EVIDENCE

[Recorded by Electronic Apparatus]

Wednesday, March 19, 1997

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[English]

The Chairman (Mr. Jim Peterson (Willowdale, Lib.)): Could we come to order? À l'ordre, s'il vous plaît. I'm pleased to open this meeting of the House of Commons finance committee. We're studying the subject matter of Bill C-82, an act to amend certain laws relating to financial institutions.

I apologize to our witnesses today. I understand we will be interrupted by a half-hour bell any time now. Also, we will be subject to the call of a vote or two around 5:30 p.m. What I'm going to suggest that we do is start and get as far as we possibly can, and with your permission we'll go and vote and then come back. We'll shuttle back and forth and I think we have understanding that we can maybe complete our study of this bill by tonight.

Our first witnesses are from the Department of Finance.

[Translation]

Mr. Richard Bélisle (La Prairie, BQ): A point of order, Mr. Chairman. I do not recall the Bloc Québécois giving its consent for this bill to be referred to the Committee for examination. If I recall correctly, the second reading is not yet complete. Is that right? This is not a regular procedure. Have I understood correctly?

The Chairman: No, this is not a regular procedure but, according to the Clerk, we may consider the subject of the bill without considering the actual bill. If you were a philosopher, you would see the distinction. We would not be allowed to adopt amendments or review the bill one article at a time, but we may hear witnesses.

Mr. Richard Bélisle: Mr. Chairman, I think that the Committee did not get the consent of the three parties before proceeding in that way.

The Chairman: If we did not get your consent, it is my fault, and I am sorry. Notice of this meeting was sent last week, I believe.

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Mr. Richard Bélisle: If you allow, I would like to point out that, at present, the Speaker of the House has had a question of privilege submitted to him concerning an identical case, involving bill C-46. You tell me that here we are concerned with principles and that we are hearing witnesses, but it is the philosophy of the bill that is being considered. This case is identical to Bill C-46, which is being given committee consideration even if the second reading in the House is not finished yet.

The Bloc Québécois has some serious misgivings about this irregular procedure. In future, we would like to be able to discuss this with you and representatives of the three parties.

For the time being, we are going to withdraw from today's session, since the matter of C-46 is pending. We prefer to await the Speaker's decision before going any further. I've been told that it will be given on Friday.

The Chairman: Thank you very much. I am going to ask the Clerk to review the situation so that we have a better understanding.

Mr. Richard Bélisle: I am listening.

The Committee Clerk: There are in fact precedents for considering the subject of a bill by some committees. If the Speaker's decision does not allow us to proceed thus in future, naturally the Committee will comply, as will all the other committees. As things stand, a decision has not yet been given and there are some precedents to support the Committee's procedure.

[English]

Mr. Barry Campbell (St. Paul's, Lib.): Mr. Chair, I wonder if the clerk would clarify what Bill C-47 is.

The Clerk: It's a bill that's before the justice committee.

Mr. Barry Campbell: Okay.

Mr. Chairman, in response to the member for the official opposition, as I understand what we're doing this afternoon, we are hearing witnesses on a subject that is within the jurisdiction of the committee. That is the prerogative of a committee.

There is a bill that will in due course, on receiving second reading in the House, come to this committee for study. Of course, we cannot proceed today to clause by clause study of a bill that is not yet before us, but we certainly have it in our power as a committee to discuss matters that are within the purview of this committee. Many of those matters are also the subject of legislation that will in due course find its way to the committee.

The Chairman: Thank you, Mr. Campbell.

[Translation]

Mr. Bellehumeur, please.

Mr. Michel Bellehumeur (Berthier - Montcalm, BQ): I understand that this is your initiative and that your intentions are no doubt good.

However, it is dangerous to proceed like this. There was a precedent during the 35th Parliament. It involved Bill C-47, the subject of which had been referred for examination to the Standing Committee on Justice and Legal Affairs. In that case, however, there was unanimous consent for proceeding as we are today.

In this case, unanimous consent has not been given. Someone can always say that the Committee has the jurisdiction to hear whatever it wants, but the order of the day is quite clear. It says:

Pursuant to Standing Order 108(2), the subject matter of Bill C-82, An act to amend certain laws relating to financial institutions.

The people who will testify are coming to talk about Bill C-82. They are not coming simply to pass the time of day this afternoon. If we continue like this, where will we stop the next time? Are we going to start hearing witnesses once a bill has had its first reading?

At some point, you have to draw the line. It is even a Member of Parliament, fortunately, who raised the question. He asked the Speaker of the House to draw the line, and I was very happy about it. The question had been raised in caucus, but it was decided to let it go since, with regard to C-46, we were part of the unanimous consent. There was a whole series of arguments in favour of passing the bill quickly: women wanted it and so on.

But it is starting over again today with another bill, C-82. Tomorrow, it will be yet another bill and so on. We do not blame the witnesses. On the contrary, I think that the members of the Bloc other than myself have already met them. The Bloc has taken careful note of their points of view on many topics concerning this legislative document. We cannot, however, operate like that, Mr. Chairman.

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The Speaker is considering a request right now. He has been asked to draw the line, to say whether or not what you are doing today is allowed under the Regulations. The decision will also have an effect on other committees. So you will understand why, if you decide to proceed, we cannot stay. «Silence means consent» and we do not consent to your procedure.

We will withdraw and raise the issue in the House, this afternoon if possible, to let the Speaker know once again about our disagreement on this procedure and to ask him to give his decision as soon as possible so that we know.

This is not bad faith on our part, but we want to know where we are headed and where to draw the line in such cases.

The Chairman: I must apologize, but this is the first time I have heard about Bill C-47 and procedures before the Speaker of the House. This is the first time I have heard about your opposition to this procedure.

Had I known ahead of time, I would have notified the witnesses, who have come from far away, to spare them this sort of confrontation. I respect your right to appeal to the Speaker of the House with regard to this committee procedure. I was unaware of the matter, and I am sorry.

Mr. Michel Bellehumeur: Mr. Chairman, we raised this point in the House on March 11, 1997. It is very recent. We realize that the Standing Order is vague in this regard. However, I think that for the sake of democracy, to know where we are going, it is important for the Speaker to decide. I thought that, while awaiting the Speaker's decision, we would have done as with any matter before the court. I am a lawyer and I know that, when a case is pending before the court, there are some things that are not done until a decision is rendered.

The Chairman: I am responsible since I am your servant and the servant of all the members of the Committee. The notice I received said that we were allowed to continue examining not the bill itself, but the subject of the bill. That is the notice I received and that is the reason why I proceeded as I did.

Mr. Michel Bellehumeur: It is a very fine distinction, Mr. Chairman. Look at the documents we have just received. They talk about Bill C-82. We are going to discuss Bill C-82.

The Chairman: I mentioned the distinction between C-82 and the subject of C-82. We can neither move nor adopt any amendments or sections of the bill today. That must wait till Monday afternoon, with your permission, but I would nevertheless like to hear the witnesses.

Mr. Michel Bellehumeur: We are withdrawing, Mr. Chairman.

The Chairman: Thank you very much.

[English]

I have a question for the clerk. It is quite permissible for us to continue on the subject matter of Bill C-82, is it not?

The Clerk: Yes.

The Chairman: Thank you very much. I accept the decision of the clerk.

We're very pleased to have with us officials from the Department of Finance: André Brossard, Frank Swedlove, Bob Hamilton, Annette Gibbons, and Claude Gingras. We thought you might have some brief comments to give us on the subject matter of Bill C-82, after which we could go to questions from members. We would then ask witnesses to come to the table and to join you so that we can continue with your commentary on the subject matter of this bill, not the bill itself.

Mr. Hamilton, welcome.

Mr. Bob Hamilton (Assistant Deputy Minister, Financial Sector Policy Branch, Department of Finance): Thank you very much, Mr. Chairman and members of the committee. It's with pleasure that I appear in front of you again.

In starting off today's session, I didn't plan to say very much. I think this is a subject matter we have discussed in the past. There has been much consultation on many of the issues that are here. I thought I'd just start with a very brief couple of comments to situate the bill that's in front of us.

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On February 14 a press release was issued by the government that did three things. First, it indicated that Bill C-82 would be tabled. Second, it indicated that the government was going to be undertaking a review of the foreign bank entry regime, including putting in place a regime whereby foreign banks could establish direct branches in Canada. That process is not part of what we're discussing today, but part of a consultation process we will be undertaking over the course of the remainder of the year with an eye toward putting legislation in the public by the end of the year. Finally, the press release noted that as an outcome of our discussions with financial institutions about how to improve access to basic financial services and information about service charges, there were some commitments the banks had undertaken to make some improvements in that area. This was the press release that came out on February 14. The key element of that, as I indicated, was Bill C-82, which is currently before Parliament.

Just in talking briefly about that, the bill we're going to discuss today has many important changes for the financial sector. If you put it on a continuum of very technical through to very big policy issues, I'd describe it as being closer to a very technical bill. That's not to diminish the importance of the changes, but I think that's a fair characterization of the types of changes that are included in the bill. They are very important for those involved, but certainly not as sweeping in policy terms as the types of changes that were introduced in the 1992 reforms.

As you know, the government has set up a task force on the future of financial services to go forward and study the proper framework for the financial sector in the future and make recommendations to the government. That's the first step in coming to grips with some of those broader policy issues as we look forward to the 21st century.

Bill C-82 itself focuses in on three main areas, as has been indicated in the past: enhancing consumer protection, easing or streamlining the regulatory burden, and fine-tuning aspects of the financial institution statutes. I won't go through the changes in each of those areas other than to indicate that in the area of consumer protection there are important changes to the privacy provisions, cost of credit disclosure, and changes made in the area of tied selling.

In terms of easing the regulatory burden, there a couple of changes I would point to. There has been some streamlining in the area of foreign bank entry regime. Some things that were put in place to try to make it easier for these institutions to operate within Canada are going forward. And as I mentioned, there will be a further study looking at the foreign bank entry regime more broadly. There is a provision to allow institutions that only take wholesale deposits to opt out of CDIC and there are changes to the subsidiary requirements for financial institutions.

In the area of fine-tuning and updating the financial institution statutes, there are changes made to the corporate governance provisions, including enhancing policy holders' rights, the joint venture provisions and changes that increase access to capital for mutual insurance companies along with, as I mentioned before, many other technical changes.

I think I won't comment more on the provisions in the bill right now. Rather, I think what I'd like to do is open the floor and respond to the questions. My colleagues and I are well equipped to deal with the technical issues that are contained here. We would be happy to respond to any questions.

The Chairman: Thanks very much, Mr. Hamilton.

Mr. Grubel or Mr. Solberg.

Mr. Herb Grubel (Capilano - Howe Sound, Ref.): I have a quick question, Mr. Chairman. Thank you.

It's good to see everyone again from the Department of Finance. I see here that the white paper discusses privacy safeguards in some detail and notes the development of the Canadian Standards Association new model code for the protection of personal information and the effort of financial institutions to address privacy concerns. Now what exactly is the problem this amendment would address?

Mr. Hamilton: Let me start on this, and perhaps my colleagues would want to elaborate on it.

Certainly there have been concerns about the relationship between financial institutions and their clients, that special relationship, and concerns about the information that's provided there and respecting the privacy of this information. In this bill we will be introducing regulations that will require institutions to adopt a code of conduct. I should mention that the institutions had been involved in the CSA exercise, which was a voluntary one, but they have all taken strides to both participate in that exercise and implement the kinds of provisions that were talked about in the exercise.

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We're saying we're going to introduce regulations, as I mentioned, getting them to adopt a code of conduct, to inform customers about how to make complaints, and report annually on those complaints. We encourage the FIs to abide by that standards code.

It's really in response to the special relationship that exists between financial institutions and their customers, and making sure the privacy of the information that is provided is respected. It's not unique to financial institutions by any stretch of the imagination. It's an issue that covers a broad range of the economy. But we did feel that while we wanted to be consistent with what happens on a broader framework, and I know there is work ongoing to try to develop broader-based privacy regulations, we felt it was important to take this initial step now, which we think advances the case but also allows us enough flexibility to make sure we are consistent with those broader regimes, if and when they come into place.

Mr. Herb Grubel: Can you give me an example of what might be involved? If somebody is asked to fill out information about their asset position when they apply for a mortgage, is there a fear this information will be shared when another loan is made, or when a credit card is issued? What is the problem we have to address?

Ms Annette Gibbons (Policy Analyst, Finance Sector Division, Department of Finance): We want to make sure institutions go through the process of identifying how they're going to deal with information and how they're going to collect information, what information they'll collect, who they'll transfer it to, and how long they'll keep that information. We want to put in place regulations requiring them to come up with procedures dealing with those things.

Mr. Herb Grubel: Why is that a problem for consumers?

Ms Gibbons: Consumers have raised concerns that there isn't enough protection of personal information. They want to have more control of how their information is handled by all sorts of institutions and organizations.

Mr. Herb Grubel: That's not the same thing as what you just said. I'm going to ask for a mortgage and the problem is they might ask a credit bureau. According to the amendments, they now have to tell me they're going to a credit bureau to see whether I paid my bills.

Ms Gibbons: The amendments don't get into the specific procedures. They simply say they have to introduce procedures with respect to the collection, retention, use and disclosure of information. We're not planning here to regulate exactly what procedures they have to put in place. We're encouraging them to use the CSA code, but we're not stipulating they have to do a certain thing with respect to the use of information, for example.

Mr. Herb Grubel: I still have a problem with what it is that I, as an applicant for a loan, would be concerned about.

