:
Thank you, Mr. Chair, and good afternoon, everyone.
I have to say it's a pleasure for the FCAC to have been invited to speak on its role with respect to the sales practices of banks. Joining me today is my colleague, Richard Bilodeau, who is the director of supervision and promotion and is also responsible for and taking the lead in our industry's business sales practices review. With us is another colleague of mine, Mr. Jérémie Ryan, our director of financial literacy and stakeholder engagement.
As a federal agency, the FCAC is responsible for protecting the consumers of financial services and products. We deliver on our mandate through two distinct but complementary programs. The first is through the oversight of federal financial entities, and the second is through strengthening the financial literacy of Canadians.
These programs allow the agency to contribute to the federal financial oversight framework of promoting public confidence in a strong, stable, and competitive financial system.
[Translation]
Our oversight function is exercised over three types of entities. The first type is federally regulated financial institutions, which are comprised of banks, federal credit unions, federal insurance companies and federal trust and loan companies; the second is external complaint bodies; and the third type of entity we oversee is payment card network operators, such as Visa, MasterCard, American Express and Interac.
[English]
Federally regulated financial institutions are supervised to ensure compliance with their market-conduct obligations under the various federal statutes. External complaint bodies—or ombuds services, as some might call them—are monitored to ensure their compliance with applicable regulations.
These organizations are mandated to deal with consumer complaints that are not resolved to the consumer's satisfaction through the financial institution's complaint handling process. All banks must be members of an approved external complaints body.
Payment card network operators are overseen by FCAC to ensure they comply with their obligations and adhere to the commercial practices that are intended to protect merchants.
[Translation]
Complimentary to our supervision and promotion mandate is our mandate to strengthen the financial literacy of Canadians and enhance their financial well-being by helping them make the best decisions for their situation.
[English]
With that said, I will now turn to the subject of bank sales practices.
When the Wells Fargo story broke in the U.S. in September of 2016, we immediately conducted an analysis of the complaints we had received during the previous three years from consumers alleging they had received financial products or services for which they had neither signed up nor received the required disclosure. What we found at that time was that the number of complaints received with respect to these two issues had remained stable year over year. Nonetheless, we continued to monitor incoming complaints and decided to make bank sales practices related to credit cards the subject of our next industry review.
Industry reviews are conducted annually to supervise compliance with market conduct obligations and to help us identify emerging trends and issues that may impact consumers of financial services and products.
In a letter dated February 3, 2017 to the banks, we reminded them of their obligation to provide consumers with the required disclosure and to obtain their express consent when selling financial services and products to them. We also issued a consumer alert on the same day, informing consumers that banks must obtain their express consent before they can issue credit cards to them.
Following media reports alleging questionable sales practices by Canada's big banks, I announced that we would be examining banks' sales practices in relation to express consent and disclosure. That was on March 15, 2017.
[Translation]
Since then, our supervision and enforcement team has been hard at work reviewing and investigating complaints. They are looking at any and all factors that may be contributing to non-compliance and have been instructed to take appropriate enforcement action for all breaches they uncover.
[English]
I also instructed my team to accelerate plans for the broader industry review of bank sales practices, which is now in full swing. Through the review, we are assessing whether sales targets and incentive programs are contributing to sales practices that lead to poor outcomes for consumers. We are doing this by interviewing consumers and speaking to consumer groups to gain a broader understanding of the sales experience from the consumer perspective. We are reviewing the institutions' incentive programs, sales targets, and performance management policies, examining their internal controls, and meeting with all relevant bank personnel regardless of their role or level.
The initial findings of our review will be made public by the end of 2017. I want to emphasize that we will thoroughly investigate all breaches of consumer protection that we uncover during this review, and we will enforce compliance with the tools that we have at our disposal.
This industry review is an example of FCAC's approach to supervision, which is based on three pillars. First, we promote responsible market conduct; second, we monitor market conduct; and third, we enforce market conduct obligations.
Last year, together with the first four months of this year, through this very approach, we were able to facilitate the repayment of close to $50 million that was paid by Canadian financial institutions to consumers.
With that, I will conclude my remarks. I thank you for the opportunity to appear before you today. I and my colleagues look forward to answering any questions you may have.
