: consult with consumers and financial institutions (consultations on the effectiveness of the consumer protection framework) (emphasis added)(3)
In section 3 of the Bill, that outlines the FCAC’s responsibilities, there is no mention of any FCAC role in overseeing the effectiveness of the overall consumer protection framework. However, it is very important that the FCAC have a mandate to consider areas in which consumer protection needs to be improved, conduct research and monitoring of these issues, and bring forward potential solutions.
The Standing Committee on Finance endorsed MacKay Task Force recommendations on making sure financial institutions observe the strict separation of consumers’ financial and medical information to protect their customers’ privacy, a matter that is not explicitly addressed by the new Personal Information and Electronic Documents Act. This issue, and others raised in the MacKay Task Force report, are still of great concern to consumers even though they have not been addressed in Bill C-38, and should not be entirely forgotten. There are also new issues that are generating a great deal of consumer concern, such as the recent proliferation of white-label ATMs (for background on this subject see our letter to the Minister of Finance, and transcripts of a recent episode of CBC MarketPlace in Appendix A).
Section 3 should be amended so that the FCAC is charged with monitoring the financial services sector on all of the consumer-oriented subjects discussed in the MacKay Task Force report, as well as emerging issues of concern to consumers.

3. Transparency and Openness

After the controversy that erupted over the proposed bank mergers in 1998 it is clear that Canadians are quite concerned about consumer issues in the sector. The public should have a voice in shaping the FCAC; if it does not, the FCAC will be a disappointment, and future controversies about banking service will be inevitable. The FCAC should conduct its operations in a transparent and open way, through periodic public consultations, and the involvement of consumer representatives in decision-making.
The traditional policy community for financial services (Department of Finance, OSFI, financial institutions and industry associations) has not been very open to consumer representatives in the past.(4) Also, the industry is known to devote considerable resources to promoting its views in the policy community, and thus the industry view is often heard much more often, and sometimes more forcefully, by those in power than the public interest view. The only way to change this traditional way of proceeding, that privileges the industry, is to create a structured way for consumers to have meaningful input.
The implementation of the measures legislated in Bill C-38 will require the development of numerous MOUs, regulations and guidelines. PIAC and other consumer organizations have called, on a number of occasions, for a consumer advisory committee to be involved in the development of these instruments and the creation of the FCAC, as well as to play an on-going role in advising the FCAC Commissioner about FCAC priorities and activities. Without such a committee, or some other similar arrangement, consumer advocates and interested members of the public will continue to be at a disadvantage to the industry within the policy community.
In the interests of openness and transparency, Bill C-38 should include a provision for the establishment of a consumer advisory committee to provide advice on (a) the development of consumer-oriented regulations, MOUs etc.; (b) the creation of the FCAC; and^© on-going FCAC priorities and activities.
Clearly, the development of the detail of the consumer protection framework will require significant involvement on the part of consumer organizations such as ourselves. Making a strong and effective contribution to the process on behalf of the Canadian public requires serious time and resource commitments. Yet consumer organizations are, at the moment, severely underfunded, and there is no program in place to rectify this situation with respect to the continuing need for consumer input on financial service sector issues.

