Thank you, Mr. Chairman.
I want to begin by thanking you and your committee for the Financial Consumer Agency's first opportunity to come before the House finance committee--and to renew old friendships and to meet new people, in some cases.
We are very pleased to be here. I brought my deputy commissioner, Jim Callon, with me. From time to time he might jump in when the commissioner gets carried away. As well, Susan Murray is our director of consumer education and public affairs. She didn't want me to say this, but this is Susan Murray of the credit union system and Queen's University, not the CBC.
This is our first appearance. What I would like to do is talk about, just quickly, who we are and what we do.
We have provided you collectively with a briefing note. We invite visits to our websites, or just pick up the phone and we'll definitely share any basic information we have with members of the committee, or through the chair to the committee, whatever you deem appropriate.
What's the history, and why do we exist? In summary, in 1996 a major task force on financial services did an overview of financial services in Canada, in shorthand the MacKay task force, and in essence outlined that there was an imbalance between the concentration and the power in the banking system--which may be related to the big five, about 80% of the assets out there--and the rights and services to consumers. Out of that, several bills flowed that decided to address the fundamental issue of that imbalance.
Parliament, I may say, when it went to deal with the imbalance, was very clear about separating out, in what was then called Bill C-8, the enforcement of the law--that's me--and consumer redress--that's the “ombuds” network. So we're into regulatory business and consumer education. Redress is in the hands of the ombuds network as it relates to the banks in particular and to, indeed, insurance companies, etc.
Our mandate outlines and empowers us through legislation to supervise financial institutions, to determine whether they are in compliance with consumer provisions applicable to them; to promote, by the adoption by financial institutions, the policies and procedures to implement consumer provisions applicable to them, in other words a compliance framework; to monitor the implementation of financial institutions' publicly available voluntary codes of conducts, such as the code of conduct as it will relate to how they deal with small business; and to monitor and review those public commitments that the institutions make from time to time. A very important component is that we promote consumer awareness about the obligations of financial institutions under the consumer provisions applicable to them. Finally, and this is very important, we foster an understanding of financial services and issues relating to financial services in cooperation with any department, agency, or agency corporation of the Government of Canada or of a province, financial institutions, consumers, and other organizations.
In short, we protect and we inform consumers at the federal level when it comes to deposit-taking institutions. How do we go about it? When we find, in our processes of inquiries and obtaining complaints...through our call centres, e-mails, by mail, and second-level reporting of the institutions. We have a case-by-case function in which we seek to find if there is or isn't a violation. We can take action, with the tools and the authority given by Parliament, to do a number of approaches with the difficulties: enter into agreements with financial institutions to further comply with the law; issue notices of violation; impose monetary penalties; and, where necessary, name the financial institution that violated the law.
The impact of FSAC supervision is significant. A single compliance case can mean changes industry-wide and improvements for thousands, even millions, of Canadians.
That's part one of the mandate. Part two of the mandate is related to consumer education. There we provide a unique value to Canadians.
You will note some significant acknowledgment in the report just tabled in the other place yesterday by the banking committee of the innovative work we're doing in supplying Canadians with educational tools to make their choices in the financial marketplace.
When I took this spot, after having been in the credit union system, I targeted a number of approaches. To be quite clear with the committee, I wasn't sure how they would turn out. One of them was to ensure that we could put the tools and the materials before consumers so that they could make choices and inform themselves to be more effective and more confident in dealing with an individual financial institution.
Those interactive tools that help Canadians now are available to help choose a bank account, as there are low-cost bank accounts available; to choose between credit cards to meet the need and convenience of an individual consumer; to find a complaint-handling process for their particular financial institution; to find answers to the most frequently asked questions that we get in our call centres; to research branch closures in Canada in any area, including your constituencies; and to find the impacts that have happened. We have tools now that help calculate the monthly payments when it comes to mortgages.
In short, we're a third-party spot where people can come for what they believe--and rightly so--is objective information. We're finding that not just the consumer but others in the financial services business are using the material to ensure that customers and consumers can get that basic information. First-time homebuyers find the mortgage product very effective.
We're doing other outreach and innovative approaches. We're working with community groups, NGOs, across the country, whether it be the United Way or a group called SEDI. We are out there approaching in partnership for the delivery of the mandate. We offer, through many of those groups, “train the trainer” programs to assist with assisting consumers.
We're operating on an expenditure budget of about $7.25 million. I think that was 2004-05. Just to update you, 2005-06 is around $7.3 million.
In terms of the demand for services, last year we had requests for more than 400,000 publications that ended up going out to consumers. Our website visits--these are not hits, but visits--increased by at least 69% per year. Last year alone we had over 750,000 visits to the website.
Mr. Chairman, through you to the committee, we are following on the track of the two-tiered notion of our mandate--one, to enforce the law; and two, to ensure that consumers are aware of their rights in that marketplace.