I would like to thank the committee for inviting the Canadian Bankers Association to discuss consumer protection in banking. My name is Darren Hannah. I'm the vice-president of finance, risk, and prudential policy. Joining me is my colleague Sandy Stephens, assistant general counsel.
The Canadian Bankers Association represents 63 domestic banks, foreign bank subsidiaries, and foreign bank branches operating in Canada. Banks help families buy homes and save for retirement, help small businesses grow and thrive, and help drive the economy. Banks provide over half of all the business lending in Canada. Canada's banks are prudent lenders and continually work to make credit available to creditworthy Canadians and businesses in Canada.
Banks are in the customer service business, with a history of building long-standing relationships with their clients. A key part of developing that relationship is providing advice about products and services to help customers realize their financial goals and respecting customers' right to freely choose their financial products and services. With more than 40 banks offering financial products and services, in addition to hundreds of credit unions and caisses populaires, customers know they are in the driver's seat when it comes to choice.
With that in mind, bank employees receive training and information on the principles for putting the client first. Banks work hard to provide the services and products that are right for their customers, and this means they have to keep their customers' needs and interests in mind, providing the information they need to make informed decisions when choosing financial products and services.
Banks have a strong track record of following both the letter and the spirit of the law in dealing with customers. Banks devote considerable time, effort, and resources to ensuring strong compliance. They take extensive steps to make sure that customers subscribe to the products and services they want and which they have consented to receive.
Banks have clear guidelines, policies, and procedures to ensure products are described accurately and completely to their clients. Banks also have established codes of conduct that articulate employee behaviour, including expectations related to integrity and sales practices. All employees are required to attest to compliance with the code of conduct on an annual basis. Should an employee not adhere to a bank's code of conduct, banks take corrective action to address employee behaviour.
Bank performance management systems and incentives are designed to reinforce appropriate practices and culture that promote a client-centric, advice-driven approach. Performance management systems include several layers of controls, governance, and oversight to ensure appropriate conduct and to detect and address potential incidents of inappropriate behaviour. A key factor in the goal-setting process for employees is that sales objectives are designed to align with creating value for customers and that objectives are reasonably obtainable and aligned across products and channels.
Customers are well served by their banks. As I've already mentioned, banks work hard to meet the needs of their customers, and banks are competing with each other to attract and retain customers. Canadians appreciate the reliability, trustworthiness, and stability of Canada's banks. No less important is the value that customers feel they get from their bank. Banks have worked hard to make banking more convenient—extending branch hours, introducing mobile banking and payments, and enhancing online banking—enabling banking literally around the clock and around the world. Canadians have noticed and value these improvements.
A key part of customer satisfaction is how banks respond to complaints. Should a bank customer have a complaint, banks have a very robust and thorough internal complaint process. In fact, very few complaints are not resolved within the bank. In those cases, complaints are reviewed by an independent ombudsman. In 2016, only 515 complaints were reviewed by external complaints bodies. With more than nine billion customer transactions flowing through banks each year from millions of customers, the small number of complaints demonstrates a positive customer experience across all banks.
Finally, I want to briefly comment on the banks' relationship with our regulators. We work closely with the FCAC and OSFI on consumer and prudential matters respectively. Canada's streamlined and effective financial regulatory system has become a model for the world, providing a strong federal consumer and prudential regulatory regime in which banks operate.
Specifically, with regard to consumer regulations, banks co-operate with the FCAC to ensure compliance with these regulations, including express consent and disclosure. As you've heard, the FCAC regularly conducts reviews of banks' business practices, and banks co-operate with them on those reviews.
Thank you, again, for the opportunity to present our views. I look forward to your questions.
Thanks very much to Mr. Hannah, Ms. Tedesco, and all their colleagues for being here.
My first question is for Mr. Hannah.
The newspapers have reported on complaints made by former employees of certain major banks regarding practices for obtaining consent. At the least, it appears there was not informed consent.
In your opinion, do the big banks in Canada take these complaints seriously?
At first glance, do you think there is a problem that needs to be addressed or do you think instead that it is a misunderstanding between the banks and their clients?
:
I think it's very important to be clear on this point. Your question is very relevant.
We do not have the ability, nor is it our mandate, to get involved in an employee-employer dispute or issue. It's not our role, and we have no desire to play that role.
However, if an employee has information, and that information comes to us, that's a source that we can use to inform ourselves about what's going on, whether it's an investigation or an industry review.