Ms Gibbons: You might be concerned about how much information is asked and whether you're informed of how somebody will get the information about you, if the bank will go to the credit bureau, whatever. We would hope the bank will disclose to the person what kind of information they're going to be collecting, from whom, and how they're going to use it. That's the intention.

Mr. Herb Grubel: You expect that to be then a form of competition, that some might go to the credit bureau and others might not? Some might say they will call up your neighbours, others might not and then you have a form of non-price competition among banks.

Ms Gibbons: I think the financial institutions are quite willing to work on improving their privacy procedures. They realize this is an issue of importance to consumers and they have been quite cooperative.

Mr. Herb Grubel: Are there any procedures along those lines in place right now? What do most banks have?

Ms Gibbons: Yes, there are in procedures in place. Most financial institutions do have codes already. They are working on upgrading those codes in light of the CSA standard, which was finalized last year.

Mr. Herb Grubel: So this is not really necessary.

Ms Gibbons: We're doing more than simply saying you need to have procedures. We're also saying you need to inform your customers about those procedures, that you need to report on complaints -

Mr. Herb Grubel: Okay, I get the idea. We're tying ourselves in knots with laws and regulations that are totally against what I think makes for a good society. It's not a really big issue in the context of how many laws we already have, but is part of that process.

I would like to ask one last question.

The Chairman: Are you a libertarian, Mr. Grubel?

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Mr. Herb Grubel: No, but every year we add I don't know how many hundreds of laws and regulations; it's a foot of space on a shelf and somehow they never get dropped off on the other side. I don't see a great justification for yet another law which is also costly and leads to unnecessary litigation. I mean, it's free competition. If I don't like what one bank is doing now, then I go to another bank. Now it's going to be all uniform by the time you get through and put enough pressures on people. Instead of increasing competition it will decrease competition, the way I see it.

I have just one last question, Mr. Chairman, if you'll allow me.

There were several sections in which it was said that the law now outlaws coercion with respect to tied selling. Is that correct?

Mr. Hamilton: Correct. There's a provision in the law right now that says that in a certain limited case the bank cannot apply pressure. I don't have the exact wording in front of me, but there is a provision in the law right now for 16.5.

Mr. Herb Grubel: The question I have is on something from your press report. It says that financial institutions will be asked to adopt a policy on tied selling and establish procedures for dealing with complaints in this area. If you have outlawed tied selling, why then do you need a financial institution to adopt a policy on it? You already told them they can't have it, so what new policy is then needed?

Mr. Hamilton: The provision that's in the press release you're reading is really intended to respond to a concern that had been raised that there was tied selling going on out there. There is a very narrow provision in the law now, as I indicated, which applies in a certain circumstance.

What has been decided in putting this press release forward on the policy is that the government had enough concern about the fact that there may be tied selling out there to indicate that we would ask the institutions to adopt a policy on tied selling and establish procedures for dealing with complaints in this area. As in the privacy area, if people have complaints about whether it's privacy or tied selling, we want to make sure there's an established procedure for people to complain about that and to have their complaints heard and dealt with. That is in fact what is being referred to in the press release.

There is a subsequent part in Bill C-82, which is a specific provision, a piece of legislation that would not be proclaimed immediately. As indicated in Parliamentary Secretary Barry Campbell's speech the other day, however, it would be proclaimed on September 30, 1998, subject to a review by this committee on what the nature of the problem is, the nature of the steps the institutions are taking to deal with it, and whether that proclamation date indeed should come forward.

There is a piece of legislation that attempts to broaden slightly and try to define what is beneficial tied selling and what is the kind of tied selling that should not be permitted. That would need some further work with regulations because I think it's important to recognize in the area of tied selling. People use that term, but it can mean a number of different things.

In some cases there can be beneficial aspects where one product is linked with another and a discount or a reduced price is offered. There can be other cases where customers are coerced with undue pressure into purchasing one product or another. It's the act of trying to define the differences between those two and separate out what is beneficial and not that we would see as being the subject of the court's review.

Mr. Barry Campbell: I wonder if I could add something just to clarify something.

Mr. Grubel, I think both your questions on privacy and on tied selling and the government's response to both are the best example yet of governments doing something more along the lines of what you're proposing than what governments used to do. We used to sweep in and regulate immediately, in all kinds of detail. In fact, in both these cases you've raised I think you have the best example of a new and helpful approach and one of the private sector working with the government or vice versa to see if codes of conduct and self-regulatory regimes will suffice.

In the privacy area, the institutions have gone a long way in responding to consumers' concerns and government interest in the area on behalf of consumers. We're recognizing that in this legislation. Similarly, in the area of tied selling, we are inviting further study by this committee and are indicating - as the press release does - that the industry is prepared to come forward with guidelines, codes and the like. I think it's the best example of exactly what you were concerned about. It is not government stepping in with excessively onerous, extensive regulations. It's quite the opposite. But I'm prepared to do so if need be.

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Mr. Herb Grubel: I would just suggest that it seems kind of strange to have a law against coercive selling, and to then say we should get the banks to adopt a policy on that subject. You get the banks to specify how they're going to deal with the existence of that prohibition on tied selling by defining it, by giving the banks operational procedures, etc. That would seem logical, but that wording disturbs me.

I have made my point. Thank you very much. I think it's time for someone else to carry the ball.

The Chairman: Is it your point that this is like passing a law against sin before you have the Ten Commandments?

Mr. Herb Grubel: Before you have defined them.

The Chairman: Understood.

Are there any other questions? Mr. Solberg.

Mr. Monte Solberg (Medicine Hat, Ref.): I have a brief question for Mr. Hamilton - or anyone else. I'm curious to know if there are other jurisdictions - for instance, the United States - that have laws with respect to coercive selling. Are you familiar with that?

Mr. Hamilton: Yes, there are other versions. There are different rules in the United States. Perhaps I'll ask Mr. Swedlove to respond to that.

Mr. Monte Solberg: I guess I'm just curious as to what the experience is, and whether or not it leads to lawsuits and that sort of thing.

Mr. Frank Swedlove (Director, Financial Sector Division, Department of Finance): Yes, there is a law on the books in the United States with respect to banks and tied selling. I believe the law goes back to the early 1970s, and it tends to be a general ban, with some exceptions that are specified. Through administrative interpretations, and I think even some court rulings, some of the outright ban aspects of the legislation have been whittled away over time. It's something that's under active review. And as recently as a few months ago I believe they've even had some changes with respect to the provision.

Mr. Monte Solberg: Are there situations in which...? I'm curious to know what the effect has been with respect to consumers. Does this prohibit the banks from offering people a good deal if those banks want to sell those people whatever brokerage services, along with a mortgage? What has been the reaction from the consumer?

Mr. Swedlove: One of the reasons there have been administrative statements about opening it up from the overall ban is the desire to provide opportunities for tying two products together and providing discounts for those products.

Mr. Monte Solberg: So they're going the other way at this point.

Mr. Swedlove: They started with an outright ban, and then whittled away towards increasing the opportunities for institutions to provide breaks to consumers.

Mr. Monte Solberg: Okay, thank you.

The Chairman: Ms Brushett.

Mrs. Diane Brushett (Cumberland - Colchester, Lib.): Thank you, Mr. Chairman.

I have two points. I would like you to clarify for the committee exactly how this legislation will help lower-income neighbourhoods or lower-income families to have access to banking services more readily. Is there a clause in here that will govern this? Is there a clause that will assist those people who have great difficulty and go to great expense at the present time to even cash a government cheque, let alone a personal cheque? Does it cover that?

Mr. Hamilton: No, it's not in the legislation. I would point you towards the press release, in which key elements were the consultations and efforts we had undertaken with the institutions to address those issues.

Maybe I could ask Miss Gibbons to basically run through some of the provisions that were in the press release identifying some of the actions the institutions will be undertaking.

Ms Gibbons: The banks have committed to change their identification policies. They have committed to only requiring two pieces of ID from somebody who is opening an account or cashing a cheque, as opposed to requiring the three pieces that were the standard at many banks in the past. They have also committed to taking a sponsorship, a sort of reference of confirmation from somebody who is known to the branch, as proof of the identity of a customer. You may want to raise this with the banks in order to get more details on that. They have made commitments to ensuring that employment is not a condition of getting a bank account, nor is a minimum deposit to be required. They have committed to ensuring that their staff at the branch level are fully informed of these policies and are prepared to implement them. So they have made a number of commitments to ensuring that access is improved, and the response of consumer groups has been relatively positive on this.

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I would also note that the bill contains amendments to cost of credit disclosure, which is of benefit to all consumers, of course, including low-income consumers. We will improve the information that is to be disclosed when somebody is getting credit.

Mrs. Diane Brushett: Will this be monitored on the goodwill of the banks and the consumer associations?

Ms Gibbons: On the cost of borrowing, of course the consumer can make complaints to the Office of the Superintendent of Financial Institutions with respect to any deviation from the legislation in that area. We'll be watching to see if the problem continues in the area of access, or if there are improvements. We're sure the consumers will be monitoring and will inform us as well.

Mrs. Diane Brushett: My other point concerns the CDIC. We have the foreign banks and near banks in Canada opting out of the CDIC, and I have read a lot in the press recently about how our own domestic banks would like to opt out of CDIC. Is there going to be more pressure on them? Without sponsorship, regulation or governance by the CDIC, do they feel they can cover their risks or their securities should problems occur ? They're arguing that it's a bottom line thing and that they'd like to save those dollars and put them into other services, and so on. They're saying they really don't need CDIC any more. How do you answer that?

Mr. Hamilton: It's important to remember that the provisions that allow for opting out of CDIC will only be available to banks that are engaged in wholesale activities, not retail ones. In that context, I think the importance of CDIC has diminished to the point at which the government feels comfortable that these corporate lending activities do not need to be subject to either the fees of CDIC, the standards reporting, or any of the other administrative issues that come along with being a CDIC member.

So opting out does not apply to institutions that are involved in retail activities, but solely wholesale ones, and there are a host of rules that go along with that.

Mrs. Diane Brushett: Do you think that's sufficient to dismiss the arguments of the big five, for example?

Mr. Hamilton: Yes, if I understood your question correctly, although perhaps I misinterpreted it. I think it's important to understand that it is available only to institutions that are doing wholesale activity.

Mrs. Diane Brushett: Thank you.

The Chairman: Mr. St. Denis.

Mr. Brent St. Denis (Algoma, Lib.): Thank you, Mr. Chairman.

My question is related to Mrs. Brushett's questions on the opt-out option for wholesale banks - foreign banks, obviously. I understand they can accept small deposits as long as those deposits don't comprise more than 1% of the total. Is that right?

Mr. Swedlove: That's right.

Mr. Brent St. Denis: Let's say I had $100,000 in one of these foreign banks, and that $100,00 within the bank was within that 1%. Does that foreign bank self-insure? Do I have any protection at all, or does the bank disclose to me that it has opted out and that I have no protection at all for that $100,000 that I have on deposit? Might it be that for some foreign banks I would sometimes be protected, while at other foreign banks I would not be? How much flexibility do they have in providing some form of self-insurance or no insurance, and what disclosures would they be required to make in either case?

Mr. Hamilton: I know Mr. Swedlove would probably like to elaborate on this, but I think it's important to note that they would have to disclose to the customers that, yes, their institution has opted out of CDIC. The customer would have to be informed that the institution has opted out.

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In terms of the more detailed rules, I'll just let Frank take the floor.

Mr. Swedlove: The intent of the 1% de minimis clause is to recognize that from time to time, if you are an institution that has deposits that are over $150,000, those deposits will slip below $150,000. There has to be some ability in the system to recognize that deposits will fluctuate over time.

But the intent is very much that these are institutions that are not in the retail deposit business, so they will not be out seeking retail deposits. This is only for those deposits that are initially over the $150,000 level that decline over time to a number less than $150,000. They have to stay less than1% of the total value of the deposit, and that's calculated on a daily basis.

Mr. Brent St. Denis: Thank you.

The Chairman: Mr. Solberg.

Mr. Monte Solberg: Thank you, Mr. Chairman.

I want to go back to the issue of tied selling one more time. Under Bill C-82, the government would have the power to determine what the term ``coercion'' means. We're asking the banks and financial institutions to adopt a policy on tied selling and establish procedures for dealing with complaints in this area, according to the press release.

So shouldn't the onus be on the government to define ahead of time precisely what ``coercion'' is so that everybody's protected, including the banks, financial institutions and the consumers? So far I'm not aware of a definition like that.

Mr. Hamilton: You're absolutely right that it's a difficult area to draw a borderline in, as we talked about earlier, in terms of what is permissible, what is coercion and what is not. There is a phrase in the legislation now, but there's also a regulation-making power.

As I indicated, the legislation will not be proclaimed until at least September 30, 1998. Through the course of the review that would have to be overtaken over the next year, we must try to define what is good and bad in this area and how we can come up with rules and regulations, if that's deemed to be the appropriate way, to try to define what kinds of thing should not be allowed in this area and, on the other hand, what kinds of things should be allowed.

I'm not disputing the point that it's a complex area to try to make rules in, but before the legislation is proclaimed one would certainly want to be comfortable and have a good sense as to exactly how those provisions would apply.

Mr. Monte Solberg: Yes, I think that would be extremely important, and I guess I would say it's important enough that we shouldn't just leave it to the regulations. It would be nice if there were a full and frank debate on it ahead of time, because it strikes me that you're blindfolding people and herding them toward the cliff, and if they take one step too far, too bad. But they have no way of knowing where the cliff edge is. This concerns me. At this point, nobody really knows what ``coercion'' means and yet we're having a discussion about it.