4. Branch Closures

Since the MacKay Task Force completed its work, branch closures have become a far more pressing issue for consumers. Since 1998, the already high rate of branch closures has accelerated, as several of the major banks have proceeded to reduce their branch networks. A forthcoming PIAC study shows that there is strong evidence that consumers in rural areas and poorer urban areas are being left without adequate banking service (the executive summary of this study is attached in Appendix B). While suburban consumers are benefitting from better banking services, there is a danger that consumers in other areas will be forced to rely upon expensive and unregulated services such as cheque cashing outlets, informal arrangements with local merchants, and white-label ATMs.
During the controversy over the proposed bank mergers, the Minister of Finance made the commitment that ”[w]e are not going to allow rural Canada to find itself without a reasonable level of service”(5). Yet, now that the mergers have been refused, the government does not have a plan to ensure that rural Canadians maintain access to banking services. At the same time, Canada Post has entered the retail financial services market as a provider of white-label ATMs, and an agent for particular banks in some remote areas. We are very concerned to note that Canada Post’s involvement in the retail financial services market is not subject to any federal oversight to ensure that its activities are compatible with the public interest (particularly in light of its involvement with white-label ATMs).
In addition to the requirement that banks give notice for a branch closure, the FCAC should be tasked with monitoring access to banking services in the general context of branch closures, and with oversight of banks’ service commitments to consumers in rural and poorer urban areas. Also, the FCAC should take the lead in developing a program to support communities that have lost a branch to find an alternative means of accessing banking services, and in developing a strategy on post office banking.
Conclusion
The Standing Committee on Finance has an important opportunity to ensure that the consumer-oriented provisions of Bill C-38 are effective. We hope that the Committee will consider the interests of all Canadians in having an accountable, effective FCAC that operates in an open and transparent fashion, and has the capability to address all legitimate consumer issues in the financial services sector.
Appendix A Background Information on White-Label ATMs
Letter to Minister of Finance about White-Label ATMs
CBC Marketplace Episode
Appendix B Banking in Rural Canada: Ensuring that Rural Consumers Have Adequate Service Executive Summary
Retail banking is currently undergoing a great deal of change as new technologies and new ways of delivering banking services are being introduced. Some of these changes will provide more choice and variety for consumers. However, part of the changing environment is also the closure of bank branches as part of the banks’ rationalization strategies. It is clear that rural Canada will lose many bank branches in the next few years. Some of these branches may be replaced by equivalent services, but there is a very real possibility that many rural residents will experience a decline or total loss of banking services within a reasonable distance from where they live. Unfortunately, there is no plan in place to ensure that rural Canadians maintain access to essential financial services. This paper documents the problem and makes five key recommendations on how to solve it.
The first chapter of this paper discusses the emerging gap in banking services in rural areas. Bank branches are quite important to rural consumers, communities and businesses, and when the only bank branch closes in a small town, it can be traumatic for the entire community. A sample of rural areas in each province shows that 43% of bank branches closed in rural areas between 1989 and 1998. The banks have announced more branch closures in the next year as they proceed with their rationalization strategies.
If the banking industry is to be believed, consumer concerns about reductions in personal banking services will soon be appeased by the introduction of new replacement personal services. However, it is important to understand that the changes in the provision of retail financial services will have an unequal impact on different segments of the population. There is already a clear trend towards better banking services being provided to the suburbs than to other areas. Whether rural areas are candidates for new forms of personal services remains uncertain.
The second chapter of the paper considers the potential alternatives to rural bank branches, including credit unions, other financial institution branches, banking technology, bank kiosks, agency banking and informal banking. Credit unions are a promising alternative to bank branches, but it remains to be seen how much of this promise is actualized. In future, banking technology, kiosks and agency banking will also play a role in providing services to rural consumers, but these options may not fully meet the needs of these consumers. There is a danger that many rural consumers will be forced to rely on expensive and unregulated services such as informal arrangements with local merchants and white-label ABMs.
The third chapter of the paper discusses the attitudes of rural Canadians towards alternatives to bank branches, based on a survey PIAC commissioned for this study. Generally, the survey showed that rural consumers value personal services, regardless of whether or not they are users of banking technologies. While the majority of rural consumers are comfortable using ABMs as a substitute for over-the-counter services, and value having ABMs in their communities, they would like have access to personal service as well.
Roughly half of rural consumers would find having only an ABM in their community acceptable, and younger consumers who use Internet or telephone banking are more willing to accept this situation. Also, having only an ABM in the community is considered adequate by more consumers if there is a branch nearby. The survey found that rural consumers are reluctant to accept new ways of delivering banking services (kiosks in grocery stores and post office agencies) even though these options could satisfy their preference for personal service in the community. Also, the survey found that rural consumers would much rather use an ABM than rely on a local merchant for banking services.
Even though most consumers are familiar with ABMs, there is a minority of consumers who are not. For these consumers, ABMs will not replace over-the-counter service. A certain proportion of these consumers will not find it easy to travel 20 km or more to a bank branch in a neighbouring community. There is a risk that these consumers will not have adequate access to banking services without personal service in their community.
The final chapter of the paper considers how to address the problems that bank branch closures pose for rural Canada. Governments have an important responsibility not to abandon rural communities, but to actively contribute to their continued viability by ensuring that basic services remain. Yet, at the moment there is no plan in place to ensure an adequate level of banking services for rural residents.
Based on the findings of our research, we make the following recommendations:

1. Commitment to Rural Consumers

The federal government should take a fresh look at the rural banking issue, and revitalize the Minister of Finance’s commitment to ensuring that rural Canadians have access to adequate banking services. The federal government should not stand by while rural consumers’ access to banking service is reduced to white label ABMs and informal banking with local merchants.

2. Monitoring Access to Banking Services in Rural Areas

As the financial service sector changes, there needs to be monitoring of banking services in rural areas, so that rural consumers’ situation regarding access to financial services can be fully understood. At the moment, it is quite difficult to even track rural branch closures. This lack of monitoring will be addressed in part by new requirements for banks to publish annual Public Accountability Statements.
To place the information that will be provided in the Public Accountability Statements in context, the new Financial Consumer Agency of Canada (FCAC) that is being set up as part of the financial sector reforms should conduct a baseline study on rural access to banking services showing how many towns currently lack access to a bank branch, and how many small towns’ only bank branch is scheduled to close. These towns’ access to other means of banking should also be documented.
ABMs are very important to rural consumers, and there is currently no public source of information on rural consumers’ access to ABMs. The FCAC should monitor rural access to ABMs on an on-going basis. Also, as banking services change, it is important to be able to evaluate whether alternatives to bank branches are being established, and whether these alternatives are meeting rural consumers’ needs. Therefore, the FCAC should also track the establishment of other banking services in rural areas, including kiosks, post office agencies, white label ABMs and telephone and Internet banking usage.

3 Oversight of Branch Closures and Industry Restructuring

To improve banks accountability to consumers, the FCAC should monitor what activities banks have undertaken to maintain service in rural areas.
The FCAC should encourage the Canadian banking industry, through monitoring and educational activities, to make service commitments to rural Canadians. These commitments could include:

• to leave reasonable access to banking services when closing a branch in rural areas;
• to adopt a minimum service standard for rural and remote areas;
• in the event of closures, to provide face to face education and training for customers in alternative forms of banking;
• to undertake consultations with local communities on the trends in the delivery of banking services;
• to establish greater use of mobile, specialist managers.

4 Support for Communities Facing Branch Closures

The government should encourage other types of branches to replace bank branches. The main way to do this is to increase the potential of credit unions to expand their operations, which is already underway.
It is important that communities with no bank branches have access to expertise on alternatives to bank branches and how to establish these alternatives in rural communities. The Minister of Finance and the Ministers responsible for the Federal Framework for Action in Rural Canada, therefore, should work to set up a program to assist communities in restoring or establishing banking services.

5 Strategy on Post Office Banking

Post office banking clearly has the potential to enhance rural consumers’ access to financial services. However, some important issues need to be thought through before Post Office banking is looked to as part of the solution to the rural banking gap. Unfortunately, the development of Post Office banking in Canada seems to be proceeding without any apparent federal strategy.
As the Post Office is a public institution (a Crown corporation), its activities should be favourable to the public interest. There is clearly a public interest objective for post offices to provide basic banking services as long as it does not compete with other financial services. There is no public interest to be served by the post office promoting services that could compete with credit union branches, or offering low quality services such as white label ABMs.
There may well be a legitimate role for Canada Post in providing banking services in Canada, particularly as a safety net to ensure access to banking services. For instance, it would be advantageous to many consumers if post offices could cash cheques. The government has a responsibility to ensure that all consumers are able to cash cheques under reasonable terms. It is would therefore make sense to support Canada Post in providing this service.
The Minister of Finance should immediately review the activities of Canada Post in the banking sector, and develop a federal strategy to ensure that Canada Post’s involvement in the banking sector enhances rural consumers’ access to high-quality financial services, and does not further erode access. The Minister should ensure that there is a moratorium on the placement of white label ABMs in post offices until there has been a public debate about the role of Canada Post in providing banking services.
1. Task Force on the Future of the Canadian Financial Services Sector, Report of the Task Force, p.15
2. Department of Finance Canada, Reforming Canada’s Financial Service Sector, p.55.
3. Department of Finance Canada, Reforming Canada’s Financial Service Sector, p. 55.
4. Consumer advocate experience in this respect is confirmed by an academic study of policy-making in the sector (William D. Coleman, “The Banking Policy Community and Financial Change”, In Policy Communities and Public Policy in Canada: A Structural Approach).
5. Laura Eggertson, “Consumer the key to bank mergers” The Toronto Star, July 16, 1998.