We do not have that mandate. It's really just a source of information.
My first questions are for you, Mr. Hannah.
Unfortunately, you seem to have completely left out the fact that there is a problem, despite the many people who have attested to it. We see this not only in media reports, but also in the testimony we hear. My colleagues around the table certainly share this opinion. There is most definitely a problem in the opinion of former employees and clients. So I am a bit surprised that you left that out of your introductory remarks.
I would like to focus in particular on your expertise regarding the sales targets that banks set and impose on employees. Is that indeed the practice? To what extent are employees held to those objectives set by the employer, that is, by the banks?
:
As I said, ultimately what the bank is trying to do is set objectives that align with the culture the institution is trying to put forward, to build, and to strengthen. The culture is one centred on building and strengthening a robust client relationship, and that's a multi-dimensional issue.
For clients who have a sales function, there's a sales element to that, but that won't be it. That might be one dimension. Customer feedback, client feedback will certainly be another dimension.
Potentially other issues around, let's say, leadership, mentorship, training, community involvement, and civic involvement are all factors that build toward an objective of creating a culture that is designed to both strengthen and extend the client relationship, to ensure that clients are satisfied and want to maintain, enhance, deepen, and extend their relationship with their financial institution.
Banking is, ultimately, a relationship business. It's not a single-transaction business. It is trying to build, extend, and create a long-lived relationship with the client that has many dimensions to it.
I think we can probably add to that the banks' desire to make profits, since they set such sales objectives. Aside from the interest you mentioned in providing good services to consumers, I think we must not overlook the role of the profits that the major Canadian banks expect to make.
Are you aware of certain disciplinary measures taken against employees who do not meet their objectives? For example, an email might be sent to all employees listing the employees who performed well and those whose performance was lacking. This created a sub-category of employees whose performance was lacking and who have a sword of Damocles over their heads. In other words, if they do not improve, they should expect to be let go. Do you think that is a suitable practice?
Are you aware of these practices that exert pressure on employees and expose them to penalties when they do not meet their objectives? Do you think that serves consumers well?
:
That is not necessarily what we hear in the testimony.
One person told us that he had asked one of his colleagues how he was able to meet his objective, to which his colleague replied that he sometimes gave products to consumers who had not requested them, that he falsified signatures, and that he increased interest charges and lines of credit without the client's permission.
The testimony we have heard shows that these incentive measures make certain employees resort to dubious practices in order to meet their objectives. Unfortunately, you did not address this problem today.
As to the recourse available to clients or employees who have witnessed a fraudulent situation, I understand there is a complaints process that can lead to penalties.
To give us a better idea of the scope of the problem, can you tell what penalties have been imposed on the banks in recent years?
:
I will give you a general answer because it would be difficult to provide details about each matter and each of the penalties imposed as a result.
I can tell you that the commissioner made three decisions in fiscal year 2016-17, some of which have not yet been published. These decisions identified eight violations, which resulted in $465,000 in administrative penalties.
I would add, however, as did the commissioner, that this is just part of the story. In the past year, we have led financial institutions to reimburse clients close to $15 million, owing to inaccurate disclosures or situations in which clients' account had been charged more than what they were told. We did this through our monitoring activities, using the various tools at our disposal, and by working with the financial institutions.
Aside from the pecuniary aspect, in cases where clients had received inaccurate information during transactions with their financial institution, we were also able to backtrack and inform clients that they had received inaccurate information and give them the correct information. It is just as important to correct inaccurate information. Just because there were no problems or financial losses, that does not mean that the client is not hurt more broadly speaking.
The fact that $15 million was returned to customers is obviously good news. I think, though, that we could be stricter with the banks themselves. That leads to my next question.
When you impose fines or penalties, or when you find a bank guilty at the end of an investigation, is that information made public?
In my opinion, one way of dissuading banks is to name them when they are in the wrong. Is that part of your approach? If not, would it be a good idea to do that?
:
I will begin by answering the question regarding the process, but I will let the commissioner finish.
The process is triggered when a statement of wrongdoing is made and there is a potential fine. The financial institution can then be heard by the commissioner, who must in turn make a decision.