Mr. Hamilton: Yes. My hope is that before that provision gets proclaimed there will have been a good discussion -

Mr. Monte Solberg: But we're having everyone here in the next day. It would be good to talk about it and have the definition while we have everyone here so we can all have a discussion about this point.

The Chairman: Did you want to add to that, Mr. Campbell?

Mr. Barry Campbell: I do. It's somewhat ironic, Mr. Chairman, for Mr. Solberg to be concerned about a more precise definition when the proposed section contains provisions which, while they may not define what it is, suggest what it is not. And those are the very same sections that his colleagues have indicated they want removed from the section. So I don't know if it's very clear where his party is coming from on this issue. But I wanted to clarify that -

The Chairman: Now, Barry, be nice.

Mr. Barry Campbell: - coming back to his first point, and try to be perhaps more helpful than I was in the last few moments.

Mr. Monte Solberg: Thank you.

Mr. Barry Campbell: We had a very interesting discussion at this committee during our review of the white paper on the topic of tied selling and practices south of the border. If Mr. Solberg and others want to refer back to the discussion at the table at that time, it was pointed out that the Competition Act does deal with tied selling, as do anti-trust statutes in the United States.

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But it was pointed out - I believe by a member of your party, perhaps Mr. Grubel - that wasn't it also true that U.S. banking statutes contain specific prohibitions, because for some reason it was perceived there was a need to have those specific provisions? A discussion ensued, which said yes, that is the case. I think, Mr. Chairman, we took a position as a committee that this was something the government should consider, and indeed the legislation is a result of that.

I would only add, as Mr. Swedlove has, that notwithstanding outright prohibitions in some banking statutes, financial institution statutes in the United States, there are indications in those statutes and in regulations under those statutes of specifically prohibited behaviour and specifically exempted behaviour as a result of experience in the United States.

I think I have that material available, or Mr. Swedlove does, of those sections of the U.S. acts, which you might want to look at. It might be instructive when we get into a more detailed debate on this whole issue, as I believe we will over the next year.

The Chairman: My understanding, Mr. Solberg - and correct me if I'm wrong,Mr. Hamilton - is we don't know whether there is a problem for sure, and if there is a problem, we don't know what the solutions are. That's why we're giving ourselves some time, starting with the committee investigation of this matter, in public, sometime down the road.

Is that a fair statement, Mr. Hamilton, of...?

Mr. Hamilton: I think that's broadly fair.

The Chairman: But we welcome your suggestions.

Mr. Monte Solberg: Okay.

The Chairman: Are there any more questions from members?

We have to be over in the House to vote at about 4:40. I'm going to suggest that we start hearings and go as far as we can. I'll have our other witnesses come to the table now. We have eight witnesses with us, and we could start the discussions.

Of course we're in your hands. If you feel it would be profitable to wait until we come back after the vote... But I understand we'll be interrupted again. The House is not in our control right now. I think there are a lot of procedural motions being worked on - witness what we've seen here.

I know a lot of you witnesses have come here and have other plans for tomorrow, and I'd like to try to finish this off tonight, with your permission. So why don't we proceed as quickly as we can and get as far as we can in every little opportunity available to us.

Thanks to our officials. Will you be good enough to stay with us? Thank you.

Our next witnesses are: from the Canadian Real Estate Association, Pierre Beauchamp; from the Canadian Bankers Association, Ray Protti and Alan Young; from the Insurance Bureau of Canada, Mark Yakabuski; from the Insurance Brokers Association of Canada, Rod Jones and Joanne Brown; from the Credit Union Central of Canada, Bill Knight; from the Independent Investment Dealers, Robert Schultz, who is the chairman and CEO of Midland Walwyn Capital, Lorie Waisberg of Goodman Phillips, and Peter Bailey of Gordon Capital; from the Canadian Life and Health Insurance Association, Mark Daniels and Frank Zinatelli; and from the Canadian Bank Ombudsman, Michael Lauber.

Do we have enough room at the table for the witnesses? Mr. Grubel and Mr. Solberg, maybe you could move up to the official opposition.

Mr. Monte Solberg: Absolutely.

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The Chairman: Your leader probably wouldn't want that to happen, but...

Could witnesses give me some idea of how long they would like their comments to be? Is there anybody who needs more than five minutes? Good. Thank you very much, then.

We'll start with Pierre Beauchamp from the Canadian Real Estate Association.

Mr. Pierre Beauchamp (Chief Executive Officer, Canadian Real Estate Association): Thank you very much, Mr. Chairman.

As you said, I represent 69,000 realtors, members of the Canadian Real Estate Association.

We're here today to speak about the rights of consumers to prepay their mortgages. I spoke to you about this subject last September, Mr. Chairman, so in the interest of time I'm not going to go through a detailed presentation in this particular case today, especially with the time constraints.

I'll remind you, though, that our members are very heavily involved with housing transactions in Canada. They work very closely with consumers in the field of mortgage financing. They are in a position to know if consumers have problems with mortgage financing.

On that particular point, Mr. Chairman, we disagree with our friends from the Canadian Bankers Association who say they get few complaints about problems of prepaying a mortgage. They conclude, as a result, that there isn't a problem. Yet our members have just voted this the top federal issue for the third straight year.

Every year about this time we ask our representatives of 115 member real estate boards in Canada to tell us which of the current issues they consider more important to discuss with their MPs here in Ottawa. This issue is right at the top, and has been for three consecutive years.

In September we argued for a legislated right to prepay a mortgage and a legislated standardized penalty for prepaying. Frankly, we've been disappointed at the response to the case we have put forward, disappointed by the banks' failure to respond to our proposal that would have protected both the lender and the consumer, disappointed that this committee chose to drop the key issue of a consumer right to prepay, and disappointed, Mr. Chairman, that the government didn't even mention this issue in the material it released in its legislative proposals on February 14.

Having said that, we're pleased to see that this committee at least recognized the problem, recognized that the current situation can result in confusion and hardship for the consumer. We're here to appeal to you today, and through you to the government, to see that the legislation before you today results in the best possible disclosure of terms.

It is our understanding that the government may use legislation to draw up regulations that would require a mortgage lender to disclose clearly in the mortgage document whether a mortgage may be prepaid, and if the mortgage is prepayable, disclose the formula for prepayment.

In our view, it will be necessary to ensure that the disclosure information is in clear, everyday language, prominently displayed in the mortgage document. Even more important will be the need to spell out the cost to the consumer in terms that may be easily grasped by the consumer. A simple requirement to disclose a formula could well be meaningless to the consumer. Therefore, the cost to the consumer must be spelled out.

If the government ensures that disclosure is clear and prominent, if the information states whether a mortgage is prepayable as well as the cost for prepaying it, in our opinion that will represent a significant improvement over the status quo. We urge the committee to ensure that the legislation empowers the government, through regulation, to improve the disclosure requirements in the manner I have just described.

But the power will be hollow unless the government has the will to follow through with regulations that have teeth in them. We have yet to hear any commitment to this action by any minister in the government. In fact, to this day the government has been absolutely silent on the issues discussed under the heading ``Right to Prepay Mortgages'' on page 18 of the discussion paper issued last June. Why is that? What has happened since the government undertook to move forcefully to protect the interests of consumers in their dealings with financial institutions?

Let us not forget, Mr. Chairman, that for most consumers a mortgage is by far the single biggest issue in their dealings with financial institutions.

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I will close with an example of our frustration in dealing with this issue. Your report of October 31, 1996, stated that the banks told you a legislated right to prepay a mortgage would make it more difficult for them to match assets against mortgage liabilities in a prudent fashion, but they never said why.

We contend that the degree to which lenders match loans against deposits is irrelevant. We contend that this is a smokescreen that may only serve to cloud discussion on the real issue. By raising the matching question, the banks ignore the central point of our paper - namely, that the formula we are proposing as a prepayment penalty is designed for full compensation to the lender, whatever the terms to the mortgage and the financing of the mortgage-lending capital.

I'm taking this opportunity to put our side of this issue on public record, Mr. Chairman, as we believe that public policy benefits most when issues and ideas are fully exposed and debated. We believe we produced a valid study that was never addressed adequately.

The government has chosen to deal with the matter without amending the Interest Act. That leaves us with a hopelessly outdated piece of legislation. Current legislation actually gives consumers the right to prepay mortgages of five years or more but denies the right to prepay mortgages of less than five years. We believe that sooner or later the government is going to have to bring the act into the 21st century.

Mr. Chairman, thank you for inviting us to appear before this committee today.

The Chairman: Thank you very much, Mr. Beauchamp.

I suspect you're the only one who's going to be raising this particular issue. Maybe it would be useful to deal with this issue at this time rather than waiting until we hear the rest of the witnesses.

Would you like to respond to that in any way, Mr. Protti?

Mr. Ray Protti (President and Chief Executive Officer, Canadian Bankers Association): Thank you very much, Mr. Chairman. I wouldn't mind making a couple of comments.

I found the remarks very interesting, and obviously I want to have a look at them and analyse them. I'd like to get back to you and your colleagues in writing, and of course Mr. Beauchamp as well, and discuss with him.

If I understood Mr. Beauchamp correctly, he's heartened by the disclosure requirements, and so am I. We're in favour of having as simple and clear language on disclosure in mortgage documents as we possibly can. We think where there's a right to prepay, it should be spelled out very clearly so that the consumer understands that right is there.

Secondly, we should make an effort to explain what is the maximum amount the individual might have to pay if they prepay their mortgage. You can give them a maximum, but then that maximum is going to vary, of course, depending on the term and the mortgage document itself.

If I've understood Mr. Beauchamp correctly on those points, then it sounds to me like we agree. We certainly agree on the benefits to the consumer on the clarity of the disclosures in the documents themselves.

I'm not sure I understood fully the point on the matching of assets and liabilities, and I'll have to look at his written remarks. But obviously if you're paying depositors 4% and lending it out at 2%, you have a problem. That's why we're concerned about how we match up our assets and our liabilities.

The Chairman: Mr. Swedlove, on the issue of disclosure, have you had discussions with CREA and other people, or would there be an opportunity for discussions to work out the exact terms of disclosure?

Mr. Swedlove: Yes, Mr. Chairman, there will be. Bill C-82 provides the authority for the government to make regulations with respect to disclosure on mortgages. It is our intention to prepare those as quickly as we can, in consultation with CREA and the financial sector.

The Chairman: Would you be good enough to work with our officials, Mr. Beauchamp, to help?

Mr. Beauchamp: Indeed we would be happy to do that, Mr. Chairman. Thank you very much.

Again, the point of emphasis of our presentation today is that we hope that the regulations, which up to now have not been clarified and we certainly have not had any commitment on the part of the government on the direction they are going to take, ensure that there is clear-cut disclosure in the mortgage document whether or not the mortgage can be prepaid, and then the formula that is going to lead to prepayment, as well as the cost. That in a nutshell is basically what we are leading to.

The Chairman: If you'd be good enough to work with our officials -

Mr. Beauchamp: We certainly will.

The Chairman: I'm sure you won't have problems. We'll look forward to that constructive relationship.

Mr. Beauchamp: Thank you very much.

The Chairman: It's good to have you here, Werner.

Mr. Werner Schmidt (Okanagan Centre, Ref.): I'm sorry I'm late, Mr. Chairman, but I couldn't get here any faster. The plane wouldn't fly any faster.

The Chairman: Why not?

Mr. Werner Schmidt: I don't know; you'll have to ask Canadian Airlines.

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With regard to this particular point, Mr. Chairman, I'd like to ask the departmental officials to clarify, if they would, proposed subsection 542.12(2), on page 176 of Bill C-82. There's an exception here, in which case something does not apply.

If we read the section, it goes - and I believe we're dealing here with the mutual insurance company, demutualization, and so on:

542.12(1) A society shall not make a loan to a natural person if the loan would be repayable in Canada and the terms would prohibit prepayment of the money advanced or any instalment of that money before its due date.

(2) Subsection (1) does not apply in the respect of a loan

(a) that is secured by a mortgage on real property.

Does that mean that in fact a mortgage may be issued that is not prepayable? I think that's exactly what it means.

The Chairman: I never thought of that issue.

Mr. Werner Schmidt: I think it's a very significant point, that it is possible to issue a mortgage that is not prepayable. Is that correct?

Ms Gibbons: Technically speaking, yes.

Mr. Werner Schmidt: So the answer is yes, that is correct.

Ms Gibbons: Yes.

Mr. Werner Schmidt: In other words, then, the amendment to this act allows companies to issue mortgages that cannot be prepaid.

Ms Gibbons: No.

Mr. Werner Schmidt: Mr. Chairman, I think that's terrible.

Ms Gibbons: No. The amendment doesn't change the exclusion of mortgages from the right to prepay. All we have changed there is the dollar limit with respect to -

Mr. Werner Schmidt: No, I'm sorry, Mr. Chairman. I beg to differ, because the word after proposed paragraph 542.12(2)(a) is ``or'', not ``and''. If that word were ``and'', then that's correct, but the word is ``or''.

Ms Gibbons: That's right, but proposed paragraph 542.12(2)(a) was always there; proposed paragraph 542.12(2)(a) is in the legislation right now.

Mr. Werner Schmidt: Then the current legislation is bad too.

The Chairman: This is a fascinating discussion. I would suggest that we go and vote, otherwise we'll be late. We'll be back as quickly as possible.

