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Coalition Calls on Federal Government to Get Tough on Unfair Bank Gouging and Cutting of Lending and Services
Comprehensive Audits, and New Financial Consumer Watchdog Groups Needed For Effective Bank and Financial Services Industry Accountability

"It is essential, for deterrence, to have strong penalties that we know will be enforced."

Prime Minister Stephen Harper
CTV National News, February 26, 2009

Wednesday, March 4, 2009

OTTAWA - Today, following the past week of Canada's big banks reporting profits and multi-million dollar payoffs for their executives, the Canadian Community Reinvestment Coalition (CCRC - Canada’s leading bank accountability coalition) called on the federal Conservatives to get tough on the rampant bank gouging and cutting of loans and services across Canada.

Federal Finance Minister Jim Flaherty has talked a lot over the past year about ensuring Canadians are charged fair prices for banking, and about ensuring creditworthy borrowers are not cut off unjustifiably, but he has nothing except meet with bankers behind closed doors a few times, and give them and other financial institutions no-strings-attached subsidies worth up to $300 billion (with even more subsidies likely to come over the next year).

Beyond the massive, taxpayer-funded subsidies, the Conservatives' so-called "Economic Action Plan" proposes only: to attempt to create a national securities regulator to reduce costs for business (with no guarantee of stronger enforcement of securities laws); to strengthen the disclosure requirements for credit card rates and fees for federal financial institutions and impose a minimum payment delay period (which will do nothing to lower excessive credit card interest rates); to strengthen disclosure requirements for mortgage insurance (which will do nothing to lower its cost), and; to create a task force on financial literacy (which will be redundant given the existence of the Financial Consumer Agency of Canada (FCAC) among other federal and provincial financial education agencies).

While the Conservative government sits idly by, just as past Liberal governments did, the banks are adding to the level of gouging that already existed by increasing fees in many areas, adding new fees, unilaterally increasing interest rates for many types of loans (even though the Bank of Canada's prime lending rate has dropped to its lowest level ever), and cutting off the credit for people and businesses that have made their payments consistently for years and are very creditworthy.

Beyond the record-high gap between the prime rate and credit card interest rates, and the banks hoarding money to buy banks in the U.S. and elsewhere, see for examples of other gouging and excessive profits the following:

"The Conservatives claim that to help the economy they have to cut taxes to put money in our pockets, but they are doing nothing to stop the big banks from gouging money out of our pockets, and they are giving the banks hundreds of billions of dollars of our money and not requiring anything in return," said Duff Conacher, Coordinator of Democracy Watch and Chairperson of the CCRC.

"The federal government has allowed a two-tier banking system to be created in Canada where the people and businesses who can least afford it pay more for essential banking services and credit.  Any government that wants to help Canadians and job-creating businesses who are in a cash crunch, and help the Canadian economy overall, will regulate Canada’s big banks to ensure they serve everyone well at fair prices, and don't gouge or withdraw service from creditworthy customers," said Conacher.

"Every dollar of excessive profit for the banks, and every person and business the banks unjustifiably cut off from credit, costs the Canadian economy because it means that the banks are overcharging for their essential services and loans, and choking off spending and job creation," said Conacher.

Every survey done in the past decade has shown 90 percent of Canadians believe access to banking services and credit is essential for functioning in society.

The Canadian Community Reinvestment Coalition (CCRC), established in 1997 and made up of 100 citizen groups from across Canada with a collective membership of more than three million citizens, called on federal Finance Minister Jim Flaherty to work with opposition parties for effective bank and financial institution accountability by:

  • requiring banks to prove through an independent audit (that goes back at least 10 years) that their credit card and other consumer and small- and medium-sized business loan interest rates and fees do not amount to gouging, with a public report on the extent of gouging issued by the Financial Consumer Agency of Canada (FCAC) -- To see details about this proposal, click here;
  • empowering the Competition Bureau to, as has been done in the U.S. for 20 years, evaluate and publicly report on the number of business loans applied for, approved, rejected and called for specific categories of business borrowers, and the level of competition in basic banking services, across the country -- To see details about how the U.S. has required for more than 20 years, click here -- and;
  • as recommended by the federal MacKay Task Force and House and Senate committees, requiring banks and other financial institutions to facilitate the creation of consumer watchdog groups by enclosing an appeal pamphlet for the groups in their mailings to customers and individual investors -- To see details about this proposal, click here.

Financial service industry customers and investors are currently gouged with extra charges that companies in the industry use to pay their more than $200 million annual costs for industry advocacy efforts (advertising, lobbying, political donations and gifts).  The most effective way for the federal government to balance the marketplace is to implement the pamphlet method to give customers and investors an easy way to fund their own advocacy watchdog groups.

With Canada’s big banks recently reporting a total of more than $16 billion dollars in losses and writedowns mainly because of their irresponsibly risky investments, these measures are needed more than ever to stop the banks from hiking rates and fees, and cut lending and services, to recoup their self-inflicted losses.