All decisions by the commissioner are subject to the publication principles. The commissioner has the discretion to name the financial institution or not, something she can elaborate on. On the other hand, if the errors that represent the wrongdoing lead to a fine, the commissioner discloses the amount in her decision. In addition, for obvious reasons, all sensitive commercial information is removed.
Our goal is not only to inform consumers of the issues we are examining, but also to use the decisions as a tool to ensure that other financial institutions are well informed of their duty to comply with the law.
:
Thank you. I am more familiar with the wording in English, so I'll speak English if you allow me.
Under our act, the commissioner has the authority to publish or not publish the name of the institution, the nature of the violation, and any penalty that is imposed. That's a very important aspect of FCAC's flexible approach to encouraging and enforcing compliance and changing institutional behaviour. I think that's precisely what's contemplated by our act: to bring the institutions back into compliance and change their behaviour, while obtaining the best potential outcome for consumers.
Our regime is not a punitive one, so when I am looking at whether to name or not name an institution, I have to look at each case on its own merits individually. I look at things and consider factors such as the egregiousness of the actions of the institution, its willingness to take responsibility for its actions, the deterrent impact that naming might have, the impact it can have on consumers and consumer confidence, the level of collaboration and co-operation during the investigative process, and the institution's commitment to take any and all actions to prevent any future breaches and correct the ones they've already committed.
I would say that notices of violations and decisions, and the discretion afforded by section 31, are only part of the picture. When I am deciding whether or not to name an institution, I am looking at what exactly will change the behaviour of the institution, what will bring it into compliance, and, more importantly, whether the best outcome for consumers will result from the naming, and that involves reimbursement to consumers.
Thank you, all, for being here. I have several questions, so I'll get right to it.
For me, the big elephant in the room, what we haven't talked about.... Some of the information in a lot of the media reports that came out was in regard to sales tactics around mutual funds. I know this is not part of the FCAC's oversight. However, I am wondering if there is a significant gap in your oversight. Perhaps when these offices were established, and the distribution of oversight....
I remember that, not that long ago, when you wanted to make investments, it wasn't always through your bank; it was somewhat of a separate investment institution. Now, when the two are so uniquely commingled, and you go in and want to sign up for a credit card or do your regular banking.... Mr. Hannah, you said that banks are in the relationship business. You said that several times. I can speak to that. In my community, I know my bankers, people I've dealt with for almost my entire life. When you are in the business of building relationships, you go in and all of sudden...“Hey, I see you have a lot of money in this savings account.” That would be regulated under FCAC, as well as any sales tactics, but if you move this into an investment portfolio that the bank now also manages, it is no longer regulated by the FCAC or its oversight.
It is my understanding that the Canadian Securities Administrators oversees each provincial securities regulator. From doing some research and from media reports, it is my understanding that in 2013 the Canadian Securities Administrators was saying that sales practices around mutual funds were a concern. Spelling “adviser” with an “e” or with an “o” actually makes a great difference to consumers, and we talk about literacy. For me, the missing piece is the fact that banks have completely different financial service packages now than they did when the oversight was first established.
Is there not a large gap, in terms of oversight and regulation, to start bringing some of these provincial and territorial oversight groups together and have the FCAC look at sales techniques within the four walls of the banks, and stop having them all in silos?
:
There is some good news on the education front at the school level. You mentioned not receiving any financial literacy training. Over the past few months there have been some great announcements. Both Ontario and Quebec have announced that financial literacy will be mandatory. That's good news for us.
I should also state that in 2007, when FCAC's consumer education mandate was expanded, it was to look at the financial literacy of young Canadians. As such, we partnered with the Province of British Columbia to develop a youth educational resource called The City, a financial life skills resource, that is being taught throughout the country right now in all provinces at different levels. Some will be compulsory courses; others will be elective. The provinces have really come on board and are developing their own resources as well.
As Lucie mentioned, we work with a number of stakeholders across the country. There are 13 financial literacy networks that represent 532 organizations and work with various audiences, indigenous peoples in Canada, newcomers to Canada, seniors, low-income people, and people living with disabilities. We develop initiatives, workshops, and material and then we disseminate these through the networks.
If I may, I will now turn to Mr. Hannah.
Unlike the NDP members, I have no objection to banks making money. I am a businessman myself. It is inevitable that people in business want to make money in order to reinvest it.