I would recommend, Mr. Schmidt, that you stay here and work out the details with the officials. I'll vote for you.

Mr. Werner Schmidt: Yeah, right.

The Chairman: The committee is adjourned very briefly, for as short a time as possible.

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The Chairman: I don't know how long we'll be going. Werner and Herb, we have seven more witnesses. They've indicated to us that they would take five minutes maximum each, which is 35 minutes. I'm just trying to give witnesses some idea of when they might expect to leave here. It will depend on the number of questions from members. I don't want to hamstring people, because we don't know how it will evolve, but if we thought we were going to be here past 7:30, I could order food in.

Mr. Werner Schmidt: Mr. Chairman, my position is quite simple. I have a student coming in for the Canadian forum, right next door. I'll leave for about five to ten minutes and then I will be back.

The Chairman: Are you going to have dinner while we're working here?

Mr. Werner Schmidt: No.

The Chairman: I know that all the witnesses are not here right now, but I'm going to suggest that we come to order and hear those witnesses who are here. Would that be acceptable to the witnesses?

Perhaps we could start with you, Mr. Daniels. Thank you very much. Welcome.

Mr. Mark R. Daniels (President, Canadian Life and Health Insurance Association): Thank you, Mr. Chairman. My colleague with me is Frank Zinatelli, the associate general counsel of the CLHIA.

Mr Chairman, I will indeed keep my comments to five minutes.

To begin, most of the committee is aware that our industry is extremely supportive of the government's initiative to complete passage of Bill C-82 in a timely manner. The bill represents a welcomed fine-tuning of the major legislative amendments introduced in 1992. Prompt passage of the bill will ensure the legislative stability and continuity that are so important in the financial services sector.

Keeping in mind the industry's broad support for this bill, there are just three points I'd like to bring to the attention of the committee today. Mr. Chairman, I sent you a letter this morning detailing those points, and copies are available for the committee.

The first point deals with the fact that the legislation currently prohibits transfers of Canadian policies from a federally regulated company to a provincially regulated company. Bill C-82 does not remove this prohibition. Under provincial legislation, no similar restriction exists on transfers from a provincially regulated to a federally regulated company. This creates an inequitable situation,Mr. Chairman. It places provincially regulated companies that are precluded from bidding on blocks of business at a competitive disadvantage, simply because they are not federally chartered.

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We would like to recommend, Mr. Chairman, that Bill C-82 be amended to allow transfer of Canadian policies from federally regulated companies to provincially regulated companies - with, of course, the approval of the minister.

Our second point, Mr. Chairman, is that Bill C-82 proposes significant alterations to the proxy solicitation regimes for participating policy holders.

Following the 1992 reforms, insurers put in place complex information systems to communicate with policy holders on various matters, including proxies. These systems have to be designed to accommodate in some instances - and this is important, Mr. Chairman - over one million policy holders, geographically dispersed around the world.

It will take some time to redesign those systems to comply with the new regime proposed in Bill C-82. We're therefore asking, Mr. Chairman, that the provisions implementing the new notice and proxy regimes simply be delayed until July 1, 1998.

Finally, under the proposed new proxy solicitation regime, proxies would now have to be mailed to policy holders for each meeting, along with a notice of meeting. Since the notice of meeting may not be mailed more than 50 days before the meeting, the proxies also cannot be sent more than 50 days prior to the meeting.

For companies with a significant number of international policy holders, a 50-day time limit on sending and receiving proxies around the globe poses a significant logistical obstacle. We're simply asking that there be an increase in the time period to 75 days for policy holders, which would allow them more time to consider and return their proxies.

In addition to these points, we've also identified a number of technical or drafting issues, which are set out in the annex to our letter and which I do not propose to discuss at this time.

In conclusion, Mr. Chairman, again, the industry broadly supports Bill C-82 and is willing to assist in whatever way it can in assuring its timely passage. We'd be pleased to answer any questions.

The Chairman: Thank you very much, Mr. Daniels.

Have finance officials had a chance to study these suggestions?

Mr. Swedlove: We're certainly aware of them.

The Chairman: Do you want to comment on them now?

Mr. Swedlove: Thank you, Mr. Chairman.

With respect to the block of business, as Mr. Daniels has noted, that is not a change from the previous legislation. We have not changed it in any way. I would ask Mr. Gingras if he could provide a short explanation of some of the concerns about changing the provision.

Mr. Claude Gingras (Special Adviser, Finance Sector Division, Department of Finance): The concern here, Mr. Chairman, is that there is no mechanism whereby a block of business could be transferred from one company to the other, relieving the first company from responsibility.

The attitude of the government is that as long as the first company transferring the block of business will remain liable on the policies, the desire is that the block be transferred to another company where the superintendent will have the information flowing from the two companies, not only at the time of transfer but thereafter if something goes wrong.

The Chairman: Mr. Daniels.

Mr. Daniels: Mr. Chairman, the point here simply is that there's a fair bit of rationalization going on in the industry right now. Bits of business are bought and sold and transferred. It's always done with the minister's approval.

We have the peculiar situation here that we simply won't allow such a transfer between a federally regulated and a provincially regulated company, and again, I have to stress, with ministerial approval.

We have the odd situation that a company could come from abroad, get a federal charter and take a transfer of a block of business, where we won't even allow the similar block to be transferred to an established provincially chartered company. It doesn't make a lot of sense.

There are lots of procedures that could be set in place here, and we would certainly see that ministerial approval would stay part of it. It is a restriction that strikes us as being peculiar, and it gets in the way of, as I say, the orderly rationalization of the business. Frankly, there are some practical consequences of that. It doesn't seem to us that it in any way - and I mean in any way - threatens the safety or security of policy holders.

Mr. Gingras: I would just add to these points that the foreign company that would come to Canada and do business would be supervised by the superintendent, so it would be transfers in between two supervised companies. It doesn't create a problem.

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On the ways and means in which the transfer can be done, it can still be done by the consent of the policy holders. We are dealing with contracts that the individuals entered into with a company. Therefore the company says to that individual: ``You are now dealing with another company''. The policy holder can always consent, and that type of transfer would be allowed.

On the question of safety, I can only mention that if the transfer is made to a company that is not supervised by the federal authorities and that company ends up in difficulty and the superintendent has no knowledge of that, then there could be a number of claims coming back to the federal company that has transferred those policies, without any assets to pay the claims, and that company could be in trouble. So these are the concerns we have.

The Chairman: On the issue of proxy solicitation regime, delaying that until July 1998 -

Mr. Swedlove: Mr. Chairman, we'd be pleased to consider any representations by the industry with respect to what time is necessary in order to meet any sort of transitional issues.

It should be recognized that when one talks about July 1, 1998, it would be for the meetings that would take place in 1999. The effect of the changes in the legislation would not take place until the annual general meetings of 1999.

The Chairman: We can probably find ways to accommodate their concerns about the technical aspects of it.

Mr. Swedlove: We'd be pleased to have further discussions on that with them.

The Chairman: Okay, so it looks as if we can solve two out of three of your problems immediately. There's a difference of opinion on the first one. We will not be able to decide anything today, anyway. Is this something that could be part of ongoing discussions with officials for the next two weeks with the view to ensuring the safety and security of policy holders and allowing some flexibility to industry?

Mr. Daniels: Mr. Chairman, frankly, I've said all I can. On the fact that a transfer could be made and the minister would have to approve such a transfer, we really are not talking about transferring policies to the moon. We're transferring them to a bona fide insurance company that happens to be working with another regulator. It's not that these people don't talk.

Mr. Frank Zinatelli (Associate General Counsel, Canadian Life and Health Insurance Association): Mr. Chairman, although it would not be the same regulator that would be supervising the transferred policies, it would be another regulator from one of the provinces. Of course the minister would have the option or would look at who that regulator would be to determine whether it was appropriate under the circumstances.

The Chairman: Are there questions from any members?

Thank you very much, Mr. Daniels and Mr. Zinatelli.

We'll go back to you, Mr. Protti and Mr. Young.

Mr. Protti: Thank you very much, sir.

We have provided a written submission to all the members of the committee in both official languages. But in the interest of time, let me confine my remarks, if I might, to three issues: clause 55 of the bill, on tied selling; clauses 79 through 84, on non-bank affiliates of foreign banks; and clause 43, permitting institutions to opt out of the Canada Deposit Insurance Corporation legislation.

With respect to tied selling, Mr. Chairman, we recognize that the government has a very legitimate interest in protecting the interests of consumers, and we very much share that interest. Consumer protection, for us in the banking industry, is one of our most significant and serious issues. We can't, nor would we want to, do anything that would in any way jeopardize our relationships with our customers.

We believe we have a very good track record on self-regulation concerning tied selling. We believe that our self-regulatory consumer protection regime, including a bank's internal ombudsman and the Canadian banking ombudsman, who's here with us today, can effectively address consumer concerns that might arise, at no cost to the consumer.

Accordingly, we are of the view that the provision in clause 55 that introduces a tied-selling clause is unnecessary. We view it as a solution in search of a problem. We note that the government in its statement accompanying the legislation indicated that it was asking all financial institutions to adopt voluntarily a policy on tied selling and establish procedures for dealing with complaints in this area. That's precisely what we'd like to have - nothing more, nothing less.

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Having said that, we recognize that this issue has been the subject of extensive debate in the committee, and we know the government itself has reviewed the issue. Should the committee determine that a statutory provision is required, we'd like to table a proposal with you for an alternative to what's in clause 55. We propose an amendment to provide a self-regulatory regime that is similar, essentially identical in concept, to the privacy provisions found in clause 55 of the bill.

I was very much encouraged by what I heard Mr. Hamilton say in his introductory comments about the great similarity between the privacy and tied selling issues. Indeed, what we're saying is if you feel that you have to have a statutory approach to it, why not do for tied selling what you've done for privacy?

Privacy is an area of consumer protection regarding which the government has permitted the financial services industry to self-regulate, provided certain standards are met. We think it's equally appropriate to deal with tied selling in the same fashion.

As one final comment on tied selling, we very strongly feel that if there are going to be any tied selling provisions included in the bill, they should apply to all federally regulated financial institutions. Indeed, this is entirely in keeping with this committee's own recommendation to the government in its October 31, 1996 report.

It's also, I might say, Mr. Chairman, in keeping with a number of clear precedents where the federal government has established consumer protection measures in non-bank financial institutions legislation. I won't go through them because we don't have too much time in this presentation, but they are in our written submission.

I would now turn to the issue of non-bank affiliates of foreign banks. Clauses 79 through 84 amend the regime for non-bank affiliates of foreign banks. These amendments reflect policy decisions first made in November 1995 that permit a foreign bank regulated as a bank in its home jurisdiction to enter our marketplace as a non-bank affiliate through section 521. These non-bank affiliates are regulated by confidential undertakings with the Office of the Superintendent of Financial Institutions. Previously, these foreign banks had to enter by way of a schedule II foreign bank subsidiary and be subject to all of the requirements set out in the Bank Act.

The government has announced its intention, which we support, to introduce a foreign bank branching regime, but it raises the following interesting question about the non-bank affiliate regime. Will regulated foreign banks seeking to establish a non-bank affiliate between now and the date on which the foreign bank branching legislation comes into force be required to undertake that they will convert to a regulated branch operation once the branching regime is in place? We're not sure what the answer is.

As to why is that question is important -

The Chairman: Can I interrupt?

Maybe we could respond to that quickly, Mr. Swedlove.

Mr. Swedlove: There is no intention that I'm aware of to require that we seek undertakings from any foreign bank wishing to establish under section 521 to become a branch when the branching legislation is brought in.

Mr. Protti: I think I heard him say there will be no requirement.

Mr. Swedlove: That's right. To elaborate, the intention is for us to consider over the next nine to ten months how best to deal with the foreign bank entry question. The intention will be to require institutions to establish in some form or other that will be determined at that time.

I'm not sure why one would seek undertakings from institutions to establish as branches if the regime, for example, would permit them to continue to operate as section 521s. If the decision is taken at that time that they must operate as branches, then undertaking is irrelevant, because what would be required would be for them to turn into a branch in order to comply with the new legislation. So I'm not sure what an undertaking provides you.

The Chairman: Is this an issue of major concern right now, or is it just to make sure that we don't do anything that will jeopardize the regime when we implement the foreign bank rules?

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Mr. Protti: May I just offer two more paragraphs of explanation on why this is an issue of significant concern for the existing schedule II foreign banks already present in Canada?

Between now and the date on which the branching regime comes into place, foreign banks that are not now in Canada may want to enter under the non-bank affiliate rules, rather than wait until the foreign bank branching regime is in place. This is on the assumption that what they're going to get in their undertakings can reasonably be expected to be much less than what they will face under a more regulated regime.

So they're going to get in, and get grandfathered. Then when the branching regime comes into place. The schedule II banks that are here now will face a regime that is more onerous under the branching regime than the regime these non-bank affiliates of other foreign banks got when they came to Canada.

We're suggesting that you and your colleagues and the department have a hard look at whether or not an appropriate transitional regime should be put in place to cover the date between now and the date on which the foreign bank branching regime comes into place.

You may want to consider requiring foreign bank applicants seeking to establish these non-bank affiliates to undertake to convert their non-bank affiliates to branches once the regime is in place. Otherwise, the playing field among foreign banks in Canada may not be level at all. That's the issue.

The Chairman: Do you have a problem with that, Frank?

Mr. Swedlove: I'm still a little confused as to why one would seek an undertaking in this regard.