Financial Service Sector Reform

Letter to the Minister of Finance about Financial Service Sector Refrom (December 15, 1999)

Hon. P. Martin P.C., M.P.
Minister of Finance,
Department of Finance,
21st floor,
140 O’Connor Street,
Ottawa, Ontario, K1A 0G5
Dear Minister Martin,

Re: Reform of the Financial Services Sector

This letter is to urge you to take action to ensure that the financial sector reform is in fact a true reform for Canadian consumers.
When your paper, Reforming Canada’s Financial Service Sector: A Framework for the Future, was released, we were optimistic about the prospects for major advances to be made in consumer protection for financial services consumers, even though not all of our recommendations were acted upon. We felt the tone of the paper indicated that you take the public interest seriously, which reflected the principles laid out by the MacKay Task Force.
Our recent discussions with your officials, however, indicate that the Bill will actually be the minimum possible interpretation the paper in terms of consumer-oriented provisions. We urge you to take the following steps to ensure that your reform is meaningful:

1. Give the FCA a broader mandate:

Your officials have told us that the new Financial Consumer Agency (FCA) will have a strictly limited mandate. Monitoring and compliance activities are very important, but it would be most unfortunate if the FCA’s hands were tied with respect to emerging consumer issues in the sector. You chose not to legislate many of the MacKay Task Force recommendations on issues that are important to Canadians, and that were also endorsed by the House and Senate committees that studied the Task Force report. But just because they are not legislated does not mean that the issues should be completely forgotten.
The FCA could play an important role in monitoring these issues, and working with stakeholders towards non-legislated solutions such as voluntary codes and commitments, national strategies as well as educational activities. We would like to see the FCA lead a national strategy on ensuring access to banking services in poor urban areas, and rural and remote locations. This type of strategy would address an issue of great importance to Canadians, and may well be supported by the industry. Why prevent the FCA from engaging in such projects?

2. Commit to an approach based on openness and partnership:

The way to ensure that the public interest is part of government decision-making is to involve the public in the decision-making process. This means involving representatives of the public in deliberations, and keeping them informed, not just asking them what they think from time to time. Multistakeholder processes, such as CSA committees, can result in rules that both industry and public interest advocates endorse. For instance there was broad agreement to the CSA Model Privacy Code, which is now the basis of the new privacy law.
Why has this approach not been used for important issues in the financial services sector? Take for instance, the issue that has been at the top of our agenda for financial sector reform for years: the basic bank account. Reforming Canada’s Financial Service Sector committed to 12 transaction for $3 to $4 per month. We have heard that the banking industry is dead-set against the 12 transactions. Apparently, the industry has provided your officials with statistics to prove their point. We do not have access to the industry’s arguments on this point, or their statistics. If there were appropriate sharing of information, we would have a chance to promote the public interest on this important matter. Unfortunately, we are not going to get this chance.
Even on issues such as the basic bank account, consumer advocates are still kept outside the policy-making community. All we can do now is hope that the final arrangement on the basic account, that has been or will be developed in secret, will meet the needs of vulnerable consumers. Of course, we are very concerned that it will not.
On a different yet related issue, we were very disappointed to see one of your officials before the House of Commons Committee on Industry defending the practice of negative option marketing by banks. This is totally out of touch with the needs and opinions of Canadians, and runs contrary to your own expressed intentions to make the banks more accountable to the public interest. It appears that the department decided to simply repeat the banks’ position, and not to bother consulting representatives of the public at all. This incident underscores the need for a complete change in approach, if the financial sector reforms are to have any credibility with consumers.
We hope that you will take decisive action to save your reform process from becoming closed and narrow, and consider the interests of ordinary Canadians in having true reform of the financial services sector.
Yours sincerely,
Michael Janigan
Executive Director
Public Interest Advocacy Centre
cc. Frank Swedlove
Executive Director, Financial Sector Review Group
Department of Finance
 

