Comprehensive audits, and new Financial Consumer Organization needed to ensure profits are not excessive, and for accountability and financial literacy
Send a letter calling for audits of profits, and bank accountability measures by clicking here
For more information contact:
Duff Conacher, Board member of Democracy Watch
Chairperson of the CCRC
Tel: (613) 789-5753
Tuesday, March 5, 2012
OTTAWA – Today, in response to Canada’s big six banks reporting their new record profits for the past three months of $7.7 billion, the Canadian Community Reinvestment Coalition (CCRC – Canada’s largest and leading bank accountability coalition) broadened its national letter writing drive that has already helped Canadians send more than 23,000 messages to key politicians calling on them to implement accountability measures to ensure bank profits are not based on gouging customers and arbitrarily cutting credit, loans and services, and to ensure the banks support Canadian economic development and job growth.
The big six banks’ profits for the 2011-2012 fiscal year were as follows:
BMO – $4.19 billion (up 35% from 2011′s total of $3.3 billion)
CIBC – $3.3 billion (up slightly from 2011′s total of $3.1 billion)
National Bank – $1.6 billion (up 26% from 2011′s total of $1.2 billion)
Royal – $7.5 billion (up 17% from 2011′s total of $6.7 billion)
Scotia – $6.2 billion (up 17.6 from 2011′s total of $5.27 billion)
TD Canada Trust – $6.5 billion (up 10% from 2011′s total of $5.89 billion)
As the CCRC predicted in December 2008, the failure of the federal Conservatives and opposition parties to regulate Canada’s big banks in the public interest has allowed the banks to gouge out of Canadians the more than $16 billion dollars in losses and writedowns they suffered in 2008 – losses which were due mainly to their own irresponsibly risky investments.
Canada’s wage gap is growing and the highest in 30 years, and Canada’s big six banks are taking $10.3 billion dollars of Canadians’ money to give as bonuses to their executives and staff (7.5% more than in 2011).
Beyond the record-high gap between the prime rate and credit card interest rates that the banks have maintained for the past decade, and the regular gouging practice of continuing to charge interest on the full amount of a credit card debt even if most of the debt has been paid off, other examples of bank gouging and excessive profits include the following:
- CBC TV’s Marketplace piece about bank gouging of seniors (April 6, 2012 — NOTE: Piece starts at 21 minute mark and runs for 5 minutes);
- CBC TV story about credit-card gouging of another type, and;
- CBC.ca article about gouging of retail companies by credit card companies.
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 – so given that the consumer is always right the federal government should regulate banks as they do other essential services like heat and electricity.
These regulations are also needed to increase bank accountability in return for the almost $200 billion in support the federal government gave the banks in 2008-2009.
“Past government actions and the Conservatives’ recent credit card and debit card codes and regulations are too little, too late to ensure Canada’s big banks are not making excessive profits from gouging customers and cutting services and failing to lend to job-creating Canadian businesses,” said Duff Conacher, Coordinator of Democracy Watch and Chairperson of the CCRC.
“To help the Canadian economy overall, and to ensure the big banks serve everyone fairly at fair prices, the federal government must facilitate the creation of a national financial consumer-directed watchdog group, and require independent audits to determine if the banks are reaping excessive profits through gouging interest rates and fees, and the arbitrary cutting of credit and services for some customers and communities,” 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.
In February 2011, the federal Conservatives’ Task Force recommended extensive measures to increase financial literacy in Canada, but ignored the lowest-cost, most effective and broadly supported solution to this problem which is to use the innovative “pamphlet method” to create a membership-based Financial Consumer Organization as recommended by the federal MacKay Task Force and House and Senate committees in 1998, and an Individual Investor Organization as proposed by an Ontario legislature committee in 2006.
Financial service industry customers and investors are currently gouged with extra charges that companies in the industry use to pay their more than $400 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.
“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.”
In addition to the creation of the two watchdog groups using the pamphlet method, 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 (See details about these proposals below):
- 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;
- Require federally regulated banks and other financial institutions to use the Ombudsman for Banking Services and Investments (the Conservatives have allowed banks to set up their own complaint dispute resolution systems that are not as independent and effective as the Ombudsman).