I don't want to be in a position of prejudging what the government will recommended to Parliament in terms of the new foreign bank entry regime. The government may choose to recommend that the existing avenue noted by Mr. Protti with respect to section 521 remain in place.

Now, that may be attractive to some institutions, but it may not be attractive to others. I mean, section 521 companies now will not be in a position to seek any kinds of deposits, not even wholesale deposits. They are not in position to call themselves a bank, to use the term ``bank'' in Canada, and there are some costs associated with that. That may be attractive to some institutions, but not attractive to others.

That's what the existing regime says, and I wouldn't want to prejudge what the future regime would say.

The Chairman: It was my understanding, Mr. Protti, from talking to Fred Buhler... Maybe I'm wrong, but this is an issue we don't have to resolve immediately. Even if we're going to pass the bill today, it's something we could put off until we deal with the foreign entry regime.

Mr. Protti: The problem is that now that the regime under which the government will operate during the transition period has been enunciated in a policy statement, they can be expected to receive applications from foreign banks currently not operating in Canada.

So the issue -

The Chairman: Thousands of them.

Mr. Protti: Yes. The issue will be, what are you going to do with those?

Let me just give you a specific example. Let's say you have American bank A that's already here operating under the subsidiary requirements. It has to wait. It wants to branch. It will wait, and has to wait, until the taxation and capital adequacy and the regulatory regime for foreign bank branching is put in place and passed by Parliament.

Meanwhile, American bank B, which is currently not operating in Canada, says ``I'd like to get in. I can get in under the non-bank affiliate regime, and I won't have to worry about the branching regime.''

The question will be, can you negotiate instead of undertaking under the interim regime before branching comes in that is more favourable than what you would face if you were a branch? If the answer to that question is, yes, then you don't have a level playing field among the foreign banks in the country. That's the concern the schedule II banks have.

Mr. Swedlove: Bank B that would come into Canada will be under the 521 provisions. First of all, they are restricted in terms of the kinds of activities they can carry out in Canada. That's outlined in the press release of February 14. Second, as they are entering, we are making it very clear to these companies that their situation may change once the government recommends to Parliament what the regime should be for foreign bank entry into Canada. So they are being put on notice somewhat that the regime under which they are now entering may change in the very new future. So they are getting fair warning in terms of the possibility of change.

The Chairman: Mr. Schmidt.

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Mr. Werner Schmidt: Thank you, Mr. Chairman.

It seems to me that the obvious question is what assurance is there in the proposed legislation that there will be a level playing field. I think that's the issue here. Surely we can give them that kind of assurance, Mr. Chairman.

The whole business of the financial sector... If it's going to be stable, competitive and secure, there has to be some assurance that there will be a level playing field, that the parties will have equal access to things. I think that's the issue here. Can't we give that assurance?

Mr. Swedlove: Yes, Mr. Chairman, there's no question that this is a key element of the review on the foreign bank country policy, that it is a level playing field, not only for all foreign banks, but with respect to domestic and foreign banks.

Mr. Werner Schmidt: And I think the question Mr. Protti has asked is exactly the same question I had, too. At least the potential exists for two different levels of entry into the Canadian banking system for a foreign bank. I think that seems to be the issue here.

Even at this point, if they come in perhaps under one level, later on that playing field will be level, and there will be no advantage given to those who have got in in the interstitial period.

Is that not correct, Mr. Chairman? Did I hear this correctly?

The Chairman: Mr. Protti.

Mr. Protti: We wanted to raise that one. Can I raise the last one, Mr. Chairman?

The Chairman: Sure, okay. I was going to suggest something. I know other witnesses here want to deal with the tied selling issue, so we won't discuss that until all witnesses here have had a chance to talk about it.

Are any other witnesses dealing with this particular foreign bank issue? No, I don't think so.

Yes, Mr. Protti.

Mr. Protti: If I may do this very quickly, the last one is the CDIC opt-out issue. The bill as written provides for certain deposit-taking institutions to opt out of the Canada Deposit Insurance Corporation.

Our concern with section 43 of the bill is the prohibition on an institution that opts out from CDIC from being affiliated with a CDIC member. We oppose this restriction, Mr. Chairman, and we would recommend to your committee that you amend this section to permit affiliation.

Now, why is this? Well, our concern over the prohibition of an affiliation rests with the banks' ability to conduct both wholesale and retail operations. In the written submission I provided illustrations of the results of a non-affiliation prohibition.

The effect of the prohibition is twofold. First, any CDIC-insured institution conducting both retail and wholesale operations may not be able to compete effectively on price against a CDIC-exempt institution, because its wholesale deposits would still have to be CDIC-insured. Second, the prohibition also has implications for the foreign bank branching regime. A foreign bank that wishes to carry on wholesale banking business through a branch and retail activities through a schedule II subsidiary would be unable to have its wholesale branch operations exempt from the CDIC.

So this would deny our schedule II banks flexibility if they might wish to take advantage of the branching option.

That's it for my comments, Mr. Chairman.

The Chairman: Are any other witnesses dealing with that particular issue? Do you want to comment on the CDIC opt-out, Mr. Swedlove?

Mr. Swedlove: Mr. Chairman, our objective in introducing the CDIC opt-out concept was to reduce regulatory burden for financial institutions, for banks that were not in the business of taking retail deposits. So that was the intention. We didn't really see this as a vehicle to deal with institutions that generally took retail deposits.

The situation where banks can be involved in a retail deposit activity and have a separate company involved in a wholesale deposit operation raises a number of interesting prudential issues. This has a far greater implication than our original intent to reduce regulatory burden. So that's why we haven't proceeded at this time.

With respect to the effect this may have on a branching regime, we recognize that a number of foreign institutions would like to operate both a branch and a subsidiary operation in Canada. We're looking at that issue as part of the work on the new foreign branching regime that will come out later this year.

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The Chairman: Mr. Protti, do you have any comments on that?

Mr. Protti: No. This is an issue that will require some further discussion, as you'll see when you have a chance to look at our submission. Again, this is an issue where we're giving certain institutions a leg up on other institutions. That's the particular problem.

The Chairman: Was this issue raised on a previous occasion with the department?

Mr. Protti: Yes, it has been.

The Chairman: Okay. So it has been the subject of ongoing discussion. That's one other issue we haven't resolved around the table yet. We thought you people would agree on everything so that we politicians wouldn't have to rule for or against. Thanks a lot.

Is there anything else, Mr. Protti?

Mr. Protti: That's it, Mr. Chairman. Thank you very much.

The Chairman: Thank you very much.

From the Insurance Bureau of Canada, Mark Yakabuski.

Mr. Mark Yakabuski (Director, Government Relations, Insurance Bureau of Canada): Thank you very much, Mr. Chairman.

I'll be one of those who'll go on record as saying that we heartily support Bill C-82 and want to make your job as carefree and easy as possible.

The Chairman: Thanks. Next.

Some hon. members: Oh, oh!

Mr. Yakabuski: There you go.

We, as you know, speak for the private property and casualty insurance companies in Canada that employ over 100,000 Canadians in communities across Canada, and which last year paid some $13 billion in claims to insurance consumers for loss or damage to their automobiles, their homes, their businesses or to rehabilitate injured accident victims.

Mr. Chairman, it is our strong desire that this committee complete its study and that Parliament pass this legislation as soon as possible. Bill C-82 is in keeping with the commitment made by the government in last year's white paper to restrict the 1997 financial institutions review to fine-tuning the existing legislation while making a limited number of modest policy changes.

We endorse this approach entirely, and we are pleased with the changes brought forward in Bill C-82. Passing the legislation, including the new sunset clause set for March 31, 2002, will create legislative stability for all financial institutions and allow companies to do what they do best, which is to better address consumer needs.

Mr. Chairman, I have no hesitation in saying that the passage of this bill will be good for all Canadians. If there is an area where the committee has already chosen to exert its influence and to make Bill C-82 a better piece of legislation, it is with respect to the tied-selling provisions that have already been talked about under section 459.1 of the Bank Act.

Our view, and we will go on record as saying so because we have already said this to the department and to others, is that we believe that proposed subsections 2 and 3 of that tied-selling clause have been worded too broadly and may in fact permit the bundling of certain bank products along with other financial services, which may not always be beneficial to consumers.

We are very pleased, therefore, that the government, after receiving representations from members of this committee and from industry groups, has announced that it will be referring the issue of tied selling to this committee for further study, and that subject to the committee's recommendations the proposed tied-selling provisions will not be proclaimed until September 30 next year.

IBC congratulates all of those involved in taking a closer look at section 459.1. I want at this time to particularly salute the efforts of the member for Okanagan Centre in this respect. I also want to thank you, Mr. Chairman, for your efforts in coordinating discussions of this topic with the Department of Finance.

We look forward to working with you and the members of this committee in studying the tied-selling issue. But we believe it is best to get on with passing this bill and dealing with the tied-selling issue in this committee and subsequently through regulation. Improvements of this kind will only strengthen what is already an excellent piece of legislation.

From our perspective in the property and casualty insurance industry, I want to highlight particularly some amendments that we believe are particularly solicited by this industry and are included in the bill. For example, Bill C-82 narrows the definition of who is a related party and clarifies the duties of the conduct review committee in reviewing related party transactions.

The current definition, under the current regime of ``related party'', is so broad that in the case of an insurance company with international affiliations there are literally hundreds of related parties, most of whom have absolutely no dealings with the Canadian insurer. The narrowing of the definition of ``related party'' in Bill C-82 is a very practical change that will allow both insurers and OSFI to concentrate on situations where there is at least a possibility of a related party transaction.

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Equally in this respect, Mr. Chairman, we welcome the clarifications of the duties and obligations of a conduct review committee. Rather than reviewing each and every related party transaction, Bill C-82 now clarifies that the role of the committee is not to review each and every transaction but to require that the company management establish proper procedures for reviewing related party transactions. The committee is also to review these procedures, of course. In our view, these amendments are appropriate and clarify the duties of the conduct review committee in relation to those of a company's management.

We also want to applaud, because this is something we fought for over some period of time, the amendment in Bill C-82 that will allow for a written resolution of the board of directors in lieu of a meeting. Directors are busy people, as we all are, and this provision, which is already included in the Canada Business Corporations Act, is a well-appreciated addition to the financial institutions legislation.

In the area of demutualization, we welcome the new authority given to cabinet to make regulations under which either the Minister of Finance or the Superintendent of Financial Institutions may exempt a company that is demutualizing from the provisions of the act or its regulations. Once again, we think this is a very practical change that will allow greater stability in our financial institutions, particularly as it applies to mutual companies that wish to demutualize.

However, the June 1996 white paper indicated that the immediate focus of the Department of Finance would be to draft regulations for mutual life insurance companies - mutual life insurance companies, I stress - which are, of course, very numerous in Canada. However, it must be remembered that there are also some property and casualty mutual insurance companies and we are concerned that regulations that are drafted for life mutuals, as well as they may be drafted, may not be appropriate for P & C mutuals. We have, therefore, written to the Department of Finance indicating that we are looking forward to working with them in drafting regulations that are particularly suited to our companies.

Bill C-82, as you know, contains amendments to the regulation authority of the cabinet regarding collection, retention, use and disclosure of customer information. IBC has consistently recognized the importance of protecting the privacy of personal financial information and was an active participant in developing the CSA model privacy code released in March of last year. Since the release of the CSA model code, IBC has proceeded to revise its own model personal information code. And just recently our code was approved by Quality Management Institute, a division of CSA, as complying with the CSA model code.

I am immensely proud today, Mr. Chairman, to say that we are the first financial group in Canada, indeed the first industry group of any kind, to have its privacy code approved by a division of the CSA itself as being in conformity with the CSA code. Obviously this is an issue we take seriously. That is why we also want to take this opportunity to strongly encourage the government to use the CSA code as a model for any regulatory or legislative steps taken to protect personal information.

IBC has always recognized how important it is for the federal government to consult with the provinces on this issue in order to avoid jurisdictional disputes, and we are pleased to hear that a joint federal-provincial consultation paper on privacy legislation will likely be released shortly. Our concern is that any federal-provincial efforts in this domain be based on the CSA code and not launch off into another direction, unexplored, after all of the work that has gone into crafting the CSA model privacy code.

In summary, Mr. Chairman, we encourage you and your committee to complete your study of Bill C-82 as soon as possible. All of us in the property and casualty insurance industry are grateful for the work of your committee over the past two years in carrying out the 1997 review of financial institutions legislation.

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We would also like to recognize the strong leadership shown in this respect by the Minister of Finance himself. And I want to express our sincere gratitude to the Secretary of State, to his officials, and to the officials of the Department of Finance for their very fine work in this process.

[Translation]

Thank you very much.

[English]

The Chairman: That was four minutes and 52 seconds. Thank you very much, Mark. There is one issue still outstanding, then, I take it, the tied-selling issue, and we'll come back to that. Thank you very much.

The next witnesses are from IBAC, Rod Jones and Ms Brown.

Ms Joanne C. Brown (Executive Director, Insurance Brokers Association of Canada): Mr. Chairman, committee members, on behalf of the Insurance Brokers Association of Canada we are pleased to have this opportunity to share our views regarding Bill C-82. While we support the bill, we do have a couple of concerns we'd like to bring to the committee's attention.

As provincially regulated property and casualty insurance intermediaries, our concerns are sharply focused so we will limit our comments to two proposed amendments that are cause for concern. After assessing the proposed changes carefully, IBAC's financial institutions committee offers the following comments for your consideration.

