Flaherty pressed about changes to Bank Act (Globe and Mail)
TARA PERKINS GRANT ROBERTSON GREG KEENAN
From Wednesday's Globe and Mail
Published
Last updated
Canada’s banks are asking the federal government for a broad review of the financial sector in the wake of a global economic crisis, and are pushing for new powers – including the right to get into the auto leasing business.
In submissions to the federal Finance Department, the banks say the past three years have led to numerous piecemeal regulatory changes that now must be looked at more closely. In particular, the banks indicate that changes such as new credit card regulations and a clampdown on the ability to sell insurance online have been done with little consultation between Ottawa and the industry.
The government reviews the Bank Act every five years, and Finance Minister Jim Flaherty made it clear that this time around he only wants to deal with technical issues – smaller items such as the rules on how electronic signatures work – rather than contentious matters such as whether banks can sell insurance from their branches.
However, some banks want several other pressing matters put on the table, pushing Ottawa to carry out a full-scale review of the financial sector once the technicalities have been dealt with.
“It is a technical review, so we made technical recommendations. But we had the opportunity to say while you’re thinking about these things, think about these other things as well,” said Terry Campbell, vice-president of policy at the Canadian Bankers Association.
In particular, the banks are seeking the right to get into the auto leasing business in the wake of upheaval in the auto sector in recent years that led to a steep drop-off in financing for new cars. Banks can offer car loans to consumers, but they are barred from leasing through dealerships, one of the last lines of business they have been prevented from entering.
“If you look at what happened in 2008 and 2009 in auto leasing, there was tremendous disruption, some people either pulled out of the market or curtailed their activities,” Mr. Campbell said. “Consumers didn’t get choice in terms of the options that they would have had available before that ... dealers didn’t have the financing options to help them move automobiles, and the manufacturers didn’t have the full range of financing options to help them sell their cars.”
The banks and the auto industry have battled for three decades, with auto makers and dealers standing shoulder to shoulder in opposition to letting the banks in. But the landscape changed during the credit crisis, when several auto makers all but abandoned leasing and some lost their so-called captive finance companies, which was how they participated in leasing.
Auto makers, including Mazda Canada Inc., are now in favour of letting the banks into the leasing business, while others, such as General Motors of Canada Ltd., say they will no longer oppose such a move.
The Canadian Automobile Dealers Association, however, has vowed to fight any move to let the banks in, arguing in part that it's a conflict of interest to allow banks that are financing dealer operations to compete with them in the leasing of vehicles.
Individual dealers argue that the banks will promote one-stop shopping, where they will offer to finance a lease for a customer and offer other products such as insurance. “Over the last two years, every time the dealers needed solid help from their bankers, the bankers were missing in action,” said Huw Williams, a spokesman for the Canadian Automobile Dealers Association.
The banks point out to Ottawa that the Canadian financial system has withstood the recent global credit crisis, but changes are still needed. Royal Bank of Canada tendered its own submissions to Mr. Flaherty’s office, while other banks, such as Bank of Montreal and Toronto-Dominion Bank, collaborated with the CBA on its 40-page list of suggestions.
Sources inside the industry say the banks felt blindsided by several changes the government made on consumer issues – such as barring them from selling insurance online and introducing new credit card regulations. Those moves were done with little communication from the government, they contend.
Some bankers say Ottawa has little appetite for another acrimonious Bank Act review. A broad rethink of the system would inevitably bring back a number of political hot potatoes. It would also reignite the bitter feud over banks selling insurance from their branches and websites.
Banks are now required to keep their insurance businesses separate from their retail branch operations.
The banks want the issue of selling insurance to stay on the table, even if it isn’t addressed in this technical review. However, the insurance industry remains opposed.
“From our perspective, whether it’s an expanded or technical review, the principle we’re concerned about is that credit-granting institutions ought not sell insurance at the point of granting credit,” said Dan Danyluk, chief executive officer of the Insurance Brokers Association of Canada “The Bank Act really stipulates banks should not be in the business of insurance, with some exceptions.”
The banks are also pushing for a way to measure and track financial literacy in Canada, something that has been flagged as a potential problem in the decades ahead. An annual survey could help gauge how well Canadians are planning for their retirements or dealing with household debt, so that Ottawa knows where Canadians need more insight, the banks suggest.
“The government should consider the setting of a target level for financial literacy ... through the establishment of an index, and then measure against the index annually through public opinion research.”
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