"No corporation has a right to gouge or unjustifiably cut services, especially when providing an essential service such as banking or trying to recoup self-inflicted losses like the banks are suffering from, but the Conservative government is continuing the negligence of past federal governments by subsidizing the big banks and other financial institutions with hundreds of billions of taxpayer dollars while failing to effectively require them to maintain loans to creditworthy customers and serve everyone fairly and well at fair prices," said Conacher.

"The best thing the federal government can do to help the Canadian economy overall is to ensure effective, ongoing financial services industry accountability by requiring banks to prove their loan and investment interest rates and charges are fair, by auditing bank lending and competition levels in communities across Canada and, as recommended by the 1998 MacKay Task Force and House and Senate committees, by requiring financial and investment companies to distribute a pamphlet in their mailings to customers and investors that invites them to join a citizen watchdog group to watch over the financial industry and federal government," said Conacher.  "At little or no cost to the federal government or the financial services industry, consumers and investors across Canada can be given a very easy way to band together to help and protect themselves through forming and funding their own watchdog groups."

The CCRC proposes first that the federal government empower and mandate the Financial Consumer Agency of Canada (FCAC) to examine for at least the past 10 years, and annually in the future, the levels of profit of the credit card and basic consumer and small business loan divisions of the banks and other federally regulated companies, as well as profits from basic banking service charges.
The FCAC would keep key company information confidential, reporting only the profit margin for these divisions of each company.  If the FCAC found excessive profits (above the corporate average of 15-20 percent), the public would know, and likely that pressure alone would cause interest rates and service charges to drop.  (To see details about this proposal, click here)

Second, the federal government must order the Competition Bureau to audit the lending records of the banks (by tracking number of applications, number of approvals/rejections, and number of called loans in all consumer and small and medium-sized business loan categories), and to evaluate the actual level of basic banking service competition in communities across Canada, for the past 10 years.
Third, the federal government must require the banks and other federally regulated financial institutions to enclose twice each year in their mailings to customers a one-page pamphlet that invites them to join a financial consumer watchdog group.  The federal government must also do the same for all federally incorporated companies, requiring them to enclose a one-page pamphlet in their annual mailing to individual shareholders that invites them to join an investor watchdog group.  This method has been used successfully in four states in the U.S. to form broad-based, self-sustaining watchdog groups for utilities. (To see details about this proposal, click here)

In addition to having the Financial Consumer Agency of Canada (FCAC) examine profit levels for credit cards and service charges for the past decade and annually in the future (To see details about this proposal, click here), and the Competition Bureau examine lending records and competition levels across Canada for the past decade and annually in the future (To see details about the U.S. requires this under the Community Reinvestment Act (CRA), click here -- To see details about the $4.5 trillion in reinvestments that have resulted from the CRA since 1977 (in a PDF-format document), click here -- To see the CCRC's position paper describing how this bank accountability system should work, click here), the federal government should finally actually regulate Canada’s banks and investment companies through the following actions:

  • If the FCAC study shows gouging in the past decade, require banks to refund customers;
  • If the Competition Bureau shows lack of competition in any community, require banks to open branches or subsidize credit unions opening branches; 
  • Require banks to provide detailed information on loans, investments and services to customers, require corrective action and deny mergers and takeovers if banks are not meeting customer needs, as in the U.S. 
  • Every government in Canada contracts money-handling and credit card business to the banks, and should award contracts based on which bank serves the most people well;
  • Facilitate the creation of a Financial Consumer Organization (FCO)  and an Individual Investor Organization (IIO) to help consumers by requiring banks and other financial institutions to enclose an FCO or IIO pamphlet in their mailings to customers, inviting people to join the watchdog groups (To see the CCRC's position paper describing the FCO proposal in detail, click here -- NOTE: Creating such an organization using the pamphlet method was recommended by the Task Force on the Future of the Canadian Financial Services Sector recommended in its September 1998 Report (See Recommendation #56(b) on page 208 of the Report), and the House of Commons and Senate committees that reviewed the report endorsed the recommendation); 
  • Require banks to give customers access to their money as soon as a cheque clears (as 98 percent of cheques in Canada clear in one day), and;
  • Increase the maximum penalty for violating the Bank Act to $50 million (currently, the maximum penalty is $200,000, much too low to encourage compliance), and require the FCAC to disclose the name of violators in every case.
According to Fortune magazine’s 2007 Global 500 report (based on FY 2006 annual reports), Canada’s big five banks were all within the top 35 banks in the world in terms of profits as a percentage of revenues, and profits as a percentage of assets (before their irresponsible investing led to billions of dollars of losses and writedowns in the past two years).

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For more information contact:
Duff Conacher, Coordinator of Democracy Watch
Chairperson of the CCRC
Tel: (613) 789-5753 

To see the CCRC's analysis of the flaws in Bill C-37, which changed the Bank Act and other federal financial institution laws in April 2007, click here

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Canadian Community Reinvestment Coalition
P.O. Box 821, Station B, Ottawa, Canada K1P 5P9
Tel: (613) 789-5753
Fax: (613) 241-4758
Email: cancrc@web.net

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