First, while we have been assured by Finance Canada officials that the purpose of the amendments to paragraphs 410.3(a) and (b) of the Bank Act are to impose restrictions on banks' broad powers of providing financial planning services, IBAC is concerned that the proposed changes would challenge provincial jurisdiction over financial planning.

By equating financial planning to the business of banking, as a proposed amendment to section 410 implies, a financial institution could challenge provincial authority, claiming that the business of banking is the exclusive jurisdiction of the federal government. Such a challenge, if successful, would enable the banks to do federally what they are prohibited from doing provincially. We ask members of this committee to review this amendment to determine whether its wording can be modified so that any challenge to provincial jurisdiction is eliminated.

The Chairman: Do you want to deal with that, Mr. Swedlove, now?

Mr. Swedlove: Thank you, Mr. Chairman.

The financial planning provision is not a change from the 1992 legislation. Since 1992, all federal financial institutions have had the power to carry out financial planning activity. The provision in question provides regulation-making authority in several areas, and those areas have been expanded to include some new areas. But the ability to make regulations with respect to financial planning had always been there. So there's no change in substance whatsoever with respect to financial planning from the 1992 legislation.

The Chairman: Do you want to respond to that, Ms Brown? We're not making any changes here, so is it of major concern to you that we address it at this time?

Ms Brown: These are issues we'll deal with through the provincial governments.

The Chairman: Is it a major concern that the committees address that particular issue?

Ms Brown: At this particular time, no. We wanted to point it out. We'll deal with it at the provincial level.

The Chairman: Okay, thanks.

Ms Brown: Secondly, while it is our understanding that the finance committee is expected to study this matter further, we would like to state our concerns regarding paragraph 459.1(1) that says explicitly, and I quote, ``A bank shall not impose undue pressure on or coerce a person to obtain a product or service...''. Paragraph (2) and (3) appear to rebut this by drawing a distinction between unfavourable tied selling and favourable tied selling. There is a risk that these interpretive amendments in paragraphs (2) and (3) will limit the regulation-making power of the Bank Act, namely in paragraph 459.1(5). In our view, paragraphs (2) and (3) should be deleted so that any chance of misinterpretations can be reduced.

Once again, we want to express that we are pleased that a further discussion of this issue will be undertaken by this committee. Having stated our two concerns, it is our hope that Bill C-82 will be enacted as soon as possible.

Thank you.

The Chairman: Thank you very much, Ms Brown. We'll come back to the tied-selling issue later.

From the Independent Investment Dealers, Robert Schultz.

Mr. Robert Schultz (Chairman and Chief Executive Officer, Independent Investment Dealers): Thank you, Mr. Chairman. I'm here on behalf of the Independent Investment Dealers, who have made submissions here in the past, and to the department.

We do not have a prepared statement. We understood this to be a round-table session. However, I do have a few brief comments.

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We are very pleased that the government has announced its intention to proclaim proposed subsection 459.1(1) of Bill C-82 on September 30, 1998. As Mr. Campbell stated in the house on Monday, the bill includes an amendment to the Bank Act to prohibit coercive tied selling. He went on to say, ``We intend to bring it into force on September 30, 1998.'' Certainly if this not the case, we would appreciate being advised of that at this time.

We think this statement constitutes positive, tangible action on the part of the government that will be a benefit to consumers. What really matters here is sending a signal. We believe that the banks will comply with the law once it is put into effect. We would thus be very surprised were any prosecutions to arise. As a result, we believe that the true effectiveness of this legislation will arise in the complaints that do not materialize, rather than those that do.

That's our position. Thank you.

The Chairman: Thanks very much, Mr. Schultz.

Lastly, we will hear from Bill Knight, of the Credit Union Central of Canada.

Mr. Bill Knight (President and Chief Executive Officer, Credit Union Central of Canada): Thank you, Mr. Chairman.

Our issues with the bill, Mr. Chairman, may be somewhat different from those of the other financial institutions. You'll recall that in the initial papers leading up to the introduction of Bill C-82, we were in the position where in fact some jurisdiction over our provincial centrals might have moved provincially, not in the federal realm. We presented papers to the finance department and to the committees involved about re-establishing federal authority as it related to our centrals.

You should be aware that Canadian Central is directly under this act, as are provincial centrals. However, we also are covered by provincial legislation, which handles our business powers.

At this time of night, Mr. Chairman, I won't get into any of that. I'll just get into three specific areas of this bill I'd like to touch upon.

First, I will mention our appreciation for being sustained at the central level under federal jurisdiction.

Second, there has been some movement to allow for some flexibility on the part of our centrals in the area of joint ventures, particularly related to joint ventures in non-core financial activity. That allows us to work together to bring synergies and cost savings to the central level on what in the industry I guess we'd call ``back office operations''. We hope the task force that's been established will look at the capacity to do further joint ventures in the area of some of our core services.

Third, we are also appreciative of the fact... We had raised the issue of the ability of provincial centrals to deliver retail financial services. After much discussion, the legislation, from our vantage point, has been improved to allow us to provide a wider variety of wholesale financial services. Again, that's appreciated by all the centrals involved.

In summary, we want to thank this committee, the committee of the other house, OSFI, and the Department of Finance for working so closely with Canadian Central and with my colleagues in the provincial centrals to bring about these changes that mean we support this legislation. We support seeing it go through as quickly as possible. It gives us the basis of knowing the rules as we venture into this period where we're going to have a task force looking at all aspects of financial institutions. We'll be participating very fully in that.

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I appreciate your standpoint from the parliamentary side of wishing that you didn't have to deal with the tough issues. But I suspect that on the tied-selling issue versus cross-selling in an age when financial institutions of all kinds, deposit-taking or non-deposit-taking, are under such pressure to offer a range of services, as you seek definition and you look to proclaim proposed section 459.1 on September 30, we think the test is whether or not the individual, or in our case our members, is under any duress in terms of any product.

We look forward to the next few years to see if the proof is in the pudding in terms of what the reaction of customers, members and consumers will be as to whether or not what's proposed here meets concerns and just how much concern there is out there. It'll be interesting to see how it unfolds.

The Chairman: Thank you very much, Mr. Knight. Thank you, witnesses.

It's certainly in the hands of members, but where I see it in terms of the issue of tied selling is that five witnesses have raised it. Mr. Yakabuski said that proposed subsections 459.1(2) and (3) are too broad. Ms Brown is concerned about those same proposed subsections perhaps permitting activity that would be wrong. Mr. Knight was being agnostic, and admitting that we don't know what the hell we're doing, and you're probably right, this is a bit of unfinished business. We haveMr. Schultz being gratified by the statement that seemingly there will be legislation in place maybe by September 30, 1998, banning tied selling, and Mr. Protti asking why it should apply just to banks and not to all financial institutions and preferring a regime of self-regulation.

Mr. Schmidt, I know that you've had some very serious concerns about this issue. Did you want to lead off?

Mr. Werner Schmidt: I have some very major concerns with regard to this area,Mr. Chairman. It has to do with the issue of providing a level playing field in an area where we seem to have, I think, oligopoly at work, at least as far as the banking community is concerned. This particular community enjoys a very strong and stable history, and it has done an excellent job in developing the financial sector in Canada. But I think, Mr. Chairman it has also done a couple of other things. It has now got to the point where the four pillars of financial institutions have disappeared. We no longer have a clear distinction between the insurance pillar, the investment dealers pillar, or securities dealers, if you will, and the insurance companies as an area and the banks on the other hand.

Mr. Chairman, it seems to me that when those four pillars were eliminated with the amendments in 1992, we in effect gave to the banks the privilege, opportunity and power to buy insurance companies, investment dealers, and trust companies - and I guess that's the one I missed the first time around. So that now a bank may own, in fact, what were before separate and distinct pillars of financial activities.

I think what proposed subsections 459.1(2) and (3) as they are phrased allow the banking community to do is that on the condition of providing a loan to an individual, they may offer preferred rates on products or services that the bank might otherwise provide or that a particular person might provide. That particular person may be a subsidiary of a bank, or another bank - it probably wouldn't be another bank, but it could be done this way. It's this preferential treatment on a condition established ahead of time that is permitted under proposed subsections 459.1(2) and (3). If you read them, and I would like to read them to make sure that everybody knows exactly what my concerns are in this regard, proposed subsection 459.1(1) states that:

A bank shall not impose undue pressure on, or coerce, a person to obtain a product or service from a particular person, including the bank and any of its affiliates, as a condition for obtaining a loan from the bank.

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Mr. Chairman, that is a good paragraph. That, in my opinion, is excellent. I really commend the people who wrote that. But now comes proposed subsection 459.1(2) and -

The Chairman: The body who wrote it -

Voices: Oh, oh!

Mr. Werner Schmidt: Okay. Now who wrote the second one?

Voices: Oh, oh!

Mr. Werner Schmidt: Would the author of the second one please stand?

It's the second subsection that begins to create the problem with regard to the phrase ``for greater certainty''. Now it's interesting, with the phrase ``shall not impose undue pressure'' in proposed subsection 459.1(1). Proposed subsection 459.1(2) states:

For greater certainty, a bank may offer to make a loan to a person on more favourable terms or conditions than the bank would otherwise offer to a borrower, where the more favourable terms and conditions are offered on the condition that the person obtain another product or service from any particular person.

It's this pre-determined condition of permission to grant preferential rates that is at issue here. And why is it at issue? Because I have great difficulty trying to figure out that it's not some kind of pressure when somebody who is in financial duress is being offered a new rate or a better rate if he would only bring all his company RRSPs, all his personal RRSPs, all his mortgages and everything to this one financial institution so that he gets the preferred rate on the figure. I think that is pressure. Whether it is undue pressure or not becomes a matter of judgment.

Mr. Chairman, when the government writes into legislation that on the condition of bringing all your business under one umbrella you will get a preferred rate, that is giving to one sector of our financial economy a power they should not have. I think it is unfair to other people who want to compete.

Now there are those who would argue and say ``Mr. Schmidt, we're not going to do anything like that. We've been doing those kinds of packages for years.'' And they have.

So now the question becomes, have those kinds of packages ever been ``undue pressure''? Have those ever been almost coercive? The answer is yes. They have been. And individuals have interpreted them that way. And some people have actually almost lost their businesses because they in fact put all their business under one particular umbrella of one institution, because it is so easy, then, you see.

For example, when a bank, which it may now, has a life insurance company, may own the life insurance company, and even may own a health and life insurance company, and discovers that one of its clients has just had a whole series of health claims, the bank may say, ``Whoa! This guy's not in very good health, but he also has a $100,000 loan from us. Whoops!'' It's just one example.

The other one is... But you know we are going to be very fair. This is all a matter of competition. Of course it's matter of competition. But, Mr. Chairman, something else happens here. We've all seen various people do loss-leaders. It's done in a variety of areas, and that's fine as long as you have many competitors. But when there are few competitors, a loss-leader becomes something that attracts people to a particular business, and when that happens, the individual is then almost in a position where he cannot choose. And then the prices can go up, especially if you've done it at the expense of other insurance companies or other trust companies that no longer can compete and maintain your business.

If the market share goes so much to the one group, the others are annihilated, and at that point the person who is buying those services is at the mercy of that particular individual. That oligopoly - which is found not only here, but in other parts of the world - does not promote competition.

The third point I want to make with regard to this has to do with the matter of power. We've already indicated that this really is a business of power and has not very much to do with anything else - although it does. But the big issue is power. And I'm not concerned about the banks making big money. A lot of people are. I think everybody should make as much money as they can. The issue, however, becomes one of power and undue influence. That becomes the issue. And I don't think we can suggest to anyone, including banks, that power does not corrupt. It does. And I think we should take steps to prevent this from happening at any time.

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So while I agree with proposed subsection 459.1(1), I believe that proposed subsection 459.1(3) is a mirror image of proposed subsection 459.1(2), only this time it involves services on the condition of taking a loan, and that's why proposed subsections 459.1(2) and (3), in my opinion, are bad legislation.

The Chairman: Thank you, Mr. Schmidt.

Are there any comments? Mr. Protti.

Mr. Protti: I'd like to make some comments. There's quite a lengthy list of issues that have been raised. Mr. Schmidt, I'd like to talk to you -

Mr. Werner Schmidt: Do you want more?

Mr. Protti: - away from the table on a variety of them.

I would like to register two or three things. First of all, I had no hand at all in the drafting, just so the record is clear - none whatsoever. It must be Mr. Swedlove's fine hand there.

I'd like to touch briefly on three issues.

First, our privacy codes do not permit the sharing of information on health issues across subsidiaries. It doesn't happen.

On two issues that you do raise, oligolopy powers and concentration, I am really hoping that the task force on the future of the financial services sector, when it decides what it's going to do with its mandate, has a look at this issue. It is crying out for an objective, non-partisan piece of analysis as to the nature and type of concentration that exists. The government seems to be satisfied on this score, because it said so in its white paper last June.

I've looked at some data. Everybody looks at some data, but let me just give you a little bit of data. In 1870, was there concentration? You'd better believe there was concentration. In 1870 Canada's banks had 80% of the domestic assets in this country. By the end of the Second World War it was down to 58%. By 1994, the latest year for which we have aggregate statistics, it was down to 45%. And you'll be delighted to know, Mr. Schmidt, it's plummeting like a stone.

You also have to look at this issue from the perspective of what's happening in selected markets. Are we big in residential mortgages? Yes. We have 49% of the market, not 80%, 90%, 75% or 60%, but 49% of the market. With regard to personal deposits, we have 60%, and of mutual funds we have 26% of the market.

