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

The Use of Administrative Monetary Penalties in Consumer Protection

EXECUTIVE SUMMARY

The use of “Administrative Monetary Penalties”, otherwise known as “AMPs”, is a unique enforcement scheme that has gained significant attention from international regulators. AMPs are increasingly used to engender compliance and cooperation from the ‘regulated community’, to secure environmental or consumer protection, and to encourage the timely rectification of market problems. Regulators in Canada have used AMPs for some time; however, it is only relatively recently that they have become a favorite tool among regulators.
Generally, AMPs have been heralded by regulators as providing a more flexible and responsive regulatory structure that balances the competing interests of stakeholders. The use of AMPs, however, is not without controversy. Many critics argue that the use of AMPs represents a severe and unjust form of punishment on individuals and businesses that may have, whether intentionally or not, breached the law.
In this report, PIAC examines the use of AMPs in the Canadian regulatory field, with a particular emphasis on the use of AMPs in consumer protection. The Report examines the nature and scope of AMPs, as well as, the various theories that underscore the use of AMPs as a regulatory tool. The Report also addresses the objections to AMPs, as cited by AMP critics, and analyses the use and effectiveness of AMPs in Canada, and other countries that are actively engaged in their use. Finally, the Report draws conclusions, offers warnings, and proposes recommendations that PIAC believes will improve consumer protection regulation in Canada.
The Report finds that there are important constitutional and due process issues associated with the use of administrative penalties. Due to the fact that AMPs operate largely outside of the watchful eye of the courts, they are vulnerable to abuse. However, the Report does not agree with critics who suggest that AMPs are unconstitutional, in and of themselves.
The Report finds that the greater procedural flexibility and range of sanctions make AMPs the preferred mode of social control in situations where persuasion and negotiation can best secure compliance. However, the Report also finds that when it comes to regulating, regardless of the industry or sector, a multi-pronged enforcement approach is best. To be effective and efficient, regulators must rely on the ability to levy the most appropriate sanction or penalty to a particular violation of the law. As such, regulators need an array of enforcement tools, ranging from criminal to administrative, to best enforce the law and deter socially and economically harmful activities.
The use and appropriateness of AMPs will largely depend upon the nature of the unlawful activity and the aim of the regulatory intervention. AMPs may not be a suitable or effective penalty for perpetrators who commit unlawful activities with a malicious or fraudulent intent. Rather, such crimes may best be dealt with under the criminal law. On the other hand, AMPs have shown themselves to be particularly well suited to deal with issues of consumer protection. As such, PIAC advocates an increased use of AMPs in consumer protection. In particular, PIAC advocates for the adoption of an AMPs enforcement scheme for violations of federal privacy laws, such as PIPEDA, as well as the re-introduction of an augmented AMPs system under the Competition Act.
The Report further suggests that AMPs may be an effective enforcement tool in regulating e-commerce and online communications. Additionally, AMPs have the potential to be an effective and efficient means of enforcing Canada’s anti-spam measures.
The Report also examines the issue of enforcement, finding that the issues of jurisdiction and identification present a particularly difficult challenge in the online context. The global nature of the Internet means representations and transactions made online can attract liability under both domestic and foreign jurisdictions. Meanwhile, regulators and law enforcement officials are not always able to ascertain the identity of the violator.
Finally, in order to exploit the full potential and benefits of administrative monetary penalties, as well as ensure their legitimacy in the eyes of businesses and the public, PIAC advocates the adoption of a three-pronged strategy. When administrating an AMP scheme, regulatory agencies need: 1) increased cooperation with counterpart agencies in foreign jurisdictions; 2) more education and clearer guidelines for businesses and consumers; and 3) implementation of consistent and predictable rules.
 