It could be a problem, however, if the banks are too greedy, if they want too much, and go so far as to be willing to falsify signatures. I consider it a serious problem if sales coordinators ask employees to falsify signatures in order to collect fees from clients, since it is obvious that banks make money from fees.
As to your presentation today, as in Mr. Dusseault's case, you do not seem to recognize how serious a problem this is. The investigation will continue; the people who have conducted the investigations thus far will not leave you alone. I expect you do take that seriously.
In Canada, we cannot let the banks ruin everything. You have an impact not only on yourselves as Canadian banks, but on the Canadian banking system as a whole. Personally, I hope your employees take the bull by the horns and make sure this does not happen again. It is unacceptable.
What do you have to say to that?
:
In my view, the direction is the correct one, even the voluntary codes of conduct on interchange for merchants for debit and on mortgage prepayment. I think that's the way to go, rather than legislating everything. I want to ensure that the resources are there to ensure consumers are protected.
I'm going to go to the CBA now. I don't want to let you off the hook, to be frank.
I worked at a financial institution for many years both here in Canada and in the United States. They employ tens of thousands of people, and they do a great job for the most part. Sometimes they don't.
I want to make sure that the sales practices put in place.... There may be some overzealousness. The practices could lead to Canadians being put at risk but also the financial system in certain pockets being put at risk, whether it's forgery or whether it's providing credit—credit cards or any sort of credit, unsecured or secured—to Canadians not able to afford it. For me, that is very important. Because of that and the downturn in the economy, and so forth, the repercussions may be significant.
My comment is that the industry association...working with the schedule I banks, putting in place measures to ensure that what we saw on CBC Marketplace or whatever does not recur.
I think most of the questions that have been asked of our guests.... I have concerns about some of the comments made as part of the questions. Questions have been asked along the lines of these incidents happening. I think we have to be careful, because we haven't heard testimony yet from those directly involved in it. I look forward to that opportunity in our other sessions.
I'm listening to the conversation, and the work that Ms. Tedesco's organization is doing, and I'm wondering if we're adding any value, since they already seem to have been launched into a pretty significant investigation. I guess we'll see some of the other testimony when the banks and the individuals appear before us here.
It seems to me it might be more beneficial to wait until the review is done, because quite honestly, that's exactly what the Financial Consumer Agency of Canada is set up to do. Here we seem to be doing the same thing all over again.
With those couple of comments, I will give my remaining time to my colleague Mr. Albas.
Thank you.
:
Perfect, that's fine. I just wanted to make sure it was included.
My experience as a customer of one of the big banks is that every time I go into different branches, I'm always being told, “Oh, why don't you buy the unlimited thing? What are you going to do with this balance in your account? You should invest it in mutual funds.”
That's all well and good because banks are profit driven. I want to say that we're not picking on the banks here. We're saying that at a certain point they're taking advantage of vulnerable Canadians who do not have the financial literacy to make these decisions.
Banking happens on a weekly basis. Let's say you come from my riding in Brampton East where the classic bank model still exists in which people do their banking in person. Then, TD goes over and above—that's an example of one of the banks—and they hire people who speak fluently in Punjabi and Hindi and Cantonese and Mandarin. They can speak directly to seniors or new immigrants who are working really hard, and they open accounts in these institutions. Because of where they come from, they don't trust that their money is going to be deposited at a machine or by doing it online, so they come and hand over the cash to see it being deposited into their bank. I feel that those are the types of customers who are vulnerable to deceptive sales practices and we need to do a better job of protecting them.
Further, when it comes to protecting consumers, something that I find completely unbelievable is the fact that with advisor spelled with an “o”, and adviser spelled with an “e”, one is a regulated title, and one is an unregulated title, yet banks use them both. If you know about this, why hasn't that been put to a stop right away?
:
That's fine. The only question is whether this was ever flagged.
At a certain point, it's not about the jurisdictional comment, because there is only one taxpayer. Your job is to protect Canadians, at the end of the day.
I'll pass it off to the Canadian Bankers Association. Your members are taking advantage of this glitch. You could pass the buck to me and say that it's not federal jurisdiction, and that's fine. You're well within your legal right to do that.
I totally understand the constitutional argument, but at a certain point, don't you think that substituting an “o” for an “e” to say that a customer service rep can use “financial advisor” as a title because it's unregulated is the definition of deception?