How does that rank relative to some others? My good colleague here, Mr. Daniels, has four life insurers that control 52% of life insurance assets.

We can throw numbers around like this, but it will be so good, Mr. Chairman, if the task force decides to have an objective look at the issue of concentration. Then when we're back in this room, we'll all have a hopefully non-partisan, unbiased piece of analysis to look at.

With regard to the second issue, Mr. Schmidt, I agree completely with you that the four pillars have disintegrated beyond recognition. They've disintegrated, though, from your perspective in such a fashion that it has all been to the benefit of Canada's banks and as a consequence we have been buying up insurance and trust companies and creating securities dealerships. We have been doing some of those things.

But let me describe some other situations that are currently in place in this country. You have a mutual insurance company that owns a schedule II domestic bank and a very significant block of a mutual fund company, an insurance company with a trust company subsidiary, an insurance company with a mutual fund affiliate, a trust company with mutual fund operations and a mutual fund management company with a trust company subsidiary.

Mr. Knight, as a particularly aggressive member of what is just a credit union, has just created a virtual bank that's advertising aggressively for deposits right across this country -

The Chairman: Shame, shame.

Mr. Knight: I'll try to get them to stop. I'll try to cut it to a minimum.

Some hon. members: Oh, oh!

Mr. Protti: We're about to get a Dutch-based financial conglomerate, which gets most of its proceeds from the insurance business and which is two and a half times the largest size domestic bank, in here with a trust company.

So I agree with the honourable member that boy, things have changed. Have they ever. The four pillars are gone, and what you see across this table is increasingly a financial institution without distinction.

This is for the next round some day, but really what we need is one financial institutions act covering all of us. I'll leave that one on the table.

And I think my colleague -

Mr. Knight: Mr. Chairman, the committee will never be out of work.

The Chairman: Good thinking.

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Mr. Alan Young (Vice-President, Policy, Canadian Bankers Association): Excuse me,Mr. Chairman, but there's one issue we wanted to raise in reagrd to Mr. Schmidt's comments with respect to proposed subsections 459.1(2) and 459.1(3).

Those proposed subsections are there to indicate that consumers can actually benefit from a bundling of products with a loan. It's surprising to me that it would be unfavourable to have a provision like that in the bill. That provision would demonstrate that customers can, in fact, benefit by having more than one product made available to them.

The Chairman: Mr. Schmidt.

Mr. Werner Schmidt: Mr. Chairman, I can't let that one go by, because that's going to be exactly the case. It's going to happen right off the top. I would guarantee that too, and if I were a banker, I'd make sure it happened. There would be absolutely no doubt. That would be the case to get the thing going, and when I had enough of the market share, I'd make jolly good and sure that I raised the prices so that benefit would no longer be there. And that has happened more than once,Mr. Chairman.

I will not accept that argument, because it doesn't wash. It will wash at the beginning, but it will not wash over time.

Mr. Young: That's assuming, I suppose, that the banking industry will get bigger and bigger rather than -

Mr. Werner Schmidt: And it will.

Mr. Young: - as Mr. Protti has indicated -

Mr. Werner Schmidt: With this kind of legislation, it can't help but get bigger. That's the problem.

Mr. Young: As we have indicated, our share of domestic assets is actually dropping. The number of new competitors is increasing.

Mr. Werner Schmidt: That's good.

Mr. Young: This government is proposing to introduce foreign bank branching to introduce greater competition.

The Chairman: Thank you.

Mrs. Brushett, do you want to intervene right now?

Mrs. Dianne Brushett: No, I can wait.

The Chairman: It's up to you.

Mr. Yakabuski, then Mr. Schultz, and then Ms Brown.

Mr. Yakabuski: In regard to the tied-selling issue with respect to proposed subsections 459.1(2) and 459.1(3), as we've said, we're happy with the compromise that has been made. The government has announced that it will not proclaim anything until September of next year. And this committee will be charged with the task of looking at this issue in detail.

With respect to those proposed subsections, it seems perfectly absurd to us that the government would decide to put into law definitions regarding some things that might be good for consumers and some things that might not be good for consumers when everyone knows that is not an exhaustive list.

That's precisely why you have proposed subsection 459.1(5), which gives the government - the Governor in Council - the ability to make regulations determining exactly what is and is not beneficial for consumers.

We recognize that some bundling of products can be good for consumers, but why would you want to restrict that regulation-making power now? It's appropriate for this committee look into it in detail, and when we have that debate, let's have it out in full rather than having a whole a bunch of avenues closed off because some people may have drafted the legislation in a particular way.

That's why we like the compromise and we'd like to see it go forward.

The Chairman: Mr. Schultz.

Mr. Schultz: I just want to say that in expressing our favourable response to the tied-selling provisions, we certainly feel that certain things in subsections 459.1(2) and 459.1(3) are vague and have to be looked at.

It's fine to consider this over time, but we certainly don't think this should go on beyond the date set, September 30, 1998. It should be put into place by that time, with whatever definitions are needed.

I have a couple of other comments on Mr. Schmidt's comments and Mr. Protti's comments. When we first came up here to comment on this issue, at the department I did say that supposedly the four pillars have fallen, and Mr. Protti has indicated a number of examples. I think it's quite clear that the four pillars have fallen, and not in all directions. That probably would be the best way to express it. He gave some examples of percentages of business. He forgot to mention the investment dealer community, where the banks in 1988 had 0% of the business. Today they have well over 80% of the business and as we saw last fall, it appears that they haven't stopped there. I just wanted to make that comment because he did cite those things. I don't know how relevant it is.

He also made the point about tied selling and how the legislation only applies to banks. He thought it should apply to all financial institutions or more... And hopefully I don't get chagrin from my colleagues, but certainly I have to say that's one thing I do agree with him on. I wish we had some things we could tied-sell.

Voices: Oh, oh!

Mr. Schultz: He also talked about self-regulation and therefore there being no need to pass certain provisions, as they have a good record on self-regulation. I'm sure they do.

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I think our industry has a tremendous record on self-regulation also, but I don't know that it means I can go to the provincial securities commissions to say they shouldn't pass any more securities laws as a result. So I'm not quite sure what the linkage is there, but those are my comments on this.

The Chairman: Thank you, Mr. Schultz. Ms Brown.

Ms Brown: There are other angles to tied selling that I think we overlooked. They're not just simple ones. We can tell you that favourable tied-selling clauses that are in proposed subsections 451.1(2) and 451.1(3) will be unenforceable. And the supervision of this activity will be almost impossible because we go through this ourselves now with tied selling that's illegal.

There are other things to look at with respect to the supervision of this activity. It's almost impossible if we take a tied product, insure it, and attach it to a loan. It's never marketed as a single-priced unit. If the bank or general insurance company does not publish its rates for homeowners insurance, for example, how does a consumer know that they've gotten a good deal by this tied product?

That's an issue we have to really look at as well. It is felt that this can be considered an anti-coercion provision, and that it is mere window dressing. If financial institutions are not compelled to disclose the rates and if they are allowed to retail a tied product that they do not currently retail as a separate unit and that has no pricing as a separate unit, this does create a problem.

The Chairman: Are there any comments? Mrs. Brushett, please.

Mrs. Dianne Brushett: Saying that packaging and bundling everything in one package means that legislation is probably drafted the way it is so you can just wipe your customer out in one fell swoop. Then you can have your bankruptcies just increased that much higher. That's some of the thinking along that line.

In all seriousness, when we look at tied selling and bundling and the commodities that are out there in the marketplace at the present time - there will be increased products in future - it seems to me that it's like groping with a phantom. How can you define it? Maybe it will get caught up in the legislation, because they will be an impossibility.

I've talked to so many customers who curse the banks up and down. They say they have been coerced, but when I ask them to put it on paper, I can't get it. So what is coercion? How far does it go? Is it a fact, or is it because they are high risk? I don't know how to define it. I don't know how to get real facts on that. So when you start trying to put any of these things in legislation, we're just creating, in my view, a lot of cumbersome activity that goes nowhere fast.

As a side note, as governments get their deficits, their financial house, in order, then the banks have got to find new customers, obviously. A lot of them will start paying a lot closer attention to small business.

So it therefore will generate a whole new thrust again out into the marketplace as to where they get their share of the financial activity that's going on in this country or elsewhere. I think we're groping here with something that's very much bigger than just some clear definitions, as some people have asked for.

We can define it, but it's not very realistic, unless there's something that's beyond. The competition becomes so much greater in all sectors of the economy. It's not just the banking and financial sectors, but all sectors. Competition is so severe.

So it becomes a thing that is very much more complex than just this issue here today.

Mr. Schultz: As for part of Mrs. Brushett's comments, we did provide some clear examples of tied selling and coercion to the Senate banking committee. The Globe and Mail reported on those situations, so there is documented evidence of it.

I know what you're saying when you say that people talk about it. It's difficult getting it on paper, but we did get some on paper. These are a matter of record.

Mr. Protti: Just on that point, the replies of the banks that were named in those cases are also a matter of record. There are no instances of tied selling that I'm aware of in those three examples.

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Coming back to the larger question that was raised by the honourable member, I very much agree with the honourable member. This is an area of enormous complexity. The one thing that we will all agree on, I think, is that we don't want to do anything in this area that will in any way impede the choices available to consumers to negotiate the very best deal they can with their financial services provider. That's the ball on which we all have to keep our eyes. We ought not to do anything here that will impede that choice, restrict the opportunities to put together a package for the consumer that suits that particular consumer's needs.

On the issue of coercion - and I noticed that the Canadian bank ombudsman has just joined our table - I wanted to make the point that we are the only set of financial institutions with as an elaborate alternative dispute resolution and complaint handling mechanism in the financial services industry. Each of the chartered banks has an elaborate internal ombudsman process and there's a second round of appeal to a Canadian national bank ombudsman. These are effective vehicles for the management of consumer complaints, including ones of tied selling. The Canadian bank ombudsman's mandate was explicitly expanded on March 1 this year to deal with any issues, consumer complaint or cause associated with retail operations, including tied selling.

The Chairman: I've asked Mr. Michael Lauber to join us at the table. I'm not sure exactly what you'd worked out with our clerk, but many of these issues, certainly the tied-selling issue and the privacy issue, are ones that relate directly to your mandate in many ways.

Mr. Michael Lauber (Canadian Bank Ombudsman): What I've prepared is a few remarks to simply explain to the committee what's going on and what we've been doing for the last while.

In the area of privacy and tied selling, as Mr. Protti just said, it's clearly within our mandate to deal with customer complaints relating to both of those areas. Recognize that our position is that we're dealing with the customer's complaint. We are not in the standard-setting or the code-setting area. My job is to deal with the customer's complaint, compare it to good banking practice, compare it to the codes of practice that are adopted within the industry, and to decide the fairness and equity of the situation and from that point make a recommendation as to what should be done with the complaint.

For instance, the privacy code is a document I use as a tool. As with experience, I'm sure in a year or two, as we have more experience - and as you know, we just started looking after the retail area about three weeks ago - we will find some areas we're having trouble interpreting, dealing with, and we will be expressing that back to the banks and perhaps to this committee. So that's where I see we fit in. I think you made the reference to the sin and the ten commandments. We haven't had any sins brought to us at this point, and we haven't got the commandments either. We'll deal with them when they're adopted.

In terms of tied selling, because I knew that would be a focus here today, I did circulate among all of the bank ombudsmen yesterday to see if a tied-selling complaint had been brought to their office since they started up a year ago or so. There's one issue, which was raised out west through a provincial body under the name of tied selling and dealt with on that basis, that was described to me. Personally, I believe if we shared the detail here we would agree it probably was not tied selling, but the issue was dealt with under that name. So with that qualification - there may be one - there probably are no issues of tied selling so far brought to the ombudsmen offices, and none to my office.

The Chairman: Mr. Lauber, I didn't mean to limit the scope of any presentation you wanted to make to us tonight. Were there some other things you wanted to add?

Mr. Lauber: Yes, if you would like. I thought maybe you were going to double back, but I'd be happy to carry on.

Mr. Chairman and members of the committee, thank you for the opportunity to bring you up to date this evening with the affairs of the Canadian banking ombudsman. This committee had a great deal to do with the creation of the office. I thank you for the job. I'm enjoying it very much. It's very satisfying to help people solve their problems.

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The job has its stressful side. As you know, we've been focused on small business up until quite recently. You get issues such as is it fair to intervene in a small business where the loan is being called. There are questions in the business bible. Have they had adequate time? Has the bank given them advice and helped them to restructure?

When you get into these situations, I think you have to sit back and look at it hard. You've got to try to remember that behind every small business there's an owner, there's a family, there's a bunch of employees and their families, and of course there's job creation potential. In some of these cases it's very difficult and there's a lot of stress in solving it, but it's very challenging and interesting.

My constituency is the public. It's not the banks. The main objective of the Canadina banking ombudsman is to resolve complaints about banking services from individuals and small businesses. The aim is to provide an independent and prompt resolution of complaints based on good banking practice and fairness.

Fairness comes in all through the thing. It's not judicial; it's fair. The key features of our process are that we're fair, we're impartial, we're confidential, it's free - and that's important to people - and they don't surrender any future legal rights, so the process is without prejudice.

You have to remember we're an appeal process. You go first to your bank ombudsman; you go through the dispute resolution in the bank and the bank ombudsman. Then you appeal to our office.

Just so you understand, we don't do what I call rate card products, pricing of products and so forth that are general rate card, interest rates and credit cards and so forth. Nor do we deal with the credit policies of a bank. Also, items that are or have been in court we will generally decline. We're not an appeal court.