Thank you very much. I look forward to questions.
There's a couple of things. First let's deal with the issue. If the issue arises and it's at variance with the law, such as on lending practices, we then open a case and do an investigation. We can hold the institution accountable by due process. We issue a notice of violation, and the institution then gets a certain amount of time in which it can respond. I then take its response and the initial reports and make a decision, like an administrative tribunal, on the case. That's one.
Now, in a number of instances it is shown that there is no at variance with the law, but--and this is key, in my mind--the individual may still face redress issues. So they will go through a redress ombuds issue with that institution, or they can seek legal restitution. I don't deal with that.
The third factor--and we had a case lately that we've followed up on--is that under section 17 of the act, the individual consumer will be frustrated that, often, like the Competition Bureau, we're to deal with the regulatory issue, not the redress issue. Therefore, sometimes they would like to see their file, and under section 17 of the act, I cannot just hand over a file that's been developed on this issue.
Bear with me, this is difficult.
But hope springs eternal. I advise the consumer that they can apply under access to information for their file. There are privacy laws and safeguards built in, but the access to information can often result in them getting their full file.
FINTRAC is fundamentally a....
I'm gong to start showing my age here. At the very first committee ever held in the Department of Finance, of all of the industry, I was there. I was there with our then CEO, a good Manitoban by the name of Brian Downey, when we began the first moves to track where money was moving between financial institutions. The reason at that time was to start getting at the whole money-laundering issue.
FINTRAC focuses on strictly following money. When you cross the border and they ask how much cash you have on you, if you say more than $10,000 you're going to be registered. FINTRAC's mandate is to be a key component of the drive against money laundering. I don't do any of that. I don't work with white collar commercial, or the RCMP, or CSIS in those areas.
So their mandate is around transactional business that involves money. Mine is related to large retail institutions and their behaviour on the retail end, and how they interface with the individual consumer.
I hope that helps.
Yes. My colleague had begun the transition to set up the organization.
I'll give you the rundown, for everyone's benefit.
In the spring of 2001, the governor in council and Privy Council Office ran an ad seeking a commissioner of the Financial Consumer Agency, to begin in the fall of 2001—just in case you may think these kind of systems don't work; I thought it worked. They ran the ad across the country and set up committees to interview for a commissioner.
The powers of the commissioner are the equivalent of a deputy minister or a deputy head. All hiring practices, all involvement in that hiring, are done under and according to the rules of the public service act. We have an expenditure budget of between $7 million and $8 million. We have about 39 employees.
We have a unique approach that I'm a hawk about. We have--and this will be in your materials—a very effective outsourcing operation, where we outsource our financial administration to OSFI. We joint-venture our call centres. We have probably close to seven outsourcing contracts that allow us to run very effectively. What we do is manage the contracts.
Thank you, Mr. Chairperson.
Thank you, Bill, Jim, and Susan, for being here. I think it's really important that the FCAC is before our committee. We should make this a regular affair, because there's so much to cover.
I want to start with mortgage insurance. Obviously, as the federal market conduct regulator in the financial sector, you have something to say about this, or you have some responsibility, I would hope, or somebody has responsibility, for this whole area. We've had quite a debate in this committee now that the government has decided to open up mortgage insurance for competition but has no willingness to put in place any kind of oversight body or conditions or regulations. Some of us are worried about how the consumer will be protected in this.
How do you prevent things like collusion between lenders and insurers? And what's your role?
We're on the retail end. Let me try to take you through it quickly.
The people providing mortgage insurance, including CMHC, in essence are like the wholesalers. The retailers are the deposit-taking institutions, those institutions that are into the mortgage business.
I need to report to the committee that we had already done a review of the behaviour of banks around mortgages. When it came to the mortgage insurance, our examination found that they were basically disclosing the costs of the mortgage in terms of individuals who have to pick up the mortgage insurance. So they get a very good passing grade on that.
I note that now you're moving forward with new entrants into the business. As an agency--and I'll discuss this with the minister as well, and the department--our powers of overseeing market conduct on the retail side will allow us from time to time to report out to the department, to the officials and the minister, and to report out to this committee as we find what evolves in the marketplace. I can, and will, definitely report out on whatever the financial institutions are doing on their retail end. Since the legislation was just introduced, we'll move that up in terms of our business plan as one of our priority items going forward.
Secondly, I have a meeting in about ten days with the executive of the Canadian Bankers Association. I will sit down with them and talk to them about revising my business plan a bit to move up on the pecking order a review of what transpires. I will report that information out to the minister and to the committee as the regulator.
I don't regulate them directly, but I do oversee all of the retail end, so I will be able to pick up on what's happening on that side and inform members of the committee.