Details of Canada’s big bank profits and failure of federal government to ensure they are fair
According to Fortune magazine’s 2012 Global 500 Report, based on FY 2011 annual revenues five of the 11 Canadian companies to make the list of the 500 largest companies in the world were financial institutions, including three of Canada’s big six banks (RBC (282nd with revenues of $37.23 billion, profits of $6.7 billion); TD Canada Trust (403rd with revenues of $27.59 billion, profits of $5.89 billion), and; Scotiabank (409th with revenues of $27.09 billion, profits of $5.27 billion), as well as Manulife Financial at 181st with revenues of $51.55 billion, and Sun Life Financial at 485th with revenues of $22.83 billion.
According to Fortune magazine’s 2010 Global 500 Report, based on FY 2009 annual revenues, three of Canada’s big six banks were among the 500 largest companies in the world (RBC (228th with revenues of $32.61 billion, profits of $3.298 billion); TD Canada Trust (401st with revenues of $21.733 billion, profits of $2.667 billion), Scotiabank (414th with revenues of $21.428 billion, profits of $3.032 billion)
In the 2009 Global 500 Report (based on 2008 annual financial reports), four of Canada’s big six banks were within the top 18 banks in the world in terms of profit as a percentage of revenues (TD – 6th; Royal – 11th; Scotiabank – 13th; BMO – 17th), and four were within the top 30 banks in the world in terms of overall profits (Royal Bank – 13th; TD – 18th; Scotiabank – 21st; BMO – 29th), and four were within the top 21 banks in terms of profits as a percentage of assets (TD – 15th; Scotiabank and Royal – tied for 19th; Bank of Montreal – 21st).
Finance Minister Jim Flaherty has implemented only a voluntary, loophole-filled code of conduct in August 2010 covering business relations between retail companies and credit card and debit card companies.
And three of the eight credit-card regulations implemented in January and September 2010 by the Conservatives change only credit-card-disclosure requirements, another proposal only addresses consumer consent for increasing a credit limit, and another only limits debt collection practices in one way.
None of these five proposed regulations do anything to prevent gouging, nor does the Conservatives’ Task Force on Financial Literacy (which is redundant given the existence of the 8-year-old Financial Consumer Agency of Canada (FCAC) and other federal and provincial financial education agencies).
And while the other three credit-card regulations (a 21-day interest-free period (which came into effect until September 2010), a restriction on one fee, and payment allocation requirements) will protect a few customers from a few charges, none of the proposals will decrease already excessive credit card interest rates (which are especially galling given the Bank of Canada’s prime lending rate has dropped to its lowest level ever), nor the extra interest rate and fee hikes the banks and other companies have unilaterally imposed in the past couple of years, nor their overcharging for various credit card and other banking services.
And none of the Conservatives’ proposals prevent the banks from cutting off credit for people and businesses that have made their payments consistently for years and are very creditworthy.
The Conservatives’ so-called ”Economic Action Plan” offered huge, public-funded subsidies to the big banks of more than $200 billion, but the Conservatives (just as past Liberal governments did) continue to fail to require the banks to charge fair prices and treat all customers fairly.
To their credit, both the federal NDP and the federal Liberals proposed in fall 2009 more effective gouging-protection measures, but unfortunately they have not worked together and with other MPs to pass a bill imposing these measures on the big banks and other credit card issuers, nor have they proposed an industry-wide audit which is needed to determine whether banks are treating all customers fairly and what are actual fair prices for all banking services, nor have they proposed any effective financial consumer empowerment initiatives such as creating the watchdog groups using the low-cost method proposed by the CCRC.
Details about the CCRC’s proposals
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 and for other details 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 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 federally regulated banks and other financial institutions to use the Ombudsman for Banking Services and Investments (two banks have set up their own complaint dispute resolution systems that are not as independent and effective as the Ombudsman);
- 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 the government’s recent increase to $500,000 is still much too low), and;
- Require the FCAC to disclose the name of violators in every case (currently, the FCAC is only allowed to disclose the identity of a financial institution that violates a consumer protection measure if the FCAC prosecutes, which it rarely does).
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For more information contact:
Duff Conacher, Board member of Democracy Watch
Chairperson of the CCRC
Tel: (613) 789-5753
Democracy Watch's Bank Accountability Campaign