Negative Option Marketing

SPEAKING NOTES BEFORE THE HOUSE OF COMMONS STANDING COMMITTEE ON INDUSTRY – BILL C-276

BY: Michael Janigan
Executive Director/General Counsel
of the Public Interest Advocacy Centre (PIAC)
We would first like to extend our thanks to the chair and members of this committee for extending an invitation to speak to this issue which has long tried the patience of consumer advocates. We commend the efforts of the honourable member from Sarnia-Lambton for his efforts in sponsoring this legislation to address this problem.
The Public Interest Advocacy Centre (PIAC) is a non-profit corporation which provides legal services and research to vulnerable consumers and the organizations that represent them. This work primarily concerns issues involving important public services including telecommunications, broadcasting, energy, financial services and public transportation. PIAC’s members include individuals, groups and organisations representing 2.5 million Canadians.
The concern associated with the practice of negative option billing has its origins in the nature of a contract of purchase and sale, as recognized in common law. As every first year law student learns, such a contract consists of an offer and an acceptance. The history of consumer protection statutes is a chronicle of legislators attempting to ensure that the offer is conveyed without misrepresentation by the vendor to a purchaser who has an opportunity to make an informed choice to accept or refuse the offer. This is because a contract that is made with a consumer who is unaware of key elements of the contract such as price, quantity and quality of the goods to be delivered is subversive of the efficiency of the market as a whole.
We thus have seen the gradual implementation of such statutory measures as cooling off periods, penalties for misleading advertising, and contract recission for misrepresentation. Many consumer protection statutes have also tackled the problem of unsolicited goods, some barring legal remedies for collection where there has been no consent by the consumer to receipt of the goods. It is important to recognize that the intent of such measures is not simply to protect consumers, but also to eliminate any competitive advantage conferred on an unscrupulous seller by engaging in these practices.
I want to address the implied notion of the opponents of this Bill that this Bill attacks industry practices which would otherwise be unassailable in law. Whatever the requirement’s that are currently being met by these industries under the standards set out in the various governing acts and regulations, there is nothing that I’m aware of that imparts contractual status to circumstances which amount to the receipt of unsolicited goods. In effect, large industries such as cable or banking have frequently turned a common sense protection afforded to them in law into an aggressive and disreputable marketing tactic.
Common law has always recognized a “course of dealing” exception to the requirement associated with offer and acceptance. For example, a hardware or grocery store may periodically receive shipments of goods to be retailed in the store from its supplier. There is no specific consent to the delivery of individual items, but an understanding exists that the store will pay the supplier for all shipments received within some kind of reasonable limit of business custom. Similarly, no specific consent is required for deliveries of natural gas or fuel oil to the homeowner even though the quantities and time of delivery (ordinarily fundamental terms of a contract) have not been agreed to.
What’s important to note here is that the parties are delivering and paying for goods which were pretty much foreseeable under the terms of their initial agreement. In the first example I gave, depending upon the bargaining power of the retailer, he might also be able to ship back the unsold items to the supplier. In business arrangements where parties are of close to equal bargaining power, one will frequently find arrangements to deal with problems arising from an initial lack of detail.
This is a very dissimilar circumstance than that which presents itself in industries that wish to market products or services which are different in significant ways then those that were initially contracted for. Consent to the changes is not simply inferred in law because it might be difficult for the supplier to obtain the same or because a guaranteed percentage of customers must pay for the changes to make them financially viable. Whether the reason is the promotion of cultural content, or maximizing return to the shareholder, there is no blessing of contractual validity that is conferred upon such changes in contractual arrangements. What I am saying is simply this: individual consumers may still retain the legal right to demand their money back for services they did not order in the industries that are affected by this Bill regardless of this Bill’s passage or failure. It happens all the time now. It is easier for these industries to quietly give a complaining customer his or her money back and to continue to reap the rewards from the inattentative as a result of negative option practices. What this Bill seeks to do is to enlist the assistance of the Competition Act in making negative option billing review able conduct unless it conforms to the exceptions set out therein. These practices may still be subject to contractual remedies by customers misled by the practice who choose to seek a civil contractual remedy. This Bill provides a statutory means to attempt to reduce the use of this practice and the numbers of customers that may be misled by the same.
For whatever the high flown objections to statutory prohibition of this practice, two important conclusions are inescapable:

1. The practice has meant that large numbers of consumers in these industries don’t know what they are paying for.
2. The practice has been enormously lucrative for the industries that use it.

The cable industry, of course, is a rather obvious example of the benefits to industry of the use of negative option marketing.
In the 80’s and the earlier part of this decade, cable companies were able to add many new subscribers for additional tiers of service, many of whom were decidedly confused as to what they were getting. In 1993, for example, 66% of Canadian cable customers reported that they obtained only basic service while in actual fact only 8% subscribed to the lowest level of service. We are entering an era of provision of service through multi-media and other digital outlets where proponents will be are competing aggressively for market share. It will be possibly fatally injurious to competition if key players using their existing customer base engage in negative option marketing to artificially make demand fit the expense of supply. There will be a whole range of arguments to justify ignoring the requirement for consent in order to establish commercially viable Canadian services.
We would suggest that all of these arguments essentially amount to the supposition that the interests of the industry should be preferred to that of the right of the individual customer to consent to a contract for goods and services. The marketing principle “what consumers don’t know, cant hurt them” is very much alive and well in the submissions of the opponents to this Bill.
Bill c-276 seeks to empower Canadian’s by insisting that their right to chose be respected and that the historic relationship of vendor and purchaser be restored to industries whose products are important public services. We think this Bill is both overdue and farsighted, a unique combination that commends its passage.

Time to cut up your debit card?

Letter to the Minister of Finance about “No-Name” Bank Machines (October 12, 1999)

Hon. P. Martin P.C., M.P.
Minister of Finance,
Department of Finance,
21st floor,
140 O’Connor Street,
Ottawa, Ontario, K1A 0G5
Dear Minister Martin,
It has come to our attention recently that Ano-name@ or Awhite-label@ automated teller machines (ATMs) are appearing at more and more locations across Canada. The proliferation of these ATMs is bad news for Canadian consumers. This letter will outline our main objections to the current situation, and our suggested course of action.
The Ano-name@ ATMs charge consumers a fee in addition to their regular banking fees. However, consumers already pay fees for the using their debit cards; these fees alone should ensure that the customer has convenient access to ATMs. Offering Ano-name@ ATM service at convenient locations is price-gouging consumers who might for various reasons have trouble getting to a regular ATM. For instance, someone may feel more comfortable, late at night, using an ATM in a convenience store than at a deserted bank branch. It is quite cynical of the industry to exploit this type of situation to extract higher fees from consumers.
Moreover, the fees at these ATMs are not regulated and allow for exorbitant rates to be charged. Consumers have little choice but to pay these rates if other machines are not available or become Awhite label@ as well. If the industry were interested in offering consumers convenient access to their money at reasonable rates, there is a way they could do; they could encourage the use of Acash-back@ at the till with the debit card. It is our understanding that where they are located, the Ano-name@ ATMs will replace or pre-empt Acash-back@.
It is well known that there is a problem with access to banking services in poor urban areas, as well as rural and remote areas, and the problem is getting worse as more bank branches close. We are very concerned that Awhite-label@ or Ano-name@ ATMs will move into these areas, offering vulnerable consumers limited service at unacceptably high prices. Centretown in Ottawa is a very good example. In the area around Gladstone and Bank Street, there used to be four bank branches. Now there are no branches, no ATMs, and only a Money Mart nearby (another company that charges unacceptably high prices for basic bank services). The Ano-name@ ATMs could soon move in.
It may seem reasonable for the banks to place ATMs only where they can make a profit. However, it is important to remember that banks are addicted to a very high rate of profit, and have little incentive to provide service that might yield a more normal rate of profit. We are concerned that, instead of ensuring that all consumers have convenient access to ATMs, the industry will withdraw its services to make way for the Ano-name@ ATMs. The Ano-name@ ATM operators will then be free to raise their fees even further.
One of the main operators of the Ano-name@ ATMs is actually a bank subsidiary. In this case, there is no real competition with the major banks; it is simply a bank using the unmarked ATMs to charge extra fees. The bank in question could withdraw its services from many more locations, and let its subsidiary take over in order to make higher profits.
The financial services market is clearly failing ordinary Canadians. The new financial consumer agency should be given the authority to develop regulations in this area, in order to protect consumers and promote fair access to banking services for all Canadians. This issue should be a priority for the new agency, since the Ano-name@ ATMs operators are not bound by any rules or codes of practice. We would like to see the new Agency develop a national strategy to promote access to bank services. As well, the new agency should convene regular public proceedings to review trends and pricing in financial service offerings. The activities of these Ano-name@ ATM operators should not be allowed to prevent fair solutions to the access problem.
Yours sincerely,
Michael Janigan
Executive Director
cc.
Frank Swedlove
Executive Director, Financial Sector Review Group
Department of Finance