I had a half-hour conversation with a client about a month ago on clearance rules. I'm going to use an example in order to clarify the issue. A credit card is due tomorrow, say, June 8. The balance is $1,000. It's with credit card X. You go into bank Y and pay your bill on the machine, on June 8. The money is taken out of your account as of when you do that transaction on that machine. However, that money is not credited to the account that you've just paid until a few days later because of “clearance rules”.
So the consumer has the worst of all possible worlds. He or she, being a good consumer, has paid their balance on the due date, which is what they're encouraged to do to avoid interest, when in fact they're going to get whacked for interest on their statement the following month. They get killed on the interest out of their bank account and they get killed on their credit card at a fairly high rate, and then they get compounded on the month following the month following.
It was a big shock when the constituent described it to me. I didn't quite realize that, with electronic banking, this was not an instantaneous transaction.
I wonder whether you've had any conversations with the financial institutions about this kind of issue, and also what it is they're prepared to do to stop gouging consumers on both ends of the transaction.
There are a couple of things.
First, maybe I'll help you with some questions that you could ask them if they come here. One, what kind of float are they creating in aggregate when they nail the individual consumer and then they float it for 48 hours on overnights? What are they picking up in cold cash? Because that could add up to a lot of money, if you take their whole marketplace.
Two, maybe they could, like the United States, break out with some clarity what they're making on both mortgage and mortgage insurance and credit cards in terms of non-interest income. That would perhaps be of interest to the committee and to consumers.
Having said that, in terms of our provisions under the cost of borrowing and so on, it gets into a grey zone once it goes into the payment system. I think one of the things that's going to happen for parliamentarians and consumer groups and the banks themselves is what kind of oversight or code of conduct, at minimum, people want to look at when it comes to that whole area of electronic commerce. This one fits into that.
I'll try to get back to you on this particular example, but I have never been clear on why they can't do it in a manner where there's not that gap.
From day one in the annual reports, I've pointed out real concerns about the payday loan crowd. This is a growing and insidious bunch, as far as I'm concerned--just in case you think I don't have an opinion on anything.
I believe there's a real requirement for standards and enforcement of those standards, if at all possible. The complexity is that they fall within provincial jurisdiction. The Province of Quebec has very strong consumer laws as it relates to the dos and don'ts of this particular area. A number of the provinces are looking to step in to set certain rules and standards.
Just in the last week, a paper came out from a professor at York University. I commend it to the committee for a good read. It's insightful on what would happen if you started getting standards set. It's going to take coming back to the Criminal Code. The Criminal Code is enforced under the criminal law and not under an administrative tribunal regulator--so, don't have jurisdiction.
The solution to this has been under way under ministers of justice. My understanding, from comments to this committee from Minister Flaherty, is that there is emerging work to collaborate between the federal government and the provinces, where the federal will adjust the law to give the provinces running room, if they so wish, to take on the payday loan crowd.
I kind of take them on in the ways I can, in terms of information and material, and try to inform consumers in a manner to help them move away from their use. It's not easy.
Inquiries, but geez, an awful lot of consumers out there contact my offices and contact, I'm sure, every MP's office about interest rates, about service charges, about this, that, and so on. So I'm just wondering....
You say here, “Violations found: 120”, and “Administrative Monetary Penalties total: $117,000”. You also mention public warnings and so on and so forth. As I understand it, Bill, you're saying that your job...and I think it's a very important job, but we're trying to get to where the consumers actually want some sort of....
You can't do redress. When a complaint comes in from a consumer and they call your office and say, “Listen, I think somebody at this bank”--or this credit union or this insurance company--“has done something wrong on a calculation”, and you open up a file and find the evidence that points to that, you can't do the redress. Do you then send that out to the ombudsperson? You say that you work together closely.
First of all, I would think that there are probably hundreds of thousands of complaints. Who's getting all those complaints? I'm trying to find the division between what your organization does and what the ombudsperson does and to get to the very issues that I think Garth and others would talk about, the ones that are really....
If the problem is not so much regulatory, or the non-compliance by financial institutions, but that parliamentarians have to really get down to whether or not it's payday stuff or whether or not it's interest rates and services charges and banks and so on, which may be more legislative, then we ought to know that, and not give people a false sense of hope if they complain to you that you're going to remedy the interest rate charges. I think we assume that everybody out there knows what's going on in the marketplace, and I'm not sure they do.
I'm just trying to connect the dots here as to how we get to Garth's sort of problem and your job, and how it is that's legislative regulatory, and perhaps the other levels of ombudspersons who actually get to talk to the consumer and do the redress stuff.
Thank you, Mr. Chairman.
I have a couple of questions. I'm sitting here listening to the questions that have been asked, and I'm not satisfied with some of the answers. I can appreciate that they're probably factual, but I guess the end result of what we're accomplishing through the process of the FCAC is disturbing to me.