Re: Order Requiring the Canadian Radio-television and Telecommunications Commission to report to the Governor in Council on Consumer Complaints

VIA E-Pass, E-mail and Mail
Mr. Konrad von Finckenstein
Chairman
Canadian Radio-television and
Telecommunications Commission
Ottawa, ON
K1A 0N2
Dear Mr. von Finckenstein:
Re: Order Requiring the Canadian Radio-television and Telecommunications Commission to report to the Governor in Council on Consumer Complaints – P.C. 2007- 0533
The Public Interest Advocacy Centre has long represented consumer interests before the Commission and in particular has advocated for an increased consumer voice in telecommunications. The Cabinet Order referred to above is an historic opportunity to strengthen that consumer voice for ordinary Canadian telecommunications customers.
PIAC is interested in working with the Commission, Industry Canada, consumers, consumer groups and the telecommunications industry in creating the Telecommunications Consumer Agency (TCA) as soon as possible.
PIAC has noted some confusion in the industry, in government and the consumer movement over the scope of the Order and the process for achieving its creation. We also underline that the terms of the Order appear to require the logging of consumer complaints towards informing the government and the eventual TCA of the volume and type of consumer telecommunications complaints; however, it is not clear that there is any infrastructure in place in the CRTC, industry or consumer groups to compile this required information.
We note also that the CRTC’s recent 3 year plan places the proceeding towards defining the TCA in the third year of the plan. In light of the rapid pace of deregulation in local telecommunications, and the high volume of complaints that consumer groups and government consumer ministries and agencies, as well as the CRTC and the carriers presently take on all telecommunications services, such a delay seems to us to be risky and counterproductive.
It is our view that a preliminary stakeholder consultation with telecommunications providers, the Ministerial telecommunications staff, your staff, groups representing telecommunications consumers and possibly representatives from other telecommunications ombudsman schemes (notably Australia, the U.K. and in the U.S.) would be the most efficient and effective way to “roadmap” an effective telecommunications ombudsman in Canada. We would expect the result of the consultation to lead to a more focused hearing on the scope of the TCA and advance its creation considerably.
We therefore look forward to your earliest convenient reply to this suggestion.
Yours truly,
Original signed
John Lawford
Counsel
CcMs. Michele Austin, Chief of Staff, Office of the Minister of Industry
Mr. Michael Binder, Assistant Deputy Minister, SITT, Industry Canada
Mr. John Macri, Acting Director, Consumer Affairs, CRTC
Cc by e-mail only
All telecommunications service providers
All consumer groups participating in CRTC hearings
End of Document
 

Deregulation of Telecommunications – Speaking Notes Michael Janigan Executive Director and General Counsel Public Interest Advocacy Centre February 26, 2007

Before the House of Commons Standing Committee Industry, Natural Resources, Science and Technology
February 27, 2007
Deregulation of Telecommunications
Speaking Notes Michael Janigan Executive Director and General Counsel Public Interest Advocacy Centre
February 26, 2007
 
 

 

IN THE MATTER OF a proposed Order under Section 8 of the Telecommunications Act – Policy Direction to the Canadian Radio-television and Telecommunications Commission – Speaking Notes Michael Janigan Executive Director and General Counsel Public Inter

Before the House of Commons Standing Committee Industry, Natural Resources, Science and Technology
October 19, 2006
IN THE MATTER OF a proposed Order under Section 8 of the Telecommunications Act – Policy Direction to the Canadian Radio-television and Telecommunications Commission
Speaking Notes Michael Janigan Executive Director and General Counsel
Public Interest Advocacy Centre
 
 

Letter to Minister of Industry Regarding Extension of Broadband Access to Rural and Remote Areas of Canada and Deferral Accounts

March 30, 2007
VIA Fax and Mail
The Honourable Maxime Bernier
Minister of Industry
Office of Consumer Affairs
6th floor 235 Queen Street
Ottawa, ON K1A 0H5
RE: Extension of Broadband Access to Rural and Remote Areas of Canada
Dear Mr. Bernier:
Since its inception in 1976, the Public Interest Advocacy Centre (PIAC), has attempted, as part of its mandate, to represent the interests of consumers without the resources to advocate effectively for themselves concerning the delivery of important public services such as telecommunications, broadcasting, energy, financial services and transportation. As such, the issue of access to such services has been a predominant theme in our work before courts, tribunals, and legislative and governmental policy makers.
As part of that commitment, a representative from PIAC was an active participant in the Broadband Task Force created by the previous government, which tendered a report to the then Industry Minister Brian Tobin in 2001. The recommendations of the Task Force included the establishment of a government objective that all Canadians should have equitable and affordable access to broadband services and that the policy focus should be on communities where the private sector is unlikely to deliver services.
As you are aware, CRTC Telecom Decision 2006-9 attempted to deal with the difficulties of commercially delivering broadband services to rural and remote areas of Canada’s incumbent local telephone companies (ILECs). It did so by clearing the balances in the deferral accounts in which had been deposited over-collected residential rates arising from the implementation of CRTC Decision 2002-34. This latter Decision had set up the second-generation price caps regime for rate-setting purposes. As a result of the 2002 Decision, residential rates had been artificially increased to encourage local competition, and the increased amounts deposited in deferral accounts maintained by each ILEC. This meant that residential ratepayers paid extra to provide incentives to local competition that never arrived, at least during the price cap period.
After conducting a contest to arrive at the best proposal to spend the remaining amounts in the ILEC deferral accounts, the Commission approved potentially worthwhile projects (uneconomic broadband and disabled access). However, this end result obscures the fact that the process for collection and expenditure of the deferral account funds was not a proper exercise in ratemaking pursuant to the Commission=s statutory mandate. Only residential ratepayers were expected to contribute to the accounts by way of increased rates, and only the ILECs were to be able to use the funds to enhance their business. With instructions from our ratepayer representative clients, we have accordingly advanced an appeal in the Federal Court of Appeal, for which leave has recently been granted. The appeal seeks to quash the Commission order directing the expenditure of remaining ILEC deferral account funds.
Such action should not, in any way, be taken as a change of position by PIAC concerning the objectives of the Broadband Task Force, aforesaid. We still support the implementation of an equitable, realistic and effective program for ensuring that all Canadians have access to information and communications technologies (ICTs) wherever they reside. Where delivery of such ICTs is uneconomic, there may well be costs that must be borne by all Canadians that will result in an overall increase in the economic, social and cultural benefits achieved by ICTs.
However, the hijacking of the ratemaking and price caps process set out in the Telecommunications Act is not the way to help achieve an otherwise admirable social goal. We hope that this clarifies any questions that may have arisen as a result of the appeal of CRTC Telecom Decision 2006-9, and look forward to working with you and your department in the future in implementing the objectives of the Broadband Task Force and the Telecommunications Review Panel.
Thank you.
Yours truly,
Original signed
Michael Janigan
Executive Director/General Counsel
cc: Mr. Michael Binder – fax only Assistant Deputy Minister
LINK TEXT [pdf file: 0.03mb]
 

Identity Theft Insurance – Miserly Upon Misery

This report examines the nascent identity theft insurance market and related consumer service of “credit monitoring”. The report concludes that the present product offerings of both identity theft insurance and credit monitoring are flawed in that a major component of each is already provided free to consumers who are aware of it. Identity theft insurance coverage of credit or debit card losses is superfluous in most cases given the existence of zero liability policies of major credit card issuers and because debit card losses in most cases are reimbursed under a voluntary bank debit card code. Credit monitoring has as its core feature the delivery of a credit report from a major credit reporting agency, however, consumers in all provinces have a right to access these reports upon request at least once a year at no cost. The report calls for provincial insurance regulators to ensure that companies offering identity theft insurance are required to disclose that there are these free services that overlap with the intended coverage or service. Identity theft coverage as it now stands is also of questionable value, given that its major potential claims items, that is, payment for time off work to resolve identity theft issues, as well as legal assistance, are capped at low recovery levels. Uncertainty over the extent of “legal assistance” under these agreements abounds, and it is noted that most identity theft victims do not actually need full legal defence services to recover from identity theft. Both credit monitoring and identity theft insurance may have a dampening effect upon efforts by consumers to directly attack the problem of identity theft. Both products shift costs of identity theft to consumers from business. Credit monitoring also has been used as an inadequate form of recompense to consumers after a corporate data breach. Instead, governments should consider the effectiveness of data breach disclosure laws and consumer credit freezes. The report notes that corporations may be the real parties in need of identity theft insurance, in the form of data breach insurance, and that such insurance might encourage corporations to institute best practices for information handling. Concerns also emerge with credit monitoring and identity theft being another service provider that collects and relies upon sensitive consumer information. Therefore these services could be themselves targets of identity theft attempts. Providers of these services must provide an extremely high standard of data security to safeguard the vulnerable consumers who do seek their services. The report closes with a recommendation that identity theft insurance increase coverage of actual fraud losses and the consumers think carefully before purchasing these services in their present state.
 