Almost all bank customers now have access to the Canadian banking ombudsman. We started July 1 to receive complaints from small business. We extended to personal banking on March 1, which is six months ahead of schedule.

We will assist customers with their disputes with the whole bank, if the internal bank ombudsman takes these cases. That will include the trust subsidiary, the securities dealer subsidiary of the bank, or the insurance subsidiary for that matter. All of that is subject to us having to cooperate with other regulatory bodies, such as TSE, OSC and so forth, so the scope is really quite deep into the banks.

In terms of our governance, we are adding two independent directors to our board. This has been a matter of concern in some quarters. We will soon have a board made up of five independent directors and five bank representatives.

In addition to the big six banks, our members include Citibank, Hongkong Bank and Laurentian. And we've just recently added AMEX Bank and Canadian Western Bank to our membership.

I think I mentioned how we would deal with the privacy codes, that we would use those as benchmarks by which to measure the performance of the bank as to whether they met their own standards, the standards of the industry, in making a decision. I think that's very key. We look forward to those.

I've left with the clerk a photocopy of my annual report. It's at the printer right now. That's a final copy you're looking at. If you've been desperately waiting for it, I apologize, but producing your first annual report in two languages with a small staff and anxious complainants calling every time, it's been quite a challenge to put it out.

The report outlines the terms of reference, the process, governance, statistics and some comments. I trust you'll find it informative. All members of the House will be receiving a copy of that next week, in its final form.

A few numbers, highlights. In the year ended October 1996 the bank ombudsmen received 705 small-business complaints. Of those, 44% were resolved to the customer's complete satisfaction. For about another 25% there was a degree of resolution or satisfaction achieved.

Our office received only 18 complaints in the four months we were in operation. We concluded nine of them and recommended the bank take action in two. We had about an additional hundred of what we're calling inquiries, for want of a better term at the moment. On behalf of the people making those inquiries, we sometimes got involved in a form of negotiation with the bank.

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On the personal side, the bank ombudsmen received another 2,700 complaints, in addition to the 705 small-business ones. The banks operated through various periods last year. The ombudsman's office was not in operation through the full year, but it handled about 3,500 complaints altogether.

So far in the first quarter of 1997, the bank ombudsmen have dealt with about 155 complaints. Their offices feel they have resolved 64% of those complaints to the customers' satisfaction.

We have had a quiet period. We've only had another five informal to this point, and another 27 inquiries, whereas the bank ombudsmen had 875 complaints in that period. But the system is maturing. The numbers will probably continue to rise, will stabilize, and then hopefully drop.

In the small-business cases, about 80% are credit related. Of all the cases brought to the bank ombudsmen, 14 of them related to privacy concerns, and our office has just recently received two complaints of a privacy nature.

Going forward, we are going to focus on publicizing the office of the CBO in order to ensure that every banking customer in the country is aware of the processes available through the banks and through our office on an appeal basis. Obviously, we'll be addressing privacy and tied selling if they become issues at our level. We will be doing so, first and foremost, to try to serve the banking customer in a manner that enhances the independence and creditability of the ombudsman process. That's going to be the main focus of the year.

And I'd just add that many members of the House have been in touch with our office. We've helped them with constituency problems, and we're happy to continue to do so.

The Chairman: Thank you very much, Mr. Lauber.

Any questions?

Mr. Schultz: I have a question, Mr. Lauber. You said you haven't had any complaints on tied selling. I'm not sure what your contention is. Is it your contention that it doesn't exist, or is it that people don't come forward to complain about it?

Mr. Lauber: All I know is that no complaints have come to my office.

Mr. Schultz: I find this interesting, although I can't remember your statistics. Obviously on small-business loans, or in cases in which people have difficulty getting loans, you've had something like 2,700 complaints.

In the case of tied selling, what you're doing is giving somebody a loan, and you may coerce him to do something else. I remember that when I started out, I went to the bank with hat in hand. I would have done anything the bank told me to do in order to get the money. When you're in such a position, and if you can get the money, you're not about to complain, snitch or whatever. Obviously, if people don't do it, what have I got to lose? I think that's part of the problem. We have a number of people here from a number of different constituencies, and they're saying this is an issue. That's what I've heard, anyway.

I've heard some people say tied selling doesn't exist. The honourable member there said there is really no evidence of it. Whether those examples I cited were true cases or not, I have files of evidence from people who have left because of coercion. They are our clients, or were our clients. Without their permission, I'm not able to table that information, but there seems to be a question of whether or not it exists. We've probably been here a few times, and believe me, it does exist.

The Chairman: Thank you, Mr. Schultz.

Mr. Schmidt, followed by Ms Brushett.

Mr. Werner Schmidt: I want to say two things. First, I've had occasion to work not with the current ombudsman, but with one of the individual bank ombudsmen, and it did work well. The system does work, but I have to agree with Mr. Schultz that there are some problems.

I also want to ask Mr. Protti if he could explain to me the grounds on which he made the statement that there is no communication between subsidiaries within a bank. I have before me here -

Mr. Protti: It's on health information only.

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Mr. Schmidt: But here's the point: I recently thought about taking out an account with a bank, and I was given an application form. I went through that form and noted that after all of the main information, there's this tiny little paragraph at the bottom. It starts with the name of the bank, and it continues: ``may use this information for the following purposes: to sell its services to the client; to survey the relationship between its subsidiaries and their clients to determine the amount of debt they have outstanding'' - or that you have outstanding, in this case. The name of the operation - which would give the bank away - is then noted, and it says that the operation may use it for any other purpose, about which this particular arm of the bank will inform you in writing.

So I now ask you what that means. Does it not mean that the bank can use any information in whatever way it wants, whether it's the bank itself, whether it's the securities part of the bank's operation, the insurance part of the operation, or the trust part of its operation? Those words were taken directly off the application form. How do you explain that?

Mr. Protti: I'd like to make a comment, but I'd like to take that question under advisement. I'd like to have a look at the application form, and then investigate the matter.

Under our privacy codes, it's quite clear that consumers have ultimate control over their personal information. That's what the code says. It says you can refuse to permit the bank to use the information for any other purposes, including sharing the information with subsidiaries. At any time, you can opt out of allowing the banks to use the information for marketing purposes - and you should have been informed of the way in which to exercise that right.

Mr. Schmidt: Do you know what the next paragraph says after that? It essentially says that the customer may elect to not give the bank permission to give this information to its other subsidiaries, that the customer does have the right to do that. But then it says the bank then has the right to terminate the customer's account within thirty days. It says ``we'', meaning the bank.

The Chairman: Just thirty? I'm sure Mr. Protti would like to see a copy of that.

Mr. Protti: I sure would.

The Chairman: Ms Brushett.

Mrs. Diane Brushett: I have just one comment, Mr. Chairman.

Mr. Schultz, I believe there is coercion, but I can't present any evidence that my constituents have presented to me. I also believe that when we try to define things and put everything into legislation, it doesn't always work.

What is the answer? If you feel so strongly on this issue, what would you recommend to solve the problem of tied selling in the financial sector? Should we revert back to the four pillars of the financial institution?

Mr. Schultz: At a previous session here, we actually did make a specific proposal. I thinkMr. Waisberg was the one who made that proposal, and he is probably more qualified to comment on it. Basically, it would be 459.1(1).

Mr. Werner Schmidt: No, that's enough.

Mrs. Diane Brushett: But would you go beyond that and have more specific definitions of these things? Are you going to stop right there because that will cover it? What governs proof? Do we revert to the Competition Act? How do you go to utilizing evidence and proof in order to prohibit this from occurring?

Mr. Schultz: How do we do it under any legislation? Isn't it the courts that decide?

Mrs. Diane Brushett: I get all kinds of complaints on the Competition Act from businesses. I'm told that it just doesn't work when you have monopolies, oligopolies, and these kinds of things that are just not working with the bundling of products and with coercion and whatever else goes on. The lack of confidence in the ability of the Competition Bureau and the Competition Act to meet the needs of consumers and the public has become very evident in my constituency.

Mr. Schultz: Lots of letters are sent directly to me or directly to our financial advisers, and they concern clients who are moving their accounts. From reading those letters, I think I can make a distinction between what is coercion and what is not, assuming that the individual is telling the story accurately. Individuals can say they really like dealing with us, etc., but in order to get the mortgage or the loan, the bank required that they bring over their RRSPs. That's one thing.

Mrs. Diane Brushett: But how do you then -

Mr. Schultz: No, let me finish here. To me, that is straight coercion.

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The other one is really dealing with whether or not you want to do it, but you might get a better rate if you did bring over a broader base of business. To me, that's cross-selling, not coercion. People can still make the choice. They can say to themselves that they're going to get a better rate there, but when weighed against the quality of advice they're getting at the other institution, they're going to take the higher rate and stay. And if they view the lower rate as being more advantageous than the quality of advice, then they can take the lower rate.

But if it's a case of making them bring their RRSPs over if they want the loan, or if there is no loan regardless of the rate, that's coercion.

The Chairman: Mr. Protti.

Mr. Protti: I just wanted to make the obvious point, Mr. Chairman. There's an awful lot of hearsay commentary here.

I'm glad Mr. Lauber is here, and I'm glad he had an opportunity to speak about the system that's in place. We have a very rigorous system inside the banks, and we have a very rigorous external complaint handling procedure that looks at these issues. In every case, there are two sides to every story. That's why it is enormously important to remember that what is essential for a consumer is to ensure that there is competition in the marketplace.

If consumers feel they are being treated in a disadvantageous fashion by their financial institutions, they can pick up and walk across the street. That's why it's so encouraging that we have over 4,000 companies now involved in the financial services business in this country - and we're going to have more coming up, not less. It's competition that is going to ensure that the consumer gets treated properly. There's not one bank that will stay in business if it treats its customers poorly or badly.

The Chairman: Excuse me for interrupting, but there's a delightful distraction at the back of the room. Member of Parliament Joe Volpe has four people with him from the Forum for Young Canadians. Maybe Joe would be good enough to introduce them to us.

Mr. Joseph Volpe (Eglinton - Lawrence, Lib.): Thank you, Mr. Chairman. I'm glad you took the opportunity to highlight the fact that there are other members of Parliament interested in the deliberations of this committee, and you're quite right: there are four young gentlemen and ladies here who wanted to see how a committee works and how the public accesses the political system. I'm going to let them introduce themselves, and you may see a glow around one of them. That doesn't mean the others don't have it, but you'll notice hers because she's from my riding.

Sarah, do you want to introduce yourself?

Miss Sarah Tsang (Forum for Young Canadians): Hello. My name is Sarah Tsang, and I'm from the riding that Mr. Volpe represents, Eglinton - Lawrence.

Miss Anjlee Patel (Forum for Young Canadians): I'm Anjlee Patel. I'm from Mississauga West, Ontario.

Mr. Adam Brown (Forum for Young Canadians): I'm Adam Brown, and I'm from Stratford, Ontario.

Mr. Matthew Pearson (Forum for Young Canadians): I'm Matthew Pearson, and I'm from Peterborough, Ontario.

The Chairman: Thank you for joining us.

Mr. Volpe: They're all avid bank customers.

Voices: Oh, oh!

The Chairman: Could I get back to business now? I know a lot of you are very busy and have deadlines. Do any members of Parliament or any of our witnesses wish to add anything to what has been said tonight?

I'll try to summarize very quickly. Some issues have been resolved before us. The outstanding ones were, as presented by Mark Daniels, the idea of insurance companies being able to transfer policies from federally regulated to provincially regulated companies; from Mr. Protti, the issue of non-bank affiliates of foreign banks - and it might be possible to resolve this during the entry regime, but there's a traditional period that you talked to us about and that we have to look at; and from the CBA, the CDIC opt-out in cases where the bank has a wholesale and a retail arm - and we have not achieved consensus on that. And on the issue of tied selling, we are all ad idem - we don't know where we are.

The banks certainly expressed strong opposition to taking out subsections (2) and (3). The banks don't particularly like the provision, and would prefer a self-regulatory regime. Mr. Schultz, Ms Brown, and Mr. Yakabuski were very strongly in favour of a regime that takes subsections (2) and (3) out of it.

So those are all issues that we will still have to resolve.

I apologize to you for the prolongation of our hearings. I guess it's getting near the end of the session, and people play silly games in the House. That took up some of our time, and you have been the victims of it.

On behalf of all members of the committee, I thank you for having made the effort to be here, and for having been here since at least 3:30 so that we could conclude by 7:45.

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We have some work to do. We are not going to be able, as we had hoped, to do the clause-by-clause on this bill tonight. We will not get second reading, I am told, until we come back after the two-week break. This is because we lost a whole day in the House of Commons because of motions about...

The plea that all of you have made to us is that we proceed quickly. We will do our level best to make sure this bill is dealt with in the first week after we come back. I hope this committee will sit the day after this bill is finally approved at second reading in the House of Commons, and we will give it final approval.

Meanwhile, I encourage you, if you have ongoing concerns... I know discussions will be undertaken with officials. I want to say I'm very grateful to the officials who have worked incredibly hard with us. We have not always been able to give them clear direction, but they have been wonderful to work with and you can tell by looking at them that they're all exhausted. I think they were hoping as much as we were that we would have a bill tonight.

We have a couple of weeks more to work with you, but it is my commitment to you that the moment we get that bill out of the House of Commons, within 24 hours - with your permission - we will pass it.

On behalf of all members, I thank you again for coming before our committee and working with us in such a constructive way.

We are adjourned.

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