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

Public Interest Advocacy Centre
1204 – 1 Nicholas Street
Ottawa, Ontario
K1N 7B7
Table of Contents
About PIAC
1. Public Reporting on the Compliance Program
2. Monitoring of the Overall Consumer Protection Framework
3. Transparency and Openness
4. Branch Closures
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.


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.
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.