Credit Counselling: A Way Forward

This report provides an overview and a description of the current structure of credit counseling services in Canada. The first part will provide a snapshot of the industry starting with its origins, the types of credit counselling agencies and services they provide; including funding models, accreditation requirements for professional counselors and the challenges that the industry face in meeting the expectations of consumers. The second part will explore the legal framework, both at the federal and the provincial levels, to which the industry is expected to comply and the final part will include recommendations to improve credit counselling of services from the standpoint of Canadian consumers and their interests.
Consumer credit counselling agencies (CCCAs) provide debt reduction services and financial education to debtors. They assist consumers who are having problems dealing with the management of their personal finances and need help to pay down their debts and improve their credit rating. The feature services are debt management plans or DMPs, widely known as “debt consolidation”, that consist of taking lump-sum payments from debtors facing financial struggles, or who are unable to keep up with their monthly bills, and re-distributing those monies to creditors on a pro-rated basis. Credit counselling agencies will notify the creditor that the consumer has signed in to a DMP, and forward a request to obtain relief, negotiate late fees and possibly obtain interest rate reductions at the discretion of each creditor.
DMPs benefit creditors by lowering the risk of consumers filing for an assignment bankruptcy with the probable loss by the creditor of the full outstanding debt balance. In turn, the debtor obtains a benefit in the form of the relief described above, with the advantage of making payment in a consolidated form to the CCCA, instead of obligations to multiple creditors.
However, the main requirement for a customer to be eligible to have a debt consolidation plan approved, is a stable and regular source of income. Consumers who are unemployed, employed temporarily or without a reliable source of income are not eligible for debt consolidation, as creditors would not agree to consolidation in a context of income uncertainty regardless of the agency selected to set up the plan.
CCCAs have become an important stakeholder in the credit system and provide valuable assistance to consumers and in general, to over indebted individuals. However, in the United States, some of the largest CCCAs have been heavily criticized over the last years for a variety of reasons ranging from their close connection with the consumer credit industry and to their apparent failure to act in the best interest of their clients, financially vulnerable consumers.
Download the full report [pdf file: 0.16mb]

Should Consumers Trust Trusted Computing?

Security of computer systems and networks is a growing concern in today’s society. Although present computer security functions overwhelmingly rely on software, a combination of software and hardware security can theoretically enhance computer security. The Trusted Computing Group (TCG), a consortium of hardware manufacturers, software developers and system integrators, are developing security solutions based on hardware chips and secure software. The hope is that this approach, referred to as Trusted Computing, will provide a higher level of computer security.
Broadly speaking Trusted Computing is a set of features minimizing the damage caused by a successful attacker, through the following initiatives:

1. Memory Curtaining,
2. Secure Input/Output,
3. Sealed Storage, and
4. Remote Attestation.

 
Trusted Computing has given rise to a number of consumer concerns. The three most pressing of these are:
1. Enforcement of Digital Rights Management (DRM);
2. “Locking in” consumers to proprietary software or families of software;
3. Surveillance of the consumer’s activities and other infringements of privacy.
Firstly, Digital Rights Management (DRM) encompasses a number of technological measures that owners of content can take to protect their rights in order to minimize unauthorized copying and distribution. Developer-enforced defenses take two forms: (1) legal rights enforced through the judicial system, based upon the Copyright Act and related intellectual property legislation, and (2) through technical protection measures or DRM, a form of content-owner “self-help”. Although these DRM anti-piracy measures could help protect the interests of copyright owners, they could also be abused to prevent “fair dealing” uses that are presently legal for consumers.
As Trusted Computing could effectively tilt the balance toward the copyright owner, and away from consumer interests, care must be exercised in preserving the effect of “fair dealing” provisions in the Copyright Act. Legislative revisions of the Copyright Act should give adequate weight to the ultimate consequences of rigorously limiting how consumers use digital content. Loss of innovation and diminished creativity are two possibilities among numerous undesirable results that consumers may suffer.
The second concern is that Trusted Computing can be used to reduce or block compatibility of software from different sources. A resultant lack of interoperability arising from Trusted Computing would effectively force consumers, once they have started using a particular operating system, to commit to it and continue to purchase upgrades or new applications from the same vendor. Furthermore, it is possible that the “remote attestation” feature of Trusted Computing (which reports to a third party the status of the user’s computer) will increase the pressure on consumers to run certain kinds of software, and may intensify lock-in. This concern is magnified in a market where certain suppliers hold significant market power, as is presently the case in many computer markets.
Trusted Computing also may fall afoul of the Competition Act, which regulates “anticompetitive acts”, as well as “abuse of dominant position” in a market by a supplier or group of suppliers. These provisions, properly considered with other relevant intellectual property law, may be useful in addressing the possible ills of software lock-in.
The third and final concern related to Trusted Computing are the possible surveillance applications associated with the project, especially those raised by the remote attestation feature. Remote attestation has the potential to limit individual consumer autonomy over their own personal computers. Further, it may allow effortless data mining to occur, as well as enable the creation of detailed user profiles. Significantly, remote attestation could fall under the definition of “transmission data” under the federal government’s ‘lawful access’ proposals contained in Bill C-74, the Modernization of Investigative Techniques Act (MITA) making computer users’ Trusted Computing profiles available to law enforcement with limited judicial oversight.
“Personal information”, as defined in the Personal Information Protection and Electronic Documents Act (PIPEDA), and as interpreted by the Office of the Privacy Commissioner of Canada appears to cover collecting cryptographic certificates through remote attestation. Thus, general design best practices that emphasize privacy, such as positive/opt-in consent provisions related to remote attestation, should be implemented before TC is broadly introduced to the Canadian public. Current design specifications place the computer user in control of remote attestation. However, refusal to comply may lead to being barred from accessing certain servers and not being able to complete certain transactions. Proposals for Direct Anonymous Attestation, a digital signature scheme that allows anonymous signing, as well as “Owner Override”, a feature that would allow a computer owner to generate an attestation that represents any state that the owner wishes to have represented, instead of the actual state of the machine, may protect users’ privacy if implemented successfully.
In conclusion, while the proposed infrastructure of Trusted Computing could be useful for enhancing security in the business environment, the benefits to consumers are harder to isolate. Therefore, it is imperative that the TCG play careful attention to addressing consumer needs in terms of DRM, software interoperability, and the privacy issues generated by Trusted Computing, as it becomes ubiquitous in the computing world.
 

Telecommunications Ombudsman for Canada

With the advent of competition in telecommunications in Canada, many aspects of the regulatory framework are evolving. As existing services become unregulated, and new services are never regulated at all, new consumer issues arise. For a regulated service, if customers cannot satisfactorily resolve a dispute with a service provider, there is recourse to the regulatory agency. For an unregulated service, generally the only recourse is switching to a new service provider. Unfortunately, this is not always easy, and in any case may not address past problems. Recourse to the courts, while possible, is expensive and often unsatisfactory from a user perspective.
In principle, competitive forces, if sufficiently vigorous, will provide incentives for service providers to be responsive to customers. However, in practice, handling of complaints can be complicated, especially in a large company. Competition, while intense enough to keep prices and terms of service reasonable, may not suffice to take care of individual customer problems. As a result, many industries have set up independent ombudsmen to deal with individual customer complaints.
This paper reviews different models for an industry ombudsman. A number of viable options are available, ranging from no ombudsman to a far-reaching government-mandated and controlled office. Given the current regulatory framework in Canada, the paper concludes, a mandatory ombudsman would be the best solution. All telecommunications service providers would be required to participate.
The ombudsman’s office should be a not-for-profit organization, funded by participating service providers and subject to general government guidelines. In all other respects it should be independent of both industry and government. The ombudsman should have jurisdiction over wire-line and wireless telecommunications, as well as Internet access and voice services (VoIP), where internal conflict resolution has been tried and failed, and where other administrative bodies do not have jurisdiction.
The ombudsman should have discretion to refer a complainant to a regulator or the courts if in its judgment that is a more appropriate or convenient avenue to pursue. For individual disputes, the ombudsman should first try to mediate a voluntary resolution to the dispute. If that fails, it should issue a recommended resolution. This will become binding on both supplier and complainant if the complainant accepts; otherwise, it will bind neither party. Recommended resolutions should include an explanation or apology, an action by the service provider, and compensation for actual damages up to a maximum of $1,000.
 

PIAC Report: Telecommuncations Ombudsman for Canada
Download File: telecom_ombudsman_for_canada.pdf [size: 0.22 mb]

Please see also the Telecommunications Policy Review Panel – Final Report 2006 , which largely adopted the conclusions of this paper in Chapter 6 .