Future of the Canadian Financial Services Sector – Presentation

Presentation to the Standing Committee on Finance

Comment on the Report of the Task Force on the Future of the Canadian Financial Services Sector
The Public Interest Advocacy Centre is a non-profit organization with a national board of directors and both organizational and individual membership. We specialize in representing the consumer interest in the delivery of important public services, particularly regulated industries such as telecom and energy, and have a particular concern for the vulnerable customers of these industries. We have attempted to apply some of our knowledge from these other utilities to the banking sector.
We commend the Task Force for producing an intelligent, fair and balanced report. The Task Force recommendations provide a blueprint for how the financial services sector should evolve over the next decade. Also, the Task Force provided an important service by commissioning research that is now part of the public domain.
As Harold MacKay said before this committee, the Task Force recommendations are a package. The Task Force made many recommendations that go further than ever before in dismantling the pillars of the financial services sector. The recommendations aim at increasing competition in the sector, but do not guarantee that banks will not grow even bigger, or that concentration will not increase in retail banking. As consumer representatives, these possibilities are worrisome. However, the Task Force report is acceptable to us because of the recognition that strong consumer protection measures need to be part of the framework for the financial service sector.
The Task Force’s vision is that, through a combination of legislated consumer protection measures, codes of practice, and on-going dialogue between the industry and consumer representatives, ordinary Canadian consumers can be well served by the financial services sector. While the Task Force’s approach to consumer concerns is “common sense,” it is in fact revolutionary for this sector. Over many decades, the financial industry has lobbied stenously, and for the most part sucessfully, to avoid consumer protection measures, and consumer involvement in decision-making.
The Task Force recommends an entirely new way of treating consumer issues. New ways of doing things can be threatening. This committee needs to be aware that many parties will want to water down the Task Force’s recommendations on consumer protection issues. We strongly recommend that the government not tamper with the balance that the Task Force acheived – that the government recognize that the consumer protection measures must accompany the implementation of the other recommendations.
The government will be pressured to move quickly to implement the changes recommended by the Task Force, and to limit the time it take to make a decision about the bank mergers. The need for speedy deliberations needs to be balanced by the need to ensure full and fair public participation. The type and extent of public involvement that the Task Force recommends is new to this sector. The need to involve consumers and consumer representatives in upcoming deliberations needs to be carefully thought out. We feel that the Task Force is on the right track, and have some comments to make in support of the Task Force’s recommendations. We have choosen three key issues to bring to your attention today.
Our first recommendation is that the government develop an implementation plan for the Task Force recommendations, in consultation with consumer organizations and other interested parties. The implementation plan would be a vehicle for an open, orderly process to proceed with Task Force’s recommendations, recognizing that many of the recommendations involve consultations and multiparty involvement in various iniatives. The Task Force report notes that consumer organizations need to be strengthened. The implementation plan would form the basis for the discussions on consumer organizations’ future role, and what measures may be needed to ensure adequate resources.
Our second recommendations is that the government insure that we get the institutional arrangements right in the implementation of the Task Force recommendations. The Auditor General’s 1995 report stated the responsibilities of OSFI, CDIC and Departments of Finance for implementing public policy objectives were unclear. As far as we can tell, this is still the case. The implementation of the Task Force recommendations will be confusing unless the government players’ roles are clarified.
In the context of these unclear roles, we are quite concerned about the proposal to make OSFI responsible for the proposed consumer protection measures. It’s principle mandate is to supervise financial institutions for financial soundness, and it is not clear how consumer protection measures would fit into this mandate. Also, despite many consumer concerns with the banking industry, no measures to address consumer concerns have ever originated from OSFI. We suggest that consumer protection measures should be implemented by a body with an appropriate mandate, that has some experience with and commitment to consumer issues.
Another institutional issue is the proposed changes to the Banking Ombudsman system. We support the Task Force recommendations, and would like to emphasize the need for the ombudsman framework to be open and accountable. Consumer representatives should be involved in developing the new framework.
Finally, we have some recommendations about the review of the mergers. We are very encouraged by the government’s commitment to implement the public interest review process as suggested by the Task Force. We have a number of procedural recommendations about the process, which are given in an Appendix to this brief. I want to bring one recommendation to your attention today, which is that participant funding be provided for the public interest review process for the mergers. It is important that all interested parties have the resources to participate meaningfully in the public interest review process. The Taskforce noted that consumer organizations are short of resources, and struggling to meet their current commitments. Without participant funding, non-industry parties will not have the resources to devote to reviewing documentation, assembling expertise and preparing for hearings. Participant funding would ensure that there is a strong public interest presence at the public interest review process. This strong public interest presence is crucial for the process to be legitimate in the eyes of the Canadian public.
We do not have time to discuss the Task Force’s recommendations in any detail today. We may submit further recommendations to the committee before hearings on the Task Force report end. Today, we would like to table a report we have recently completed on tied selling. The report discusses the Task Force’s recommendations on improving section 459.1 of the Bank Act. I would be happy to discuss this report further today or at another time.
Appendix A

Recommendations on Public Interest Review of the Mergers

• There should be a a public comment period on the guidelines for the public interest impact statements, so that all public concerns about the mergers are included in the guidelines.
• Participant funding should be provided for the public interest review process. Without participant funding, non-industry organizations will not be able to participate meaningfully in the process. A fair process needs to be developed to award the funding.
• The hearings should be informal and non-judicial.
• The process must be structured to that it is fair and legitimate. There should be an independent panel to conduct the hearings.
• The results of the process should be made public at the same time as they are submitted to the Finance Minister.
• The federal environmental assessement review process is a good model to follow for the public interest review process.

Letter re ATM fees

Mr. President and Mr. Chairman of the Board:
I have noticed that individuals who are not customers with your financial institution must pay additional user fees when making cash withdrawals from some of the Automated Banking Machines operated by your financial institution. This practice roughly doubles the fees non-clients have paid in the past for such transactions.
In charging such additional fees, you are taking advantage of the situation created by the recent implementation of the private Automated Teller Machines. By unjustifiably abusing consumers, you are wrongfully increasing your already high profit margins.
Therefore, I wish to express my strong opposition to these excessive user fees and demand that you immediately stop charging them.
Yours Truly,
(YOUR NAME AND ADDRESS)
C.C. Public Interest Advocacy Centre
Minister of Finance of Canada, the Honourable John Manley
Competition Bureau
Financial Consumer Agency of Canada
Canadian Bankers Association