It would seem to me that your agency is set up to advocate, and I'll tell you, there are a couple of groups that I believe need your service the most, including persons of lower income and limited education, who are often taken advantage of by the financial services industry. Payday loans is very bad. It disturbs me that it's under provincial regulation. That industry is growing, and it's taking advantage of consumers each and every day.
I'm also concerned with loans, non-prime loans, or “sub-prime”, as they refer to them, that have rates at 29.9% and will then charge an acquisition fee, putting the effective rate at 35% or 36%. It doesn't seem to me that these loans are lawful, but nobody is stopping this.
One of the reasons, just to go back to what Mr. McKay brought up about paying a bill on time but then it not being processed on time, which leads to a blemish on a credit bureau...because they go by when the money's actually received. So that will score on the credit bureau as an R2 or R3, if it was already 30 days late, which will lower the beacon score, which then puts people into these positions where they have to take these terrible loans. For people of limited income, it keeps them poor. It keeps them in positions where they can't access fair interest rates.
I don't know if we need to give your organization more teeth. Do you have any teeth? Because it seems to me that these people--with lower income, limited education, and even just when starting out, just trying to establish themselves--are the ones being exploited by financial institutions that make an awful lot of profit, unfortunately, in these areas.
How can we help these Canadians?
Actually, Mr. Knight, I was just going to segue off Mr. Del Mastro's question and give you a chance to conclude. One of the areas that a number of our committee members have alluded to is consumer awareness. Some of the work you've been doing, some of the publications you have available--would you like to outline some of those?
My only question other is with respect to the mortgage penalty clause issue. I understand that your organization has done some work with the banks themselves to try to encourage them to be more transparent and consistent in communicating penalties and so on in their mortgage practises. I'd like you to outline whether that work is continuing and to what degree you've had some success in that.
Finally, on the issue of mortgages, a lot of agencies, mortgage brokers and the like, are issuing mortgages now. It's true that those are not under your jurisdiction in any case, I believe. What, if any, proposal would you make to our committee as far as how we might be able to provide a more level playing field in respect of those who issue mortgages as to their transparency practices, their penalty practices, and so on and so forth, in communicating with consumers across Canada? There's an increasing concern from consumers, I think, that they're not getting their full information in terms of the mortgage issue. Whether it's prepayment or changing of terms, they seem to be surprised more often than not about the penalties associated with such changes.
So there you go. Please conclude, and thank you for being here.
First of all, Mr. Chairman, thank you very much for the opportunity. I'm happy to join the committee in their deliberations whenever I can report in or be of assistance.
Let me make several points. You will note that the Senate banking committee has just set out a report. I refer to it in terms of its comments on our awareness and the wide range of materials that are available to you, to your constituency offices and to your constituents, to Canadian consumers. We're driving a very aggressive awareness program around choices, around products such as credit cards. We have materials out on payday loans. I have a working partnership with Veterans Affairs to allow for individuals who will get, through their disabilities, lump sum payments, and how to manage that, how to handle that, going forward. It's just a basic one-pager to get them started. So we're making progress in getting to those consumers.
We have done a major examination of mortgages of the major institutions where we've got them to improve their penalty clauses, to change them to have a far better and clearer acceptance of a plain language approach. This has affected millions of consumers across the country. This is particularly key around their penalty clauses and what was a lack of clarity. This means that about 70% of the market, because of the federal dominance of these institutions, is pretty well covered. To go further on that, it would probably take some joint effort between provincial and federal regulators. I'll be continuing to discuss those with what's called a joint forum, which is the provincial regulators, so we can collaborate on it.
Finally, I'll share with you my briefing materials to the Minister of Finance--the question came up--for everybody to have a look at. In there I refer to the fact that when I find them off base on penalty clauses or on a number of items, our compliance officers and individual consumers over the call centres have pointed out areas where there can be miscalculations on the charges laid against people. When that has been across wide bands of individuals, and it could lead to a compliance issue where I may hold them in violation, they have volunteered to pay out and rebate consumers across the country. We are now, as of today, at $80 million back to individual consumers. In the next 48 hours there will be another institution that will be, again, making restitution, volunteering, that will increase that to about $87 million-plus.
I think it's to the credit of this committee and Parliament that, as cumbersome and as difficult as it is to get the progress, I believe the progress is there in pursuing these two mandates. But we need to collaborate and keep working together on a number of the issues that individual members have raised.
I know that a number of you have been through the wringer many times, and we've seen each other in previous movies, but many of you are new to the committee or to the House. We provide a full brief, and we'd be happy to take you down to the offices, go through it, or come up to your offices. I'm pleased to be meeting with the parliamentary secretary tomorrow morning, I believe, and the minister shortly. I invite any of you or any of your colleagues in your caucuses to join with me or my colleagues to go through exactly what we're doing and what we don't do, and suggestions on what we could be doing.
